Pakistan accounts for nearly half of the people living below the $3-a-day poverty line across the Middle East, North Africa, Afghanistan and Pakistan region, with prolonged economic adjustment, high inflation and weak employment opportunities contributing to a deterioration in household living standards.
In its latest regional report, the World Bank said Pakistan accounted for around 48 per cent of the region’s population living below the $3-a-day poverty threshold, equivalent to approximately Rs840 in daily income. Afghanistan, Syria and Yemen, three countries affected by prolonged conflict and instability, together accounted for another 47 per cent of the region’s poor population.
The report highlighted the growing challenge of poverty in Pakistan despite efforts to stabilise the economy through fiscal consolidation and monetary tightening. It noted that poverty reduction across the region had stalled around 2019 and subsequently reversed following the Covid-19 pandemic.
The World Bank estimated that Pakistan’s poverty rate at the $3-a-day threshold increased by 6.4 percentage points between 2018-19 and 2024-25. At the $4.20-a-day threshold, the poverty rate rose by 3.2 percentage points during the same period. The increase followed a succession of adverse economic and environmental shocks, including the pandemic, the devastating floods of 2022, a macroeconomic crisis characterised by high inflation and currency depreciation, and a prolonged period of economic adjustment that weakened real household incomes and employment opportunities.
The report said the most recent estimates showed that poverty rates at the $3-a-day threshold approached or exceeded 20 per cent in Djibouti, Pakistan, Syria and Yemen. The findings raise concerns about the social costs of Pakistan’s prolonged economic stabilisation efforts under successive International Monetary Fund programmes. Although these measures have helped address fiscal and external imbalances, economic growth has remained subdued, while poverty and unemployment continue to place pressure on households.
The World Bank projected Pakistan’s overall economic growth at 3.8 per cent for the current fiscal year, 2026-27, with inflation expected to average 8.2 per cent. However, after adjusting for population growth, real GDP growth is projected at 2.2 per cent, only marginally higher than the 2.1 per cent estimated for the previous fiscal year.
The distinction is significant because overall economic growth does not necessarily translate into a comparable improvement in living standards. When population growth absorbs much of the increase in national output, the gains available to individual households remain limited, particularly if employment creation and real wages fail to keep pace.
The World Bank also projected a current account deficit equivalent to 0.8 per cent of GDP and a budget deficit of 3.5 per cent of GDP during the current fiscal year. While these indicators suggest that external and fiscal pressures remain within potentially manageable limits, the broader challenge is to ensure that macroeconomic stability supports stronger economic activity and better living standards.
The report further warned that governments across the MENAAP region were facing simultaneous demands to protect households from rising prices and respond to humanitarian needs arising from regional conflicts. Pakistan has introduced targeted assistance for fuel and agriculture, but continued increases in energy costs threaten to undermine the effectiveness of such measures.
According to the World Bank, petrol prices have risen by 40 per cent or more in Lebanon, Pakistan, Syria and the United Arab Emirates since the start of the Middle East conflict. Diesel prices have increased by more than 80 per cent in Lebanon and nearly 70 per cent in the UAE, while increases in Pakistan and the West Bank and Gaza have exceeded 40 per cent.
For Pakistan, which depends heavily on imported petroleum, higher international prices can have far-reaching consequences. They raise transportation and production costs, increase inflationary pressures and place additional demands on public finances when the government attempts to cushion consumers from the full impact of price increases.
The report identified Pakistan, along with Djibouti, Egypt, Jordan, Morocco and Tunisia, among the oil-importing economies exposed to the continuing regional crisis. The risks extend beyond higher energy prices to include declining remittances from Gulf economies, reduced fiscal space and increased borrowing costs, partly reflecting higher insurance risks associated with the conflict. These pressures could complicate Pakistan’s efforts to sustain economic recovery while protecting vulnerable households. Any decline in remittance inflows would be particularly concerning because overseas workers’ transfers provide a major source of foreign exchange and support consumption among recipient families.
The World Bank also drew attention to Pakistan’s weak performance in business innovation, identifying a significant gap between domestic firms and their counterparts in other lower-middle-income economies. According to the report, only 3 per cent of firms in Pakistan introduced a new product or service during the preceding three years, while just 1 per cent reported process innovation. These figures compare unfavourably with lower-middle-income-country averages of 23 per cent for product innovation and 14 per cent for process innovation.
The findings suggest that Pakistan’s private sector faces difficulties in moving towards higher productivity, developing new products and adopting more efficient production methods. Limited innovation can constrain competitiveness, weaken export performance and reduce the economy’s capacity to generate higher-skilled employment.
The report also examined the use of artificial intelligence across the region. Pakistan recorded the highest absolute number of AI-related conversations in the region, but usage was concentrated in arts and media-related activities, including graphic design, content creation and translation, rather than software development.
This pattern may partly reflect Pakistan’s substantial presence on international freelance platforms, where demand for such services remains significant. However, the concentration of AI use in a limited range of occupations also points to the need for broader adoption of digital technologies across industry and other productive sectors.
Across the region, demand for AI remained concentrated in occupations forming the technical core of the economy. The share of job postings requiring digital skills increased substantially between 2021 and 2025 in almost all MENAAP countries, with double-digit percentage-point gains in Bahrain, Lebanon, Pakistan and Saudi Arabia.
Despite this progress, the World Bank identified gaps in the infrastructure needed to support wider digital adoption. Internet use in many MENAAP economies was higher than their income levels would suggest, but uneven broadband coverage and inadequate electricity access continued to limit the physical foundations for AI adoption. Pakistan was among eight countries in the region with mobile broadband subscription levels below those of income peers, alongside Djibouti, Egypt, Iraq, Jordan, Oman, Syria and Yemen.
The findings present Pakistan with a dual challenge. It must address immediate pressures arising from poverty, inflation and external economic shocks while also improving productivity, innovation and digital infrastructure to create a stronger foundation for long-term growth.
Economic stabilisation remains important, but the World Bank’s assessment underscores that its benefits must eventually reach households through better employment opportunities, stronger real incomes and improved access to productive economic activities. Without progress on these fronts, improvements in headline economic indicators may have limited impact on the daily lives of millions of Pakistanis.