13 million Pakistanis fell into poverty last year due to inflation, economic crisis: World Bank

Around 13 million Pakistanis fell into poverty last year because of record inflation and dull economic activity that resulted in less income-earning opportunities.

According to a World Bank document, in fiscal year 2018-19 (FY19), some 21.9% of the population in Pakistan lived below the national poverty line. Since then, the COVID-19 pandemic, devastating floods in 2022, and a macro-fiscal crisis with record inflation have profoundly impacted economic activity and income-earning opportunities.

From 21.9% in FY19, poverty increased to 24.6% during the COVID-19 crisis. After the main impacts of the COVID-19 pandemic passed, the country saw a post-pandemic recovery period where poverty went down consecutively for two years, reaching 17.1% in FY22.

However, at the start of FY23, the combination of devastating floods that destroyed infrastructure and reduced agricultural output, together with record inflation levels and economic crisis, increased poverty in the country again.

The findings suggest that in 2024, the poverty rate stood at 25.3%, an increase of seven percentage points compared to 2023, with about 13 million additional people falling into poverty.

Moreover, in addition to the projected increase in poverty, poor households face disproportionately higher welfare losses and get pushed deeper into poverty.

The absence of a new household survey limits the ability to ascertain the implications of these different shocks on household welfare and poverty. Up-to-date welfare information is crucial for formulating appropriate policy responses to crises that directly affect households’ socioeconomic well-being, the document said.

To overcome the lack of current data, the World Bank proposed a microsimulation tool that combines microdata from the latest national household survey with high-frequency macro indicators to produce nowcasts and forecasts of poverty. The tool models household consumption by using individual and household characteristics and accounts for changes in labor markets, inflation, social transfers, and remittances.

The results account for household-specific inflation rates, which reflect systematic variation in household consumption patterns and sector-specific growth rates.

The World Bank forecast that in FY24 poverty rate in Punjab would stay around 14.7% while in FY25, it would be around 13.3%, while for Sindh it would be around 22.1% in FY24 and 20% in FY25.

Meanwhile, for Khyber Pakhtunkhwa, it would be around 30.3% for FY24 and around 27.8% for FY25 and around 43.4% and 39.7% for FY24 and FY25, respectively, for Balochistan.

Poverty numbers for urban and rural areas were worked out to be 12.5% in FY24 and 11.3% in FY25 and 25.5% in FY24 and 23.2% in FY25, respectively, the World Bank said.