The World Bank’s October 2026 regional update has produced the most damaging statistic published about Pakistan in years, and it deserves reading without the softening Islamabad will try to apply. Roughly 48 percent of all people living below the $3 a day poverty line across the Middle East, North Africa, Afghanistan and Pakistan (MENAAP) region are Pakistani, while the remaining 47 percent are concentrated in Afghanistan, Syria and Yemen. Therefore, Pakistan holds nearly as many extremely poor people as three active war zones combined, without a war on its own territory. The World Bank states that MENAAP is the only region where poverty remains above pre-pandemic levels and continues to rise, with Pakistan driving most of that deterioration. This is not the arithmetic of a country stabilising after a war or long military crisis but of managed decline, presided over by the military establishment that took control of economic policy while showing no capacity to exercise it.
The underlying numbers are worse than the headline. Pakistan’s poverty rate at the $3 line rose by 6.4 percentage points between 2018-19 and 2024-25, and by 3.2 percentage points at the $4 line, with the Bank attributing this to the pandemic, the 2022 floods, inflation, currency depreciation and what it calls a prolonged adjustment that weakened household incomes and employment. That final clause matters most, because it is a multilateral lender stating that the stabilisation programme itself has impoverished Pakistanis. Poverty at that threshold now approaches or exceeds 20 percent in only four places regionally: Djibouti, Pakistan, Syria and Yemen.
The Bank estimates Pakistan’s GDP growth rising from 3.2 percent in FY2024-25 to 3.7 percent in FY2025-26 and 3.8 percent in FY2026-27, below the government’s own 4 percent target. Once population growth in Pakistan is netted out, real GDP per capita growth moves from 1.6 percent in 2025 to 2.1 percent in 2026 and 2.2 percent in 2027. At that rate, living standards would take roughly three decades to double, assuming no further shock, which, in a country like Pakistan that has absorbed a pandemic, catastrophic floods, a currency collapse, and two military confrontations in six years, is an assumption nobody should make. Additionally, inflation is projected to rise to 8.2 percent, the current account deficit to 0.8 percent of GDP and the fiscal deficit to 3.5 percent.
Explaining why this persists despite enormous external financial support requires discarding Islamabad’s official narrative. Pakistan’s current Extended Fund Facility with the International Monetary Fund (IMF) is its 25th program since 1958, and each has produced the same sequence: fiscal compression, monetary tightening, improved headline indicators, exhausted household balance sheets, and relapse once the money stops. Pakistan has always made claims of stabilisation and has never recovered, because economic stabilisation is treated as the objective rather than the precondition for reform nobody intends to undertake. The numbers that improve are those IMF monitors, while employment, real wages and the price of food and electricity have moved the other way throughout.
On the other hand, external debt and liabilities stand at roughly $138.85 billion, of which external public debt accounts for about $92 billion, while total debt has reached nearly PKR 98 trillion, or 78.5 percent of gross domestic product. Debt servicing consumed around PKR 12 trillion last fiscal year, including $21.59 billion of external obligations. State Bank reserves of $17.08 billion were assembled largely through central bank purchases at home rather than export earnings. Islamabad is simultaneously seeking a $10 billion stabilisation facility from Washington and trying to reprofile some $27 billion owed to China and the Gulf.
However, what the Pakistani government funds without hesitation is a major driver of the economy’s continued deterioration. The FY2026-27 budget allocated PKR 3 trillion to defense services, a 17.6 percent increase, with physical assets rising 39.6 percent to PKR 925.8 billion for weapons procurement. Military pensions of PKR 822 billion sit outside that figure, as does PKR 319 billion for the Armed Forces Development Programme. Development spending stayed flat at roughly PKR 1 trillion nominally, a substantial real-terms cut. The previous budget raised defence by more than 20 percent while cutting total federal expenditure by seven per cent, and the allocation exceeded combined spending on higher education, agriculture and climate adaptation in one of the world’s most climate-vulnerable countries.
Field Marshal Syed Asim Munir sits at the centre of this arrangement and is accountable for the desperate economic situation. Since June 2023, he has co-chaired the Special Investment Facilitation Council (SIFC), the apex body now directing economic policy, which includes 36 serving officers drawing salaries from the defence budget. SIFC is formalising the army’s influence over economic policy and has drawn alarm among economists and businessmen in Pakistan. The council was created to deliver $5 billion in annual foreign direct investment and has not come close. Three years on, its principal achievement is the institutionalisation of the Pakistan military authority over a portfolio in which the institution has no competence.
Every structural problem of Pakistan’s economy that would move the needle remains untouched, because each requires confronting a constituency the military protects. Retail, agriculture and real estate stay effectively outside the tax net while the salaried class and manufacturers absorb the burden. Power sector circular debt reached PKR 1.89 trillion by February 2026, and arrears to Chinese power producers exceed PKR 423 billion in breach of a signed framework agreement. The export base remains narrow, and political instability compounds everything, from eroding confidence in the stock market to constant roadblocks in governance.
Pakistan’s economy is growing 2.2 percent while its poverty rate climbs 6.4 points is not a sign of recovery, and the military controlling policy has responded by expanding its own budget by 17.6 percent and its procurement line by nearly 40 percent. American money, should it arrive in Pakistan, would only buy more time rather than a solution. Pakistan’s problem is not a shortage of external finance, since it has received more of that than almost any comparable country. The problem is a political economy in which the only actor with the power to reform, the military establishment, has the greatest interest in preserving things exactly as they are.
Views: 9
