• Lender says gains achieved by Pakistan over two decades erased in last three years
• Stresses development model inadequate to reduce poverty, inequality
• Notes over 85pc of jobs remain informal; women, youth largely excluded from labour force

ISLAMABAD: The World Bank has said Pakistan’s current development model is inadequate to reduce poverty and inequality, and called for its overhaul after poverty trends rever­sed over the past three years, erasing two decades of gains. Pakistan’s prevailing “challenges reveal that poverty reduction is not guaranteed under the current development mo­­del… A new development trajectory is needed — one that prioritises inclusive growth, equity, and sustained investment in human capital,” the Washington-based lender said in its latest report “Reclaiming Momentum Towards Prosperity” released at a news briefing on Tuesday.

“The Big Picture: Pakistan’s growth model that supported initial poverty reduction has proven insufficient to sustain progress,” said Christina Wieser, senior economist and one of the lead authors. She warned that “progress in poverty reduction is threatened by structural vulnerabilities”.

Drawing on Pakistan’s Household Integrated Economic Survey (HIES-2018-19), she noted that after a steady decline from 64.3 per cent in 2001-02 to 21.9pc in 2018-19, poverty began to rise in 2020. It increased to 24.7pc in 2019-20, fell again to 18.3pc in 2021-22, but climbed back to 25.3pc in 2023-24 — a seven percentage point jump in just two years. Final results will depend on the HIES-2023-24, now in its final stage, though vulnerabilities appear to have worsened after recent floods.

The reversal was attributed to multiple shocks — Covid-19, inflation, floods and macroeconomic stress — but also to the limits of Pakistan’s consumption-driven growth model. “Reforms that expand access to quality services, protect households from shocks, and create better jobs — especially for the bottom 40pc — are essential to break cycles of poverty and deliver durable, inclusive growth,” the report said.

Responding to a question, World Bank’s lead country economist Tobias Haque clarified that no single economic model had been imposed on Pakistan, adding that real progress had been made in difficult reforms over the past 18 months to reverse faltering trends.

The report acknowledged that Pakistan’s social protection system had shielded many households from deeper hardship, but stressed that long-term gains depend on transformative reforms to address structural imbalances, improve service delivery, and build resilience. It noted that health and education spending had done little to reduce inequality, while heavy reliance on indirect taxes was reducing household incomes and widening inequality. It cited several causes for rising poverty and inequality, including low and volatile growth averaging 2pc, political instability, elite capture, regressive fiscal policies, labour market constraints, vulnerability to shocks, weak public service delivery, and persistent regional disparities.

“It will be critical to protect Pakistan’s hard-won poverty gains while accelerating reforms that expand jobs and opportunities — especially for women and young people,” said Bolormaa Amgaabazar, the World Bank’s new country director for Pakistan. She stressed that by investing in people and places, strengthening resilience, improving fiscal management, and developing better data systems, Pakistan could put poverty reduction back on track.

The assessment found that over the past two decades, poverty reduction was largely driven by rising non-agricultural labour income, as many households moved out of farm work into low-quality service jobs. But slow and uneven structural transformation has stifled diversification, job creation, and inclusive growth. Low productivity across sectors has kept incomes stagnant, with over 85pc of jobs still informal, and women and youth mostly excluded from the labour force.

The report also flagged serious human capital gaps: nearly 40pc of children are stunted, a quarter of primary-school-aged children are out of school, and 75pc of those who do attend primary school cannot read and understand a simple story by the end of the cycle. Public service deficits remain stark, with only half of households having safely managed access to drinking water in 2018, and 31pc lacking safe sanitation.

The World Bank said Pakistan relies excessively on indirect taxes, which depress incomes and increase poverty. The report also highlighted persistent spatial disparities: rural poverty is more than twice urban poverty, with many districts lagging for decades. Unplanned urbanisation has meanwhile created “sterile agglomerations” — crowded settlements with poor living standards.

The World Bank said that restoring progress requires investment in people, places and opportunities to close human capital gaps, stronger governance, safety nets that are responsive and inclusive, progressive fiscal reforms to replace wasteful subsidies with targeted spending for the poor, and improved data systems to guide decision-making and monitor results.

Published in Dawn, September 24th, 2025