The official data released by the Planning Commission on poverty and income inequality comes as no surprise. Real household income, adjusted for inflation, in 2024-25 is 13 percent lower than the level achieved in 2015-16, while real household consumption has fallen by 8 percent over the same period. This implies that the economy is stagnating, and there is no credible growth story the country can offer to investors.

An obvious outcome of falling income is rising poverty, which is now at an 11-year high, while income inequality stands at a 27-year high. Out of 240 million people, 70 million are living below the poverty line. That translates into 29.4 percent of the population struggling to survive today, compared to 21.9 percent in 2018-19.

Whatever growth the economy has witnessed in recent years appears to have favored the relatively affluent class. Income inequality, measured by the Gini Coefficient, stands at 31.7 in 2024-25, compared to 28.4 in 2018-19.

The rise in inequality is more pronounced among rural dwellers, increasing from 25.1 to 29.2. However, urban inhabitants remain more unequal, with the latest reading at 34.4. At the same time, rural poverty is significantly higher and rising more steeply, standing at a staggering 36.2 percent, up from 28.2 percent.

The impact of climate change, in the form of more frequent floods and changing weather patterns, is directly affecting the livelihoods of small farmers. The situation has been worsened by the mishandling of support price mechanisms and restrictions on commodity trade imposed by both provincial and federal governments.

Massive inflation and falling manufacturing are hurting urban populations more severely. Large Scale Manufacturing, one of the biggest employment generators and export earners, has an index reading of 115 in 2024-25, significantly lower than its peak of 128 in 2021-22. This reflects weak market conditions, as the official unemployment rate has risen to 7.1 percent from 6.3 percent in 2021.

Not all LSM sub-indices are sluggish. There has been a recent bounce back in automobiles, while wearing apparel is performing well, as reflected in the highest-ever level of readymade garment exports. On the other hand, food and textiles, particularly spinning and weaving, continue to struggle.

Domestic sectors catering to large segments of the population are not showing healthy signs of growth. Poverty is rising while the middle class is shrinking. There is a youth bulge, but there is no growth story to support it. That is one of the prime reasons for shrinking investment, particularly foreign direct investment, and the exodus of multinational companies from the country.

There was a flurry of investment and growth euphoria in the early 2000s, when poverty levels were falling and the middle class was expanding. The narrative then centered on rising incomes across a broad population, which attracted investment. Now, after reaching a peak, the economy at large is stagnating. Broad-based growth is missing, and general socioeconomic uplift is absent.

This raises questions about the efficacy of continuously running stabilization policies that have failed to transition into a sustainable growth model. There are no major employment generation projects, and exports are stagnating. Existing manufacturing sectors have slack capacity, while the agriculture sector is struggling. The services sector cannot expand indefinitely in the absence of strong manufacturing and agriculture.

Although the economy emerged from the COVID shock, it has failed to articulate a credible post-pandemic growth model. Recently, reliance for investment, which is essential for growth, has shifted toward geopolitics, but this has so far failed to deliver economic dividends.

Authorities need to think in broader terms. The country has averted economic default, but its short-term external debt and growing domestic public debt remain the biggest impediments to triggering a growth spurt. In the early 2000s, growth was supported by debt restructuring, which created fiscal space for deregulation and reforms.

The report card this time is poor, and a rethink of strategy is required. Debt, particularly the external profile, must be addressed. Banks must play a role in reducing domestic debt servicing, which is crowding out fiscal space for development.

The poor of Pakistan cannot endure this trajectory indefinitely. Stabilization through the strangulation of growth is not a viable strategy. A bold rethink is required to deal with debt, broaden the tax base, and slash government expenditure. The state must take the lead so that the private sector can follow. Without such action, poverty and inequality will remain elevated, and hollow stabilization will continue until another crisis emerges.

Copyright Business Recorder, 2026

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