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Economic Woes Push Millions of Pakistanis Out of Middle Class

LAHORE: The size of Pakistan’s middle class has drastically diminished over the past decade, driven by persistent economic downturns, soaring inflation, and poor governance. This contraction has paralleled a sharp rise in poverty, intensifying financial insecurity across the nation.

High inflation, currency devaluation, and dwindling foreign exchange reserves have significantly eroded purchasing power, forcing many middle-income families into lower-income categories. According to World Bank data, Pakistan’s poverty rate surged from 34.6% in 2015 to over 39% by 2023. Inflation for essential goods like food and fuel peaked at more than 38% in urban areas in 2023, while wages have failed to keep up, further straining middle-class households.

The Covid-19 pandemic exacerbated this economic fragility, pushing nearly 20 million Pakistanis below the poverty line, with middle-class families dependent on fixed or informal incomes bearing the brunt. Rising unemployment and layoffs have compounded the problem, while hiring freezes and economic uncertainty have curtailed opportunities for career advancement. Meanwhile, income inequality has deepened, with the wealthy holding a disproportionate share of national wealth.

Rural areas have been particularly vulnerable due to agricultural disruptions and climate disasters, including the 2022 floods, which displaced millions. Urban poverty has also escalated, driven by surging costs of housing, transportation, and food. The middle class, a key driver of consumer spending in sectors such as education, healthcare, and retail, has sharply reduced discretionary spending. Economic analyses indicate that middle-class consumption’s share of GDP has fallen, while basic subsistence consumption has grown, partially supported by initiatives like the Benazir Income Support Programme (BISP).

Path to Recovery

To prevent further decline, Pakistan requires robust economic reforms aimed at curbing inflation, stabilising the rupee, and maintaining fiscal discipline. While inflation has recently eased, experts warn that premature cuts in policy rates by the State Bank of Pakistan (SBP) could reignite import-driven inflation, depleting foreign reserves and further pressuring the currency.

Policy measures must prioritise inflation control and fiscal stability before pursuing aggressive growth strategies. Sustainable development hinges on targeted investments in small and medium enterprises (SMEs) and industries to generate stable employment. Reforms must be coupled with subsidies and social welfare programmes to protect vulnerable populations during this period of transition.

Regional Challenges

The middle class across South Asia faces similar challenges. Persistent inflation in India has constrained urban consumption, threatening economic growth. Sri Lanka remains gripped by its worst financial crisis in decades, with limited relief reaching lower-income groups.

These regional struggles highlight the fragility of middle-class households amid economic shocks and underscore the urgency of inclusive, resilient growth policies. Without decisive action, millions more risk slipping into poverty, further eroding social and economic stability.

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