THIS year, the World Bank revised its global poverty lines once again.
The World Bank now uses three different poverty thresholds, depending on a country’s income category. For upper-middle-income countries, the poverty line is $8.30 per person per day. For lower-middle-income countries, it is $4.20 and for low-income countries, the line stands at $3.00 per person per day. Pakistan is classified as a lower-middle-income country, so the relevant benchmark for us is $4.20 per person per day. At first glance, this figure may not appear alarming. But what does $4.20 per day actually mean for Pakistani households? If we simply convert it using the market exchange rate, the number will look impossibly high. However, the World Bank does not use the market dollar for poverty measurement. Instead, it relies on a concept called the Purchasing Power Parity (PPP) dollar.
A PPP dollar does not represent the value of one US dollar at the exchange counter. It represents what one dollar can buy in the United States, translated into the amount of local currency needed to purchase the same basket of goods and services at home. In simple terms, if a product costs $1 in the United States, how many rupees would be required to buy an equivalent product in Pakistan