Recalibrating economic policy to ensure social sustainability

KARACHI:

The juxtaposition is as jarring as it is unsustainable. At a time when reports of the Punjab government's acquisition of a private jet and the multibillion-rupee expenditures on a controversial internet firewall dominate the national discourse, the Planning Commission has released a sobering assessment of the country's descent into penury.

The symbolism is unmistakable: a display of conspicuous public spending by the state, set against a backdrop of continued private retreat as multinational corporations scale back operations, citing the terminal erosion of the middle class. This divergence demands more than routine acknowledgment; it calls for a fundamental reassessment of the country's fiscal priorities and the very direction of its economic policy.

There is little surprise in the commission's findings. Poverty is no longer confined to the margins; it is steadily advancing into spaces once occupied by the fragile economic security. Households that had only recently achieved lower middle-class stability now find themselves recalculating monthly budgets with unfamiliar urgency.

Inflation has not merely increased prices; it has redefined choices. Nutrition is compromised first, education spending next, and healthcare last – often postponed until postponement becomes impossible.

Food inflation has been particularly unforgiving. When basic staples consume most of the household income, aspiration itself becomes a casualty. Wage growth has lagged behind price increases, especially in the informal economy, where employment offers neither contractual protection nor predictable income.

The outcome is not immediate collapse but gradual erosion – the quiet disappearance of the resilience that once allowed families to withstand economic shocks.

Recent estimates suggest that more than 70 million Pakistanis now live below the poverty line, roughly one-third of the population, reversing earlier gains. This deterioration reflects a convergence of crises: persistent inflation, currency depreciation, stagnant productivity and repeated stabilisation efforts that have prioritised fiscal balance over income growth. Behind the statistics lies a harsher reality – millions of households slipping from precarious stability into sustained vulnerability.

Economic growth, meanwhile, remains too weak to absorb the country's expanding labour force. Millions enter the job market each year, but formal employment opportunities remain scarce. Informal work dominates both urban and rural economies, offering neither security nor upward mobility. In such an environment, inflation functions as a regressive force, steadily redistributing purchasing power away from those least able to absorb the loss.

The withdrawal or downsizing of multinational firms has reinforced this sense of contraction. Companies that once viewed Pakistan as a market of long-term promise have reassessed their outlook. Weak consumer demand, import restrictions, constraints on profit repatriation, high taxation and exchange-rate volatility have combined to erode investor confidence.

When firms retreat, the consequences extend far beyond corporate balance sheets. Employment opportunities shrink, supply chains weaken, and the signal to other investors becomes unmistakable.

Fiscal policy, meanwhile, remains constrained by structural realities. Debt servicing absorbs a dominant share of government revenues, leaving limited space for development spending. Stabilisation measures have required higher energy tariffs, expanded taxation and reduced subsidies. While such policies may restore macroeconomic balance, their social cost is borne disproportionately by households already under strain. Stabilisation, in practice, has imposed its heaviest burden on those with the least margin for adjustment.

Yet the deeper concern lies not only in fiscal constraint but in fiscal prioritisation. Development spending – the kind that builds schools, hospitals, irrigation networks and transport infrastructure – has repeatedly yielded ground to current expenditure. Investments capable of generating employment and productivity have been delayed or diluted. Administrative expenditure, by contrast, has proven more resistant to restraint. In a period defined by economic hardship, such choices inevitably invite scrutiny.

The long-term consequences are profound. Poverty is not merely a question of income; it reflects deficits in education, healthcare and opportunity. Children from low-income households are more likely to leave school early, suffer malnutrition and remain excluded from the skilled workforce of the future. These losses accumulate quietly, weakening national productivity long before their effects appear in fiscal accounts.

Social protection programmes have provided essential relief, preventing extreme deprivation for millions. But relief is not recovery. Cash transfers can soften hardship, yet they cannot substitute for sustained employment growth or rising real wages. Without structural reforms that expand productive capacity, poverty risks becoming entrenched rather than temporary.

Addressing this trajectory requires recalibrating economic policy so that stabilisation does not come at the expense of social sustainability. Fiscal consolidation may be necessary, but it must preserve the basic economic security of households. Protecting purchasing power and ensuring that adjustment measures do not disproportionately burden lower-income groups should become central policy objectives.

Durable solutions also lie within domestic reform rather than using the IMF programme as a scapegoat for fiscal imprudence. Expanding the tax base through progressive taxation, rather than relying heavily on indirect taxes, would reduce the burden on lower- and middle-income households while improving revenue stability. Bringing undertaxed sectors into the formal tax framework can create fiscal space for investment in education, healthcare and employment-generating infrastructure.

Equally important is rationalising public expenditure. Greater discipline in administrative spending and transparent evaluation of large projects can redirect scarce resources towards development priorities that strengthen productivity and opportunity. Fiscal prudence, when visibly practiced within the state itself, enhances both economic credibility and public trust.

Engagement with international lenders, meanwhile, must be accompanied by credible domestic reforms that align fiscal policy with social realities. Demonstrating restraint, improving revenue equity and prioritising human development would strengthen the country's economic position while ensuring that stabilisation translates into shared recovery rather than prolonged hardship.

Ultimately, economic policy is judged not by balance sheets but by its effect on daily life. When households struggle to maintain basic living standards while public expenditure appears insulated from similar discipline, the imbalance becomes more than economic – it becomes institutional. Correcting that imbalance requires not only technical adjustment but a clear reordering of priorities, one that places the well-being of citizens at the centre of fiscal decision-making.

The writer is a financial market enthusiast and is associated with Pakistan's stocks, commodities, and emerging technology