Are Pakistanis really poor?

Consumption behaviour suggests higher standard of living than what GDP numbers indicate

ISLAMABAD:

Not at all, if you look at the per capita consumption and spending patterns. Yes, if you consider the per capita GDP (gross domestic product).

When evaluating a country's economy, income and poverty status, the per capita GDP is considered to be the most common indicator. For Pakistan, this indicator is certainly on the lower side and categorises us as a low-income country, and a nation struggling with poverty.

However, a deeper dive into the consumption patterns of Pakistanis reveals a more nuanced reality. Despite a relatively low per capita GDP, Pakistanis exhibit consumption behaviours that suggest a higher standard of living than the GDP numbers alone would indicate.

The current GDP per capita, in Pakistan, stands around $1,600, which places us among the low-income countries globally. This figure, however, does not fully capture the economic activities and consumption habits of its population.

The household consumption expenditure was around $285 billion in 2023, with the size of GDP of $374 billion. It is evident that a significant portion of our economy is driven by consumer spending.

One of the most telling indicators of Pakistanis' consumption patterns is their spending on luxury goods. The luxury fashion market in Pakistan is projected to grow by 2.12% annually, reaching $400 million by 2029.

This is in addition to the luxury items that Pakistanis purchase abroad, estimated to be more than $1.3 billion per annum. This growth suggests a robust demand for high-end products, which is not typically associated with a poor population.

In 2024, the per capita spending on clothing and footwear in Pakistan is estimated to be $55. While this may seem modest compared to developed countries, it is significant when compared to other nations with a similar GDP per capita.

For instance, Bangladesh, with a comparable GDP per capita, has lower spending in this category, indicating that Pakistanis prioritise and allocate more resources to their apparel needs.

Eating out is another area where Pakistanis spend a considerable amount. The restaurant and the dining sector have seen substantial growth, with urban areas like Karachi, Lahore and Islamabad boasting a vibrant food scene.

This trend is indicative of disposable income being spent on leisure and social activities, further challenging the notion of widespread poverty.

It is estimated that the middle and upper middle class eat out at least three times a month at present, as compared to only once a month just a few years ago. The surge in restaurants and eateries testifies this trend.

To put Pakistan's consumption in perspective, let's compare it with countries like Egypt and the Philippines. Egypt, with a per capita GDP of around $3,000, has a similar levels of consumer spending pattern like Pakistan, particularly in urban areas where dining out and luxury goods are also popular. This shows that Pakistanis spend double than the Egyptians.

The Philippines, with a per capita GDP three times than that of Pakistan, also has the same level of per capita consumption, thus Pakistanis spend three times higher than the Filipinos.

It's important to note the disparity between urban and rural consumption patterns. Urban areas, such as Karachi, Lahore, and Islamabad, exhibit higher spending on luxuries, dining out, and entertainment.

In contrast, rural areas tend to have lower consumption levels, focusing more on essential goods and services. This urban-rural divide highlights the uneven distribution of wealth and consumption within the country.

A major factor contributing to this paradox in income versus spending is the significant inflow of remittances from Pakistanis working abroad. These remittances boost household incomes and enable higher spending on goods and services.

The absence of any productive sectors or savings options result in remittances leading towards spending on food, clothing and luxuries.

While Pakistan's per capita GDP suggests a nation grappling with poverty, its consumption patterns tell an entirely different story.

The significant spending on luxuries, clothing, dining out, and other non-essential goods indicates that many Pakistanis enjoy a higher standard of living than the GDP figures alone would suggest. This paradox underscores the importance of looking beyond traditional economic metrics to understand the true economic landscape of a country.

This insight is crucial for policymakers, economists, and businesses looking to engage with and understand the Pakistani market in its true structure, realities and potential.

The size of the private credit market is also quite telling in this regard. This may not be termed healthy by some economists, but it is important to consider at least while analysing our economy and the trends thereon.

It is often said, in Pakistan, that we are not poor at heart. Probably we are not poor at pockets as well, or at least most of us.

The writer is an international economist