EDITORIAL: It turns out that poverty reduction remains a formidable challenge despite all the recent macroeconomic gains. As the World Bank’s report ‘Macro Poverty Outlook for Pakistan’ points out, “limited growth in real wages and employment will keep the poverty rate near 40pc through fiscal year 2026”. At the same time, monetary poverty – when people’s equivalised disposable income (after social transfers) is below the at-the-risk-of-poverty threshold – will also remain high, it says.
Growth in non-agriculture sectors has not been strong enough to lift real wages, and employment, labour force participation and job quality indicators have not improved in construction, trade and transportation. These trends, at a time of fiscal consolidation and high inflation, pushed an additional 2.6 million people below the poverty line in FY24.
The report also cautions against premature celebration over the drop in inflation, noting that with high base effect and lower commodity prices, inflation will slow to 11.1pc in the current fiscal year “but remain elevated due to higher domestic energy prices, expansionary open market operations, and new taxation measures”. This is exactly what some analysts and observers have been warning about while the government has been obsessed with advertising lower inflation figures and dropping interest rates.
Much of the population hovers just around the poverty line – as the 40pc poverty rate indicates – and inflated utility bills and higher taxes that come with the IMF bailout programme will “exert more pressure on poor and vulnerable households by limiting real labour income growth to less than one percent in the fiscal year 2025”. This is where the monetary poverty phenomenon comes into play. Higher bills will cut disposable incomes of poor households much more than the rich and add an element of cost-push inflation to the lower income habitat.
Although there has been an improvement in the macroeconomic fundamentals, yet as the report notes “overall real income declined, and with elevated inflation, poverty rose in the fiscal year 2024”.
This presents a very serious challenge to policymakers. They have fought very hard for recent economic gains, especially the EFF (Extended Fund Facility), but they know that the recovery is very fragile and it will peter out if a very large part of the population – middle and lower income groups – is not part of the turnaround story. They also know that the conditions of the IMF programme will slowly begin to eat into budgets of the majority, which can cause more than economic trouble if their real incomes don’t rise in proportion with all the new taxes.
Authorities got a hint of how public fury can explode onto the streets at the time of the caretaker government, when a sudden spike in electricity bills triggered an angry revolt up and down the country. People have already endured unprecedented inflation and unemployment for far too long. Most of them, especially those below the poverty line, are still waiting for the uptick in the economy that the government is harping about to improve their lives as well.
Now they face the prospect of more forced inflation squeezing their household budgets. If the government has a plan to deal with such a scenario, it hasn’t shared it with the public. There’s no doubt that the real economy is improving, yet it’s also true that the gains have not reached the bottom of the food chain. And there’s no denying that tougher times lie ahead as the IMF’s structural adjustment begins to bite.
Copyright Business Recorder, 2024
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