Why poverty persists in Pakistan

LAHORE: The number of working poor in Pakistan has been rising as inflation outpaces wage growth. Over the past eight years, the cost of living has surged, particularly due to increasing food, energy and housing costs.

This trend is not unique to Pakistan; similar patterns are observed in India, Bangladesh and Sri Lanka, albeit with varying degrees of severity. Inflation has also affected real incomes in India, but economic growth and government subsidies, such as free food rations, have helped mitigate extreme poverty. In Bangladesh, the issue is particularly prevalent among garment workers and informal labourers. Inflation and high rental costs in cities like Dhaka have made survival increasingly difficult. In Sri Lanka, the 2022 economic crisis led to severe inflation, currency devaluation and food shortages, pushing many working-class families into poverty.

In Pakistan, even those earning the official minimum wage struggle to afford basic necessities, pushing them into working poverty -- a condition in which employed individuals still live below the poverty line. This situation has worsened due to persistent double-digit inflation in recent years, with food and fuel prices rising sharply. During this period, the Pakistani rupee has depreciated, making imported goods more expensive. Minimum wage increases have not kept pace with inflation, further exacerbating financial hardships. A significant proportion of workers earn below the minimum wage due to weak enforcement. Even those receiving formal wages have experienced a decline in real income.

Among its neighbours, Pakistan’s persistent economic instability, reliance on imports and structural inefficiencies have left a large segment of the population particularly vulnerable. In contrast, vulnerable groups in India and Bangladesh are relatively better off, as both countries have recorded higher economic growth and somewhat better wage adjustments. Sri Lanka’s crisis was more severe in terms of shortages, but IMF assistance has helped stabilise conditions.

In recent years, wage growth in Pakistan has ranged from 10–15 per cent annually. However, with inflation at 20-30 per cent, real incomes have declined. In India, wage growth varies by state but remains sluggish compared to inflation (~6-8 per cent in 2023). However, government subsidies on food, gas and electricity help reduce household costs. In Bangladesh, garment workers recently received a wage increase of over 56 per cent, but overall, real wages remain low as inflation (9-10 per cent) continues to erode purchasing power. In Sri Lanka, the 2022 crisis led to a collapse in real wages, and despite some recovery, purchasing power remains weak.

The number of working poor continues to grow in Pakistan, as essential goods become unaffordable even for those earning the minimum wage. Informal sector workers are the worst affected. While India faces similar challenges, they are less severe due to food security programmes. Urban workers in sectors such as construction and the gig economy are experiencing declining real wages. In Bangladesh, the garment industry has seen some wage improvements, but inflation continues to undermine purchasing power, with rural communities remaining highly vulnerable. In Sri Lanka, post-crisis wages have not fully recovered, and the cost of living remains high, forcing many workers to rely on remittances from family members abroad.