The Stabilization Trap
Pakistan's poverty rate hit 29% in fiscal year 2024-25, the highest level in 11 years, pushing 70 million people below a monthly income threshold of Rs8,484 ($30), according to figures released Friday by Planning Minister Ahsan Iqbal. The announcement included a rare admission: the government's own economic policies, mandated by the International Monetary Fund, caused the crisis.
That confession opens a window into how international financial rescue programs systematically convert currency crises into mass impoverishment. Between 2019 and 2024, Pakistan's poverty rate jumped from 21.9% to 28.9%, a 32% increase that reversed 13 years of progress, according to government data. Real household incomes fell 12%, from Rs35,454 to Rs31,127 monthly, while the number of people living in abject poverty grew by roughly 18 million.
This wasn't economic mismanagement. It was the program working exactly as designed.
How Stabilization Creates Poverty
IMF stabilization programs follow a standard formula: withdraw subsidies, devalue currency, control inflation through austerity. Each step has predictable effects on household economics. Iqbal acknowledged that "withdrawal of subsidies and exchange rate devaluation led to massive increases in inflation," which The Express Tribune reported as the primary mechanism driving poverty growth.
The math is straightforward but brutal. When Pakistan withdrew fuel and food subsidies to meet IMF conditions, prices spiked immediately. When the rupee was devalued to correct exchange rate imbalances, import costs surged, including for petroleum, fertilizer, and other essentials. Inflation exploded.
Wages couldn't keep pace. Nominal incomes actually rose during this period, but inflation outran them so completely that real purchasing power collapsed, according to government statistics. A household earning Rs40,000 in 2024 could buy less than one earning Rs35,000 in 2019. The Express Tribune reported that "historically high inflation, energy price adjustments, exchange rate depreciation, and higher indirect taxation eroded household purchasing power" to the point where families slipped below the poverty line despite technically earning more money.
Real monthly household expenses dropped from Rs31,711 to Rs29,980, a 5.4% reduction, but this reflects desperation, not adaptation, according to the government report. Families cut spending because they had no choice, not because prices fell.
How IMF Programs Actually Work
The mechanism connecting IMF agreements to household poverty operates through a specific sequence. Pakistan's Executive Board approves a loan package, the current Extended Fund Facility totals $7 billion, in exchange for quarterly performance targets called "structural benchmarks." These include specific subsidy removal schedules, currency band requirements, and fiscal deficit limits.
The State Bank of Pakistan implements currency devaluation by adjusting its exchange rate corridor, typically allowing the rupee to fall 15-30% within weeks. The Finance Ministry then removes subsidies through gazette notifications that take effect within days, no legislative approval required. Energy prices adjust automatically through monthly fuel price mechanisms tied to international rates.
Each quarterly IMF review determines whether the next loan tranche, typically $500 million to $1 billion, gets released. Miss the benchmarks, and financing stops, triggering potential default. This creates what economists call "policy automaticity": once the agreement is signed, implementation becomes nearly inevitable regardless of social impact.
The IMF's Pakistan mission chief conducts reviews from Islamabad, working directly with Finance Ministry officials who have legal authority to implement most required measures without parliamentary debate. Subsidy removals, exchange rate adjustments, and tax increases can all be executed through executive action, compressing the timeline from IMF approval to household impact to as little as 30 days.
The Geography of Economic Collapse
The crisis didn't distribute evenly. Rural poverty surged from 28.2% to 36.2%, while urban poverty climbed from 11% to 17.4%, according to provincial data released by the Planning Ministry. That 8-percentage-point rural increase represents millions of farming families whose costs exploded when fuel and fertilizer subsidies vanished, but whose crop prices remained depressed by global markets they can't control.
Provincial breakdowns reveal which regions absorbed the worst shocks. Punjab, Pakistan's most populous and economically developed province, saw poverty jump from 16.5% to 23.3%, a 41% increase, according to government statistics. Sindh's rate climbed from 24.5% to 32.6%, a one-third surge. Khyber-Pakhtunkhwa went from 28.7% to 35.3%, nearly a quarter increase.
Only Balochistan, already the poorest province at 42%, saw relatively modest growth to 47%, a 12.4% increase. When you're already at the bottom, there's less distance to fall.
The Impossible Bind
Pakistan faces what economists call a "stabilization trap." Grow too fast through consumption and imports, and the economy crashes the following year when foreign reserves deplete and the currency collapses. Iqbal acknowledged this dynamic, noting that "consumption-led economic growth caused the economy to crash in the following year."
But stabilize through austerity, and 18 million people fall into poverty.
The IMF's logic prioritizes macroeconomic indicators, currency stability, inflation control, debt sustainability, over immediate human welfare. This isn't cruelty; it's institutional design. The Fund's mandate is to prevent sovereign defaults and currency collapses that could destabilize the international financial system. Individual country poverty rates are outside its core metrics.
Pakistan has cycled through more than a dozen IMF programs since 2000, each following similar patterns, according to IMF data. Subsidies get withdrawn. Currency gets devalued. Inflation spikes. Poverty surges. The economy stabilizes. Repeat.
What Stability Costs
Income inequality hit 32.7, the highest level in 27 years, while unemployment reached 7.1%, the highest in 21 years, according to the Planning Ministry report. These aren't coincidental. Stabilization programs compress demand, which reduces business activity, which eliminates jobs. The people who lose employment first are those with the least economic cushion.
The alternative to IMF programs is often worse: sovereign default, hyperinflation, complete economic collapse. Sri Lanka's 2022 crisis, Argentina's recurring currency disasters, and Egypt's ongoing struggles show what happens when countries can't access international financing. Pakistan's government accepted the IMF's terms because the alternative was immediate catastrophe rather than slow-motion impoverishment.
But that framing, accept poverty or risk collapse, reveals how the international financial architecture operates. Countries in crisis have no good options, only choices about which populations absorb which costs. Pakistan chose to stabilize its currency by destabilizing 18 million lives.
The poverty line of Rs8,484 monthly, roughly $30, buys perhaps 15 kilograms of flour, some cooking oil, minimal vegetables, and little else, according to market price surveys. No meat. No healthcare beyond the most basic. No school supplies. No margin for emergencies. Seventy million people now live below that threshold, and the government admits its own policies put them there.
What's missing from Iqbal's confession is any indication that different choices were possible, or that anyone will be held accountable for treating 18 million people as an acceptable cost of macroeconomic stability.