Islamabad, July 25 — Pakistan enters FY2026 still classified by the World Bank as a lower-middle-income country, and it sits within the Bank's "blend" category, a status that gives Islamabad access to both concessional financing from the International Development Association (IDA) and near-market lending from the International Bank for Reconstruction and Development (IBRD), according to an analysis.

On paper, that dual access should give Pakistan more room than most developing economies to invest in reducing poverty. In practice, decades of this financing have not translated into sustained poverty reduction or broad-based prosperity.

Pakistan's Atlas-method Gross National Income (GNI) per capita stood at approximately 1,430 US dollars in 2024, comfortably in the lower half of the 1,136 to 4,495 US dollar range that defines lower-middle-income status for FY2026.

Meanwhile, poverty is rising again after nearly two decades of gradual improvement, undoing hard-won gains.

The analysis traces the interlocking forces behind that reversal: an economy generating insecure and informal work rather than opportunity; inflation that erodes real incomes faster than wages can rise; a rural economy left behind by decades of development planning; and a fiscal structure that consistently finds money to service debt and expand the defence budget, while treating investment in health, education and social protection as negotiable.

Pakistan's position near the bottom of the lower-middle-income bracket is not a temporary dip but a chronic condition. Year after year, the country has failed to build the productive capacity, export base or human capital that would let it climb toward upper-middle-income status. Its continued eligibility for both concessional IDA support and IBRD financing reflects that persistent weakness as much as it reflects opportunity: Pakistan remains a country that international lenders still treat as fragile enough to need blended, subsidised support, even after decades of assistance.

World Bank estimates show that poverty in Pakistan has surged in recent years, reversing nearly twenty years of earlier gains. Using a poverty line of 3.65 US dollars per day (2017 PPP), the Bank's Macro Poverty Outlook found that about 40.5 percent of the population was living in poverty in FY2024, with an additional 2.6 million people pushed below the line in that year alone.

That deterioration was not simply the product of external shocks; it also reflects domestic policy failures that left the economy, and the population, dangerously exposed.

Pakistan's own Economic Survey 2025–26 tells a similar story.

National poverty has climbed back to 28.9 percent, after having fallen to 21.9 percent in 2018–19.

Rural poverty now stands at 36.2 percent, and inequality has widened, with the Gini coefficient rising from 28.4 to 32.7.

The crisis is sharpest in Balochistan, where 47 percent of the population lives below the poverty line and literacy is just 49 percent, a stark illustration of how economic activity in Pakistan has failed to produce social inclusion.

Sana Ullah Baloch, a former senator representing the Balochistan National Party, has pointed to that same 47 percent figure to criticise what he describes as the prolonged neglect of education, health, water, housing and livelihoods in the province.

At 36.2 percent, rural poverty is more than double the urban rate of 17.4 percent.

That gap reflects the underlying weakness of rural livelihoods, where households depend heavily on low-productivity agriculture, seasonal work, or informal labour offering little protection against shocks.

The disparity is not only about income. Rural communities typically contend with weaker schools, thinner health systems, poorer roads and fewer non-farm jobs, meaning poverty is reproduced through geography as much as through earnings. When inflation spikes or weather shocks hit, these communities have far less capacity to absorb the damage than their urban counterparts.

Pakistan's poverty crisis is closely tied to the economy's failure to generate enough productive, secure employment.

The Pakistan Economic Survey reports a labour force of 83.14 million people in 2024–25, of whom 5.90 million were unemployed. More troubling is the quality of the jobs that do exist: The World Bank estimates that more than 85 percent of employment in Pakistan is informal, a figure that rises above 95 percent among the poorest segments of the population.

The core policy failure, then, is not simply a shortage of jobs — it is the continued creation of low-productivity employment that keeps people working, but poor. Without labour-intensive industrialisation, more competitive small and medium enterprises, agricultural modernisation and greater female labour-force participation, economic growth in Pakistan will keep producing jobs that offer survival rather than advancement.

Inflation has been one of the most direct channels through which economic mismanagement has deepened poverty. Poor households spend a disproportionate share of their income on food, electricity, fuel, rent and transport, so even when nominal wages rise, increases in essential prices can still erode real purchasing power and push vulnerable families below the poverty line.

The Economic Survey reports that average national CPI inflation rose to 6.2 percent during July–April FY2026, while year-on-year inflation reached 10.9 percent in April 2026. Rural food inflation, at 4.7 percent, outpaced the urban rate of 3.6 percent, and rural core inflation likewise ran ahead of its urban equivalent meaning the households least equipped to absorb price shocks are the ones facing the steepest ones.

