Poverty in Pakistan has surged to an eleven-year high of 29 percent, while income inequality has climbed to a twenty-seven-year peak of 32.7 percent. As a consequence, more than 70 million Pakistanis are now living below the monthly poverty line of Rs8,484, according to a Planning Ministry survey released last week.
Various estimates further reveal that real monthly household incomes have declined by 12 percent since 2019, falling from Rs35,454 to Rs31,127 in FY2024–25. This erosion of purchasing power has reversed the poverty reduction trend for the first time in thirteen years, marking a deeply troubling shift in the country’s socio-economic trajectory.
It is also pertinent to note that the latest Labour Force Survey places unemployment at a twenty-one-year high of 7.1 percent. Meanwhile, the investment-to-GDP ratio has stagnated at 13.8 percent in FY2025, a clear indication of an economy struggling to generate momentum. These figures collectively portray an economy in regression, unable to create sufficient jobs or sustain inclusive growth. The alarming economic situation confronting the country is closely linked to the policies currently being pursued by the government.
Over the past several years, a number of multinational corporations have exited Pakistan, while many domestic enterprises have either scaled down or suspended their operations under mounting economic pressures. These pressures stem largely from a sharply contractionary policy framework shaped by IMF prescriptions, including subsidy withdrawals, elevated interest rates, rising energy tariffs, and an increasingly burdensome tax regime. As the economy’s job-creating capacity has been severely constrained, unemployment has risen, reinforcing a vicious cycle in which joblessness depresses incomes and pushes more households below the poverty threshold.
A significant constraining factor remains Pakistan’s persistent dependence on the IMF, whose policy framework is widely perceived as anti-growth and anti-poor, carrying heavy social costs. However, it would be disingenuous to attribute the entire crisis to external pressures alone. IMF programme or not, the country’s economic managers share substantial responsibility for the hardship faced by millions. Their failures include the inability—or unwillingness—to implement a genuinely progressive tax regime and broaden the tax base in a manner that enables income redistribution from the affluent to the underprivileged, thereby promoting social stability. The continued reliance on indirect taxation, which disproportionately burdens lower-income groups, coupled with the consistent exclusion of influential sectors from the tax net, reflects deliberate domestic policy choices. These shortcomings are compounded by insufficient efforts to rationalise and reduce unproductive current expenditures.
Another major factor behind the prevailing economic stagnation is Pakistan’s inability to attract meaningful levels of foreign direct investment (FDI). While the government has repeatedly declared foreign investment to be central to its growth strategy and established the Special Investment Facilitation Council (SIFC) to streamline decision-making at federal and sectoral levels—with representation from both military and civilian leadership—the tangible outcomes remain limited.
Exports, which constitute the lifeblood of any sustainable economy, have remained largely stagnant for years, with no clear signs of substantial improvement. Recent reports indicate that Pakistan’s trade deficit with nine regional countries has widened by 41.32 percent. China remains the dominant trading partner, with exports to China recorded at USD 1.467 billion in 2025—slightly lower than the previous year’s USD 1.482 billion—while imports surged to USD 11.097 billion, compared to USD 8.907 billion the year before. This widening imbalance between exports and imports exacerbates the current account deficit, which is routinely financed through borrowing from bilateral and multilateral lenders. Consequently, Pakistan’s public debt has climbed to unsustainable levels, with debt servicing consuming a substantial share of annual government revenues and crowding out development spending.
Foreign investment inflows remain significantly below those of comparable regional economies. Despite numerous overseas visits by Prime Minister Shehbaz Sharif aimed at securing foreign capital, the results have been disappointing. Although the government has signed Memoranda of Understanding worth an estimated USD 25–30 billion, actual inflows tell a different story. According to State Bank of Pakistan data, total foreign investment declined by 51 percent during July–January 2025–26 compared to the same period the previous year, falling from USD 1,429 million to USD 694 million. The reasons are evident: investors seek predictable, stable, and low-risk environments, conditions that Pakistan has struggled to consistently provide. This assessment is reinforced by international credit rating agencies, which have yet to assign Pakistan an investment-grade rating.
To revive economic growth and effectively combat rising poverty, Pakistan must adopt a fundamentally new policy framework—one that departs from the prevailing elitist model marked by widening inequality and concentrated privilege. Fiscal discipline must begin at the top, with decisive curtailment of wasteful expenditures and a strategic reallocation of resources toward industrialisation, productivity enhancement, and export-led growth. Without such structural reforms and a genuine commitment to inclusive development, the country risks remaining trapped in a cycle of stagnation, dependency, and recurrent external borrowing.