Poverty puzzle
November 14, 2025
The recent World Bank Pakistan Development Update, released at the end of October 2025, claims that poverty fell in 2024-25. This assertion raises troubling questions, especially since Pakistan’s poverty assessment report, published just a few months earlier by the World Bank, presented a very grim picture. It stated, “Pakistan’s once promising poverty reduction trajectory has come to a troubling halt, reversing years of hard-fought gains.” The report indicated a return to rising poverty, as their estimates after 2022/23 showed.
More importantly, the earlier World Bank poverty assessment stressed that the economic model responsible for reducing poverty from 64.3 per cent in 2001 to 21.9pc in 2018 “had reached its limits”. It noted that further declines in poverty would require much greater effort in the “face of deep-rooted inequalities, political instability, elite capture and vulnerability to climate risk”. The basic message of the assessment was that the resilience of the population, which had previously led to declining poverty, had been significantly weakened by natural disasters, climate change, and the economy’s diminishing capacity to create jobs with adequate income to lift workers out of poverty.
Yet, according to the latest World Bank Economic Update, conditions improved so dramatically in just one year that poverty (based on the national poverty line) fell by over 12pc! The Update attributes this decline to two positive developments: a drastic decline in inflation and job growth. While it is true that inflation decreased significantly in 2024-25, it did not lead to a reduction in the exorbitant prices of essential goods, which had risen sharply. It only meant that the rate at which prices had previously increased had fortunately decreased. At best, this explains why poverty was no longer rising, but it is far-fetched to present it as a reason for the claimed decline in poverty in 2024-25.
The only way poverty could have fallen in 2024-25 would be if job generation sharply increased that year in sectors where poverty is concentrated. However, this would only be possible if economic growth had also risen significantly and benefited these sectors. Unfortunately, this did not happen. The economy grew at 3pc in 2024-25, and based on historical elasticities of job creation in relation to economic growth (ranging from 0.4 to 0.5), along with our high population growth rate and the resulting new entrants into the labour force, a minimum economic growth of 5-6pc would be needed to absorb these new entrants and even higher growth to create better-paying jobs for the working poor to lift them out of poverty.
Indeed, it is highly unlikely, as past experiences in other developing countries and in Pakistan have shown, for an economy to witness increasing economic growth and falling poverty at the same time as it undergoes an IMF stabilisation and reform programme. In Pakistan, which has been under such a programme since July 2023, the evidence also points to this contrary relationship. A glaring example is the sudden removal of the minimum support price for wheat as part of the IMF reform programme, which led to significant losses for farmers and a resulting rise in rural poverty which is already nearly double that of urban areas. The government has since introduced a minimum support price for wheat, but it remains unclear whether the federal or provincial government will be responsible for purchasing it.
Additionally, it is important to mention that earlier in 2025, the World Bank released a new poverty line for measuring poverty globally, regionally, and at the country level. According to this new poverty line, the estimated percentage of the population living below the poverty line in Pakistan is now 45pc (at the $4.20 per person PPP 2021 per day threshold). This revelation shocked many, as it was more than double the number officially estimated at the national poverty line, which is much lower.
Clarifications from the World Bank regarding this discrepancy did little to alleviate the confusion. Also, this report revised the number of people living in poverty in India and replaced it with new data. This resulted in Pakistan’s poverty being double that of India while previous estimates had shown the exact opposite!
The ball is now firmly in the court of the planning ministry, which is analysing the most recent data collected in 2023-24 to estimate the number of people living in poverty.
Hopefully, these results will help clarify the poverty puzzle, if not the confusion surrounding the current numbers!
The writer is a professor at the Lahore School of Economics and a former vice chancellor of the Pakistan Institute of Development Economics.
Published in Dawn, November 14th, 2025
Labels: Faculty, Publications, World Bank
posted by S A J Shirazi @ 11/14/2025 08:04:00 AM,
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