Pakistan's fiscal structure sharply limits the state's ability to invest in poverty reduction. Total public debt reached PKR 83.285 trillion by the end of March 2026, comprising PKR 57.566 trillion in domestic debt and PKR 25.720 trillion in external public debt. Interest expenditure alone amounted to PKR 4.947 trillion during July–March FY2026.

This is not merely a macroeconomic statistic; it carries a direct social cost. Every additional rupee devoted to debt servicing is a rupee unavailable for schools, hospitals, nutrition programmes, water supply, rural roads, housing or employment schemes.

The government points to a narrower fiscal deficit down to 0.7 percent of GDP during July–March FY2026 and a primary surplus of 3.2 percent as evidence that stabilisation is working. Yet stabilisation achieved by continuing to prioritise debt service says little about whether the underlying allocation of resources is serving the population that needs it most.

Pakistan's rising military expenditure reflects a deeper failure of national priorities. The issue is not that the country maintains armed forces, or that it faces no genuine security threats, it is that the state continues to protect and expand military spending while poverty, malnutrition, unemployment, weak schools and inadequate healthcare are treated as secondary concerns.

For FY2026–27, Pakistan allocated PKR 3 trillion to defence services, up from revised FY2025–26 expenditures of approximately PKR 2.584 trillion — an increase of roughly 18 percent in a single year. A separate allocation of PKR 822 billion covers military pensions, meaning defence services and military pensions together absorb at least PKR 3.822 trillion. Because military pensions sit outside the headline defence-services figure, the commonly cited defence budget understates the true fiscal weight of the military establishment.

The World Bank has warned that Pakistan's poverty crisis is sustained by low-productivity employment, weak human capital, and inadequate access to water, sanitation, healthcare and education. More than 85 percent of jobs remain informal, nearly 40 percent of children are stunted, and rural poverty remains more than twice as high as urban poverty. Yet Pakistan's fiscal system continues to place greater emphasis on military capacity than on correcting these structural weaknesses.

Despite remaining eligible for both concessional IDA assistance and IBRD financing, Pakistan has failed to use decades of external support to build a competitive export base, productive industries, effective public services or a resilient social-protection system.

Its Atlas-method GNI per capita remains near the lower end of the lower-middle-income category, a clear sign of how little structural transformation has actually taken place. International financing has helped Pakistan avoid repeated economic collapse, but it has not removed the underlying dependence on borrowing, imports and emergency stabilisation programmes.

The central problem, then, is not a complete absence of resources or policy programmes. It is how those resources are distributed, governed and protected.

Pakistan repeatedly finds funding for debt servicing, defence expenditure and politically influential institutions, yet pleads fiscal limitations when confronted with unemployment, illiteracy, malnutrition and rural deprivation. Until the government treats human development as an essential component of national security, poverty in Pakistan will remain not merely an economic condition, but evidence of persistent institutional and political failure.

BRICS meeting for NSA's underscored urgency of stronger multilateral cooperation: Report

Deportation of Bangladeshi workers from Singapore raises radicalisation concerns in Dhaka

Poverty in Pakistan: A deepening crisis in a lower-middle-income state

Proud moment for every Indian: PM Modi hails Sarnath's addition to world heritage map

Pakistan creating fear among overseas dissidents through transnational repression

Expanding engagement with China: Essential to safeguard Bangladesh's long-term national interests

Balochistan at ‘point of no return’ amid deteriorating security crisis: Report

Suspected bubonic plague case confirmed in Mongolia

11 European tourists rescued after speedboat goes missing in Indonesia

China’s tighter cross‑border fund flow rules may accelerate household capital exodus

US must stop backing Asim Munir amid erosion of democracy in Pakistan: Report

Nearly 100,000 Afghan refugees return home in one month: Official

Romania shoots down second drone violating airspace in two days

President Murmu lauds diaspora for promoting Indian culture and values in Romania

Nepal's export boom relies on edible oil and Indian market

Rights group warns enforced disappearances in Balochistan have reached alarming levels

UP emerges as ISI's main recruitment ground for Shahzad Bhatti terror network

Pakistan's PPP stages rallies across Sindh over alleged water ‘theft’, threatens province-wide protest

Trump says he has ‘given up’ on traditional press, predicts they will struggle without him

White House Correspondents' Association defends press freedom before Trump

Trump says Iran wants deal, rules out nuclear weapon