Pakistan's grim arithmetic: Why stability is not enough

Arab News

04-07-2025

https://arab.news/zukq3
Pakistan's economic narrative is no longer just a tale of missed opportunities— it is a case study in the arithmetic of despair. This year, a staggering 102 million Pakistanis— 45 percent of the population— subsist below the $3.65-a-day poverty line, up sharply from 39.4 percent just a year ago. Even more sobering: 16.8 percent are trapped in extreme poverty, living on less than $2.15 a day. These are not just numbers; they reflect a society where hope is becoming a scarce commodity.
Provisional growth of just 2.7 percent in the outgoing fiscal year (FY25) is inadequate to cater for Pakistan's youth bulge, which overwhelms an already strained job market. The three-year average growth rate of 1.7 percent from FY23 to FY25 marks the lowest since 1952. Meanwhile, the purchasing power of the average Pakistani has shrunk by 58 percent over the past three years, battered by relentless inflation. Official unemployment stands at 22 percent, with nearly 19 million Pakistanis jobless, and among the youth, unemployment has soared to a record 29 percent.
This is not merely a cyclical downturn. It is a structural malaise— a low-growth equilibrium where macroeconomic 'stability' is little more than a euphemism for chronic hardship. Forty percent of the population is illiterate, including 61 percent of rural women aged 15–25. Twenty-six million children are out of school. These are not just failings of policy; they are failings of imagination and will.
As GCC countries grapple with rapidly expanding indigenous youth populations, the once-steady demand for foreign workers cannot be relied upon indefinitely.
Javed Hassan
Contrast this with Pakistan's neighbors, and the sense of missed opportunity becomes acute. India has slashed extreme poverty to 5.3 percent— thanks to sustained 6–7 percent growth, digital cash transfers, and investments in education. Bangladesh, with a 14 percent poverty rate, has powered ahead on the back of garment exports. Pakistan's female labor force participation, at 23 percent, lags behind South Asia's 27 percent, a drag on productivity and social progress. Fiscal mismanagement, a narrow tax base, and regressive indirect taxes have only deepened inequality, leaving millions exposed to inflation, climate shocks, and job loss.
The Gulf, long a safety valve for Pakistan's surplus labor, is likely to become an increasingly fragile lifeline. As GCC countries grapple with rapidly expanding indigenous youth populations, the once-steady demand for foreign workers cannot be relied upon indefinitely. These economies are not only striving to absorb millions of their young citizens, they are also pivoting toward higher value-added sectors that require advanced skills and education, qualifications that many Pakistani workers, products of an underfunded education system, often lack. Saudi Arabia's poverty reduction— from 18.2 percent to 13.6 percent by 2021— was achieved through diversifying revenues and investing in domestic skills, not by expanding opportunities for foreign labor.
Also, remittances from the 2–3 million Pakistanis in the Gulf, while providing temporary relief, have consistently displayed the hallmarks of Dutch disease: fueling consumption and real estate speculation at home, but rarely translating into productive investment or sustainable job creation.
How does Pakistan break free from this poverty trap? The answer is not a single silver bullet, but a multi-pronged strategy that blends immediate relief with structural reform, drawing on lessons from its more successful neighbors.
First, invest in human capital. Expanding the Benazir Income Support Programme with India-style conditional cash transfers could help bring the 26 million out-of-school children back into classrooms. Vouchers for private schooling and public-private partnerships for rural infrastructure can address supply gaps. Bangladesh-style mobile literacy programs, especially for rural women, could yield high social returns.
Second, create fiscal space. Broadening the tax net to include untaxed sectors could unlock vital resources. Debt structuring, potentially through IMF negotiations, is equally critical. Servicing Pakistan's external debt, nearing $130 billion, consumes half its budget, starving education and health. The arithmetic is stark: with exports stagnant at around $30 billion, perennial twin imbalances forcing reliance on borrowed funds, exacerbate the poverty trap. As Banerjee and Duflo argue in Poor Economics, restructuring can free resources for infrastructure and skills training, creating jobs for Pakistan's youth bulge.
Third, reform the labor market. Streamlined regulations for small and medium enterprises, combined with vocational training in labor-intensive sectors like textiles and agribusiness, could create jobs for the 40 percent who are illiterate.
Finally, to truly leverage Gulf wealth, Pakistan must become a destination for investment, not just a source of labor. As the Gulf's skill requirements rise, and in going forward, labor markets tighten, Pakistan cannot continue exporting its unemployment. There is no substitute for creating jobs at home through credible policies, investment in human capital, and structural reforms that can transform remittances from a crutch into a catalyst for growth.
The arithmetic is unforgiving, but the choices are clear. Without bold reforms, Pakistan's poverty trap will only deepen, and 'stability' will remain a code word for stagnation. The real question is not whether Pakistan can afford bold action, but whether it can afford the cost of doing nothing.
-Javed Hassan has worked in both the profit and non-profit sectors in London, Hong Kong, and Karachi. He tweets as @javedhassan. The views expressed in this article are the author's own and do not necessarily reflect the editorial policy of Arab News.