The December 2024 Economic Update and Outlook, a monthly publication of the Finance Division, paints an optimistic picture of the economy, citing a decrease in inflation, a surplus current account and higher remittances. But, on the other hand, the World Bank reports a 7 percent increase in the poverty rate in Pakistan.

According to the government, “macroeconomic fundamentals have strengthened, marked by a further deceleration in Consumer Price Index (CPI) inflation with stable food prices, effective fiscal consolidation resulting in fiscal surplus, a current account surplus supported by increased exports and remittances, and an accommodative monetary policy.” The official claim is that there has been a deceleration in the Sensitive Price Index as evidenced by a significant fall in the prices of items of daily use. More bank credit to the private sector is helping industrial and agricultural production, giving a boost to exports. Remittances have touched a historical high, while fiscal deficit has been contained within the given limit.

But the government’s claims of economic recovery fly in the face of the latest World Bank report titled “Poverty Projections for Pakistan” which says that in 2024 the poverty rate in the country was 25.3 percent, up by 7 percentage points from 2023 pushing an additional 13 million people into poverty. To quote the World Bank, “within the projected increase in poverty, poor households face disproportionately higher welfare losses and get pushed deeper into poverty.” The report highlights the increase in the rate of poverty, based on household consumption, changes in labour markets, inflation, social transfers and remittance

It is relevant to recall here a World Bank report last year which estimated lower middle income poverty at 40.5 percent (3.65 dollars per day in 2017 purchasing power parity) for fiscal year 2024 with an additional 2.6 million falling below the poverty line from the year before. The World Bank further says that even the 2.8pc and 3.6pc economic growth rate projected for the current and next year is insufficient to reduce poverty levels and improve living standards of the bulk of the population in Pakistan. At the launch of the Pakistan Development Update (PDU), the World Bank officials also warned that despite some nascent economic recovery, risks were very high for Pakistan in case of structural reforms backsliding.

The deteriorating poverty situation calls for urgent remedial measures to improve the quality of life of the bulk of the population. One way to do this would be to raise the budgeted amount for the Benazir Income Support Programme (BISP) by slashing current expenditure and curtailing misuse and wastage of public funds.

The government should also immediately undertake long overdue structural reforms to pave the way for fast and sustainable growth. Measures are needed to revamp the existing inequitable and distortive tax system, reduce wasteful administrative expenditures and untargeted subsidies, privatise loss making state enterprises, remove barriers to trade and investment, and ginger up the energy sector.

The last few years’ fiscal contraction, primarily through development cuts, import controls and capital controls under the IMF’s standby arrangement, negatively impacted growth and investment in the country and pushed more people below the poverty line. In the opinion of experts, output growth would remain below potential over the medium-term as tight macroeconomic policy and policy flip-flop continues to hobble economic activity. A primary need is to form the energy sector. Power sector distribution companies (Discos) need to perform better to address ever-rising circular debt. In this regard, transmission losses should be reduced to the minimum and power theft  eliminated completely by awarding deterrent punishment to those causing heavy losses to the exchequer.

In the long term poverty can be reduced by reviving the industrial sector which has been moribund for the last more than a decade. In the last two years Pakistan’s industrial sector shrank 3.7 percent, according to the latest World Bank estimates. The industrial sector has suffered for many reasons, including economic instability and policy inconsistency, energy crisis, infrastructure bottlenecks, lack of investment and technological advancement and low levels of ease of doing business. These issues need to be resolved expeditiously so that the wheels of industry can whirl again for rapid economic growth. Rising industrial production not only means supply of more goods for exports but also creates more job opportunities for the people. Another priority sector is agriculture which is the largest employer in the country. This sector which has been neglected for long can be our most potent tool to combat poverty if we invest in it properly to meet its essential input needs.