ISLAMABAD: The poverty rate in Pakistan is estimated to stand at 42.4 percent in fiscal year 2025, with population growing at nearly 2 percent annually, this translates to 1.9 million additional people falling into poverty this year, says the World Bank.

The bank in its “Poverty & Equity Brief”, noted that despite a stabilising economy and easing inflation, Pakistan’s 2.6 percent economic growth remains insufficient to reduce poverty.

The poverty rate is estimated to stand at 42.4 percent (US$3.65/day 2017 PPP) in fiscal year 2025, virtually unchanged from last year. With population growing at nearly 2 percent annually, this translates to 1.9 million additional people falling into poverty this year. Consumption-based inequality, as measured by the Gini Index, has climbed nearly 2 points since fiscal year 2021, holding steady just below 32 over the past year. However, actual inequality is likely higher since surveys typically under-represent wealthy households.

Additionally, external factors such as evolving global trade dynamics could influence the pace of economic recovery and subsequent progress on poverty reduction. Following agricultural growth in fiscal year 2024, the sector now faces significant challenges.

In first half (H1) of fiscal year 2025, weather conditions deteriorated with a 40 percent reduction in rainfall, along with pest attacks and shifting production choices. Crop yields are projected to decline, ranging from 29.6 percent for cotton to 1.2 percent for rice, limiting sectoral growth to fewer than 2 percent.

With agriculture employing approximately half of the working poor, rural poverty is expected to rise slightly (0.2 percentage points), while real incomes for agricultural workers are projected to fall 0.7 percent in fiscal year 2025.

Food security concerns loom large, with an estimated 10 million people at risk of acute food insecurity in rural areas. Fiscal tightening has restricted development spending, undermining the construction industry that employs 17 percent of the poor in daily wage jobs.

Both industrial and service sectors showed weak growth in H1 fiscal year 2025, resulting in minimal real income increases for poor and vulnerable workers in construction (-1.4 percent) and low-productivity service jobs (0.7 percent).

While nominal daily wages for low-skilled workers nearly doubled between fiscal year 2019 and Q1 of fiscal year 2025, real wages remained flat or declined slightly, indicating eroding purchasing power, despite inflation easing to 7 percent year-over-year in H1 fiscal year 2025.

External remittances surged by 33 percent in H1 fiscal year 2025, but the impact on the poorest remains limited as only 3.2 percent of lowest-income households receive remittances. However, for the vulnerable households just above the poverty line, remittances play an important role in preventing households from falling into poverty in the face of shocks. Rising emigration since 2020, particularly among low-skilled workers, may help extend remittance benefits to poorer households, as well. On the social protection side, recent increases in the Benazir Income Support Program benefits above inflation rates, along with a planned expansion to 500,000 additional households by fiscal year-end, should support household consumption and help buffer the poor against short-term market shocks.—TAHIR AMIN