The Poverty Illusion: When Numbers Distort Reality

Nasir Iqbal
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Nasir Iqbal: Pakistan Institute of Development Economics

No 2025:132, PIDE Knowledge Brief from Pakistan Institute of Development Economics

Abstract: Last week, sensational headlines rattled Pakistan's development discourse: poverty has surged, nearly half the population is now classified as poor, and extreme poverty has tripled. According to the World Bank's revised estimates, poverty under the $4.20 per day line has jumped from 39.8% to 44.7%, while extreme poverty, measured at $3 per day, has soared from 4.9% to 16.5%. The dominant narrative quickly crystallized - poverty is rising sharply because policies have failed. But let's take a step back. This narrative, while emotionally resonant, is dangerously misleading. It risks triggering policy panic at a time when thoughtful, evidence-based reflection is needed. These new figures do not reflect a sudden collapse of Pakistan's socioeconomic fabric. Rather, they point to a different reality - one rooted in methodological recalibration, not mass impoverishment. The sharp uptick in poverty rates is largely the result of the World Bank's upward revision of global poverty lines. For lower-middle-income countries like Pakistan, the general poverty threshold has been increased from $3.20 to $4.20 per day. Likewise, the extreme poverty line has been revised upward from $2.15 to $3 per day. These changes represent a substantial recalibration of the baseline used to assess poverty. When the bar is raised, more people fall below it - not because their lives have deteriorated, but because the measurement standard has shifted. According to disaggregated estimates, a staggering 82% of the reported increase in poverty stems directly from the revision in poverty lines. The remaining 18% is attributable to domestic price inflation between 2017 and 2021 - a real concern, along with COVID-19, but not a sign of systemic collapse. It is essential to separate the signal from the noise - a methodological shift from actual declines in material well-being.

Pages: 4
Date: 2025
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