Pakistan is grappling with a severe poverty crisis, as indicated by recent government data. The country is not only experiencing a rise in monetary poverty, with rates climbing from 21.9 percent in 2018–19 to 28.9 percent in 2024–25, but it is also confronting what is termed as “institutional poverty.” This form of poverty points to the lack of robust, predictable, and resilient institutions that safeguard incomes, foster opportunities, and buffer against shocks, according to a new report from Business Recorder.
The report highlights that rural poverty in Pakistan has surged beyond 36 percent, while urban poverty has surpassed 17 percent. Additionally, the national Gini index has escalated from 28.4 to 32.7, with certain provinces, particularly Sindh, witnessing more pronounced deteriorations. The Planning Commission of Pakistan’s findings reveal a scenario where nominal incomes have increased, but real incomes have declined due to inflation outpacing earnings. Moreover, there has been a widening gap in inequality among provinces, coupled with heightened susceptibility to macroeconomic instability and climate-related shocks.
Institutional poverty in Pakistan is manifested through various channels, including policy volatility, inadequate formalization of labor, fragile local governance structures, the absence of automatic stabilizers in social protection, and planning devoid of accountability. The report emphasizes that a significant portion of the workforce in Pakistan operates informally, lacking formal contracts, insurance coverage, or avenues for enhancing productivity. Furthermore, district-level institutions responsible for service delivery are described as administratively feeble and heavily reliant on fiscal support.
The report calls for critical reforms, such as revising energy tariffs to incorporate predefined compensatory measures for the lower income segments and establishing institutionalized agricultural shock insurance instead of relying on external donors. It also suggests transitioning from traditional Five-Year Plans to more adaptive resilience frameworks that encompass aspects like macroeconomic stability, labor market dynamics, climate resilience, and inequality monitoring.
A recent assessment has raised concerns that Pakistan has ensnared itself in an “economic trap” by prioritizing short-term expatriate remittances and foreign aid over sustainable development initiatives. Despite remittances constituting nearly 10 percent of the GDP and rivaling export earnings, underlying issues persist within the economic system, including dormant industrial facilities, high joblessness, and suboptimal utilization of the workforce.
