Poverty and Economic Inequality in Pakistan
Although great strides have been made, millions of Pakistanis remain vulnerable to falling into absolute poverty.
Pakistan has made remarkable progress in reducing absolute poverty. Fifty million fewer people lived in poverty in 2011 than in 1991 and the share of the poor living on less than $1.25 a day plummeted from 66.5% in 1987 to 12.7% in 2011. Despite these advances, the number of Pakistanis vulnerable to falling into poverty remains high and the recent series of natural disasters that have hit Pakistan will slow future progress. Pakistan lags behind other lower-middle income countries in non-income determinants of poverty, such as education and health. Can Pakistan overcome these concerns and become the next Asian Tiger in the region?
Impressive progress, yet problems persist
While absolute poverty levels have substantially decreased, more than half of Pakistan’s population – almost 90 million people – was still living on less than $2 a day in 2011.However, the latest income poverty data has raised caution over the accuracy of the 2011 poverty estimates.
Figure 1: Number of poor people in Pakistan, 1987 – 2011
Source: World Bank, World Development Indicators. Poverty lines are in 2005 international dollars.
While the number of people living under $1.25 a day plummeted, the number of people living under $2 has barely declined and those under $2.50 actually increased
Income growth and income inequality are key
Income growth in Pakistan has been the main driver of poverty reduction, according to a World Bank report. Pakistan’s Gini coefficient and Palma ratio (the ratio of income held by the top 10% compared to income held by the bottom 40%) have fluctuated over time, but has followed a general downward trend, indicating that income inequality has declined. The Benazir Income Support Program may be partly responsible for this improvement. Unlike its predecessors, the program transfers money to the female head in each household, the idea being to increase women’s empowerment. The BISP significantly increased the amount of social welfare the Pakistani government was spending on the poor. Through a combination of continued economic growth, income support programs and large inflows of workers’ remittances, consumption growth of the poorest 40% has managed to keep pace with the rest of Pakistan’s population in recent years.
Overall, Pakistan has done well in converting economic growth into poverty reduction (see Figure 2 below). But stronger and more sustained growth is needed to continue reducing poverty in order to reach the poorest of the poor. Equitable income distribution is important, as it can influence the effect of growth on poverty reduction: if income inequality is high, economic gains are more likely to accrue accrue to the wealthy with little left for the poor. If income distribution were more equitable, the poor would gain more from the country’s economic growth, allowing them...