Pakistan’s Alarming Descent: Over 12.5 Million Plunge Below Poverty Line in One Year

In a stark revelation, the World Bank has sounded the alarm bells for Pakistan, indicating a dire economic crisis. Over the past year, more than 12.5 million Pakistanis have fallen below the poverty line, pushing the poverty rate from 34.2% to a staggering 39.4%. This means that nearly 40% of the country’s population is now struggling to meet their basic needs, with an income of just $3.65 per day. This article delves into the factors contributing to this crisis and explores potential solutions to steer Pakistan towards financial stability.

The Economic Landscape

A Year of Precipitous Decline

The sudden increase in poverty is nothing short of catastrophic. It signifies that millions of Pakistanis are unable to afford even the most basic necessities of life. This rapid decline is a cause for concern and demands urgent attention.

Inflation and Fuel Prices: A Double Whammy

One of the key contributors to this economic turmoil is the historically high inflation rate and soaring fuel prices. The Pakistan caretaker government recently raised the prices of petrol and high-speed diesel, surpassing PKR 330 per liter for the first time in history. The price of petrol alone surged by PKR 26.02 per liter, and high-speed diesel saw an increase of PKR 17.34 per liter. These hikes have far-reaching implications, especially for the average citizen.

Criticisms from Business Leaders

Business leaders in Pakistan have voiced their concerns about the significant increase in petroleum prices. They argue that this will exacerbate inflation and create challenges for industries due to the high cost of doing business. The combination of rising fuel costs and recent hikes in electricity rates has put immense pressure on the average household.

The Grim Statistics

A Disturbing Reality

Today, approximately 95 million Pakistanis find themselves living in poverty. This dire situation is further compounded by Pakistan’s status as the South Asian country with the lowest per capita income and the highest number of out-of-school children globally.

A Decades-Long Struggle

The World Bank highlights a grim statistic: Pakistan’s average real per capita growth rate between 2000 and 2020 was a mere 1.7%, less than half the average per capita growth rate of 4% for South Asian countries. The country has transitioned from having one of the highest per capita incomes in South Asia during the 1980s to one of the lowest today.

The Call for Change

A Time for Policy Shifts

Tobias Haque, the World Bank’s lead country economist for Pakistan, asserts that the nation is at a critical juncture, facing significant economic and human development crises. He emphasizes that major policy shifts are imperative at this stage.

The Need for Reform

Najy Benhassine, the country director for Pakistan at the World Bank, echoes this sentiment. He points out that Pakistan’s economic model is no longer effective in reducing poverty, and living standards have fallen behind peer countries. Benhassine emphasizes the need for substantial policy changes to address these challenges.

Recommendations for a Brighter Future

Taxation and Fiscal Responsibility

In its draft policy notes for Pakistan’s next government, the World Bank outlines several recommendations to stabilize the economy. These include immediate steps to tax agriculture and real estate and cut wasteful expenditures. Increasing the tax-to-GDP ratio by 5% and reducing expenditures by 2.7% of GDP are key measures to restore fiscal stability.

Revenue Enhancement

The World Bank emphasizes the importance of improving the revenue-to-GDP ratio by 5%. This involves withdrawing tax exemptions and shifting the tax burden towards the real estate and agriculture sectors, both of which have been heavily subsidized.

Structural Changes

The World Bank suggests mandatory use of Computerized National Identity Cards (CNIC) for transactions, particularly related to assets. Furthermore, it advocates reducing energy and commodity subsidies, implementing a single treasury account, and introducing temporary austerity measures in the short term.

Fiscal Prudence

For the medium term, the World Bank proposes reducing federal development and current expenditures on provincial projects, cutting spending on loss-making entities, and enhancing the quality of development spending.

The Impact

Collectively, these short- to medium-term measures can result in savings equivalent to 2.7% of GDP, according to the World Bank. Additionally, substantial savings can be achieved through the devolution of the Higher Education Commission and cost-sharing of the Benazir Income Support Programme with the provinces.

The Inflation Conundrum

The IMF Bailout

Pakistan’s inflation rate surged to a staggering 27.4% in August, following a $1.2 billion disbursement from the International Monetary Fund (IMF) in July. This bailout, part of a $3 billion program, was intended to stabilize Pakistan’s ailing economy. However, the impact on inflation has been severe, placing immense pressure on the country’s already vulnerable population.

Conclusion

Pakistan stands at a crossroads, grappling with an escalating poverty crisis and economic challenges. Urgent and comprehensive reforms are required to reverse the alarming trend of increasing poverty rates. The recommendations put forth by the World Bank provide a roadmap for policymakers to navigate these troubled waters and work towards a more stable and prosperous future for Pakistan.

FAQs

1. What led to the sudden increase in poverty in Pakistan?

The increase in poverty in Pakistan can be attributed to a combination of factors, including high inflation, rising fuel prices, and economic instability.

2. How does Pakistan’s per capita income compare to other South Asian countries?

Pakistan currently has one of the lowest per capita incomes in South Asia, a stark contrast to its position in the 1980s when it had one of the highest per capita incomes in the region.

3. What are the key recommendations of the World Bank for addressing Pakistan’s economic challenges?

The World Bank recommends immediate steps to tax agriculture and real estate, reduce wasteful expenditures, and improve the revenue-to-GDP ratio. These measures aim to restore fiscal stability.

4. How has the recent IMF bailout affected Pakistan’s inflation rate?

Following the IMF bailout, Pakistan’s inflation rate soared to 27.4% in August, placing significant economic pressure on the population.

5. What is the outlook for Pakistan’s economy in the near future?

Pakistan’s economic outlook remains uncertain, but implementing the recommended reforms is crucial to achieving stability and reducing poverty in the country.