Islamabad. Pakistan is confronting a deepening poverty challenge driven by a combination of economic, structural, and environmental factors. Between fiscal years 2020 and 2025, fluctuations in inflation, GDP per capita growth, and sectoral performance have contributed to a significant increase in poverty levels.
The national poverty rate, which had declined for nearly two decades, has risen to an estimated 39 Percent, pushing around 12.5 million additional people below the poverty line.
This reversal reflects sustained pressures that have weakened household resilience and strained social protection systems.
Although food inflation eased in FY2024, offering temporary relief to low-income households, high energy costs and persistent core inflation—especially in rural areas—have continued to erode purchasing power.
Human development indicators have also been affected, with more than one-third of children out of school in 2024–25, particularly girls and younger pupils. This trend poses long-term risks to productivity and economic inclusion.
One of the most critical issues is the circular debt crisis in the power sector, which reached Rs 2.4 trillion as of September 2025, equivalent to about 2.1 Percent of GDP. The debt reflects unpaid obligations to electricity producers and has limited the government’s fiscal space for investment and reform.
Much of the sector’s financial strain stems from long-standing contractual arrangements with Independent Power Producers (IPPs), which include guaranteed payments for generation capacity and obligations to purchase electricity regardless of demand. These provisions, while designed to ensure energy security, have placed pressure on public finances and consumer tariffs.
Government reviews have acknowledged the financial burden of these agreements and the need for renegotiation to balance investor confidence with affordability. Consumers continue to bear higher costs through electricity surcharges that fund repayment obligations, which weigh heavily on household budgets and small businesses.
Fiscal adjustment measures aimed at stabilizing the economy have had mixed results. Indirect tax increases have affected lower-income households disproportionately, while reductions in the Public Sector Development Programme (PSDP) have slowed infrastructure projects and employment opportunities.
The Benazir Income Support Programme (BISP) expanded its coverage and increased benefit levels by 50 Percent between FY2023 and FY2024. However, rising inflation—averaging 52.6 Percent during the same period—reduced the real value of these transfers, limiting their ability to offset economic shocks.
Climate-related disasters have further aggravated economic hardship. Flood-affected regions in Balochistan, Khyber Pakhtunkhwa, and Sindh continue to face food insecurity, with an estimated 11.8 million people projected to experience shortages during the winter lean season. Heavy rains and flooding have reduced agricultural output, damaged livestock, and disrupted rural livelihoods.
Food price inflation, driven by currency depreciation and higher input and fuel costs, has continued to strain household consumption and deepen poverty in affected communities.
As of September 2025, the USD/PKR exchange rate stands at 282.01, showing limited movement over the past year. The State Bank of Pakistan has actively managed the foreign exchange market to maintain stability and rebuild reserves, reportedly purchasing around 9 billion dollars from the interbank market over nine months.
While these interventions have helped reduce short-term volatility, analysts warn that sustained currency support requires careful calibration to avoid long-term distortions in market behavior and investor sentiment.
Pakistan’s current poverty levels reflect the interaction of multiple challenges: high inflation, energy sector liabilities, fiscal constraints, and repeated climate shocks. Economists emphasize that addressing these issues will require a coordinated strategy combining macroeconomic stability, social investment, and structural reform in key sectors.
Without such reforms, rising inequality and economic vulnerability could slow progress toward the country’s sustainable development goals. The coming years will test Pakistan’s ability to balance stabilization with growth while protecting its most vulnerable citizens.
