Pakistan: 40% population slips below poverty line, World Bank sounds alarm bell

As Pakistan continues to reel under a grave economic crisis, the World Bank has now declared that the country’s current economic model is unfit for reducing poverty.

The warning came as over 12.5 million people fell below the poverty line in Pakistan in the last year alone. It means that over 40 per cent population in the South Asian country is now living under the poverty line as they struggle to meet basic needs such as food, water and electricity.

The poverty level in Pakistan rose to 39.4 per cent from 34 per cent in just one year, with a whopping 95 million Pakistanis now surviving off of less than $3.65 per day.

Pakistan’s standing in South Asia

According to World Bank data, Pakistan’s average real per capita growth rate was just 1.7 per cent between 2000 and 2020. It is less than half of the average growth (4 per cent) registered by all South Asian countries.

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“While Pakistan’s per capita income was among the highest in South Asia during the 1980s, it is now among the lowest in the region,” the World Bank noted in its report.

What next?

The financial leaders at the World Bank have advised Pakistan to undertake major foreign policy shifts to get the troubled economy back on track.

"Pakistan's economic model is no longer reducing poverty, and the living standards have fallen behind peer countries," said Tobias Haque, the World Bank's lead country economist for Pakistan.

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"This may be Pakistan's moment for significant policy shift," said Najy Benhassine, the country director for Pakistan at the World Bank.

Among other issues, the World Bank has identified low human development, unsustainable fiscal situation, over-regulated private sector, agriculture and energy sectors as the factors behind nominal growth in Pakistan’s economy.

Suggestions by the World Bank

The World Bank recommends that Pakistan should promptly raise its tax-to-GDP ratio by 5 per cent while simultaneously reducing expenditures by approximately 2.7 per cent of GDP. 

These measures are aimed at restoring the sustainability of the economy and steering it towards a responsible fiscal trajectory. 

According to the Washington-based institution, their proposal to enhance the revenue-to-GDP ratio by 5 per cent encompasses the elimination of tax exemptions and an increased tax burden on both the real estate and heavily subsidised agriculture sectors.

Currently, Pakistan's capacity for tax collection stands at 22 per cent of GDP, but the actual ratio lags significantly behind at only 10.2 per cent, as reported by the World Bank. 

To address this gap, the lender suggests the reduction of distorting exemptions to generate an additional 2 per cent of GDP in tax revenue. Additionally, they recommend raising taxes on land and property to yield another 2 per cent of GDP in revenue, along with generating an extra 1 per cent of GDP from the agriculture sector.