With the national economy sinking on a daily basis and prices of essential items skyrocketing, poverty levels have risen alarmingly in the last one year.

According to the World Bank and other international financial bodies, as of 2023, poverty is expected to reach 37.2 percent in terms of 2017 purchasing power parity. Taking into account the high rate of population growth, there are almost 3 million more poor people in the country today as compared to 2018. In the absence of higher social spending, the lower middle-income poverty rate is expected to increase further in FY23. Given poor households’ dependency on agriculture, and small-scale manufacturing and construction activity which are shrinking, they remain vulnerable to economic shocks.

The factors behind this gloomy outlook include a deteriorating labor market, lower remittances, escalating prices, and last year’s floods which led to a decline in household incomes. Due to low social spending, all these factors have combined to further reduce the incomes of low income groups. Poverty is also rising because of a structurally low labor force participation rate and the scarcity of highly productive jobs. Over 40 percent of the employed population works in agricultural jobs with low productivity. This is why rural poverty rates are twice the urban ones.

According to experts, non-monetary dimensions of poverty have also worsened as a consequence of the ongoing economic crisis. With declining incomes, people have less access to nutritional food, which undermines their earning capacity. What is worse, the current combination of various negative factors is likely to lead to an exponential jump in the number of unemployed and the poor in the country. It is also apprehended that the increases will be larger than ever seen before. It is said that a 1% drop in the size of the GDP means that there could be a disproportionate drop in employment, especially since the more labour-intensive sectors are likely to be impacted more, including agriculture, construction and wholesale and retail trade.

The level of employment in 2022-23 is projected at 67.3 million, showing a drop of 0.6 million from the likely level of 67.9 million in 2021-22. The labour force is currently estimated at 75.3 million. This means that 8 million workers will be unemployed in 2022-23. The number of unemployed will increase by over 2 million during the year and the unemployment rate will approach 10% for the first time in the country’s history. Therefore, in the face of a fall in real per capita income of over 3% in 2022-23, faster increase in food prices of at least 10 percentage points and higher income inequality due to a bigger increase in unemployment of less skilled workers, there is likely to be a big increase in the incidence of poverty in Pakistan in 2022-23. Another estimate says that the additional number of people who will fall below the poverty line during the year could approach 18 million. In particular, the number of idle male youth is likely to approach 8 million.

Available statistics show that Pakistan made good progress towards reducing poverty between 2001 and 2018 when the expansion of off-farm economic opportunities and increased inflow of remittances allowed over 47 million Pakistanis to rise out of poverty. But this rapid poverty reduction was not fully translated into improved socio-economic conditions, as human capital development remained stagnant, with high levels of stunting at 38 percent and learning poverty at 75 percent.

What lies ahead? The prospects for the future do not seem encouraging. At present Pakistan’s economy is under severe stress with low foreign exchange reserves, a depreciating currency, and high inflation. Economic growth is expected to remain below potential in the medium-term. Real GDP growth is expected to slow sharply to 0.4 percent in FY23 due to high energy prices and import controls. Agricultural output is expected to contract for the first time in more than 20 years. Industry output is also expected to shrink with supply chain disruptions, higher borrowing costs and fuel prices, and continuing political instability. Pakistan’s economic growth is expected to “slow significantly” in the current fiscal year, the Asian Development Bank (ADB) said in a report.

There is a consensus of opinion among experts that the government must move quickly to control the poverty wave which could easily degenerate into widespread social unrest and anarchy. The remedial measures should include abolition of taxes on food items and launching of large infrastructure projects to provide jobs to people. Equally important is the need to cut all unnecessary government expenditure and open ended perks like free fuel and other subsidies to civil and military officers. This will lead to saving billions of rupees which can be diverted to improve the lot of poor sections of the population.