Despite the government’s tall claims of economic recovery, poverty is on the increase in Pakistan. According to a recent report by the World  Bank, as compared to 2023, povery in the country has risen by 0.3 per cent to 40.5pc in FY24. This means about 100 million out of 240 million plus Pakistanis are living on less than $3.65 per day as per the purchasing power parity of 2017. In simple terms, 100 million Pakistanis cannot use their daily income to buy today with what they could have bought with $3.65 in 2017. Hence, they are considered poorer today.

Worse still, the World Bank 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), World Bank officials also warned that despite some nascent economic recovery, risks were very high for Pakistan in case of  structural reforms backsliding.

The bank has projected inflation at 11.1pc in FY25 and 9pc in FY26 and estimated that the current account deficit will  widen from 0.2pc in FY24 to 0.6pc in FY25 and further to 0.7pc in FY26. Foreign exchange reserves are forecast to grow with IMF inflows and new external financing, but the fiscal deficit will swell to  7.6pc in FY25 and then slow down to 7.3pc in FY26.

On the other hand, debt is projected to increase in the medium term to 73.8pc of GDP in FY25 and to 74.7pc in FY26. In the opinion of the bank, the overall economic outlook remains gloomy and living standards will not improve for most Pakistanis because the country’s growth potential has declined for decades.

There are many factors behind the uptick in the poverty rate. These include slow economic growth, high inflation, reduced public investment spending and a decrease in the real value of social protection benefits. High prices of articles of daily use also add to the poverty metrics.

The way out of the deepening crisis is a strong official commitment to undertake long overdue structural reforms to pave the way for fast and sustainable growth. Measures are needed to reform 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 reform the energy sector.

It may be added here that the sharp fiscal contraction, primarily through development cuts, subsidy reforms, import controls and capital controls under the IMF’s standby arrangement, stabilized the economy but these steps negatively impacted growth and investment in the country and pushed more people below the poverty line. The economy is in recovery mode with real GDP growth expected to reach 2.8pc in FY25 and 3.2pc in FY26. But in the opinion of experts, output growth would remain below potential over the medium-term as tight macroeconomic policy, elevated inflation, and policy uncertainty continue to weigh on economic activity. This means faster growth will be needed to support significant improvements in living standards.

A major challenge is to reform the energy sector. Power sector distribution companies (Discos) need to perform better than pursuing technical and distribution loss targets to address ever-rising circular debt. Nepra had set an 11.7pc target for losses that are monetised in tariff, but they are actually incurring 16.45pc losses on average, and their billing recoveries hover  around 90pc. These two factors alone translate into more than Rs1 trillion a year as a 1pc loss worked out at about Rs40bn.

To combat poverty more attention needs to be given to expand the social safety net like the Benazir Income Support Programme to help extremely poor people whose daily income is currently below $2.15, or a little over 600 Pakistani rupees. But, reducing overall poverty or enabling people to earn a daily income higher than $3.65 is not possible without creating more jobs and without ensuring sustained economic growth through productivity gains.

For this the government should take urgent steps to revive th moribund industriale sector with the objective of creating more jobs  and enabling export-oriented industries to export more at a higher per unit price. In the last two years Pakistan’s industrial sector  shrank 3.7pc,  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. In short, implementation of planned structural policy reforms is the key to revive the economy and reduce poverty on a sustainable basis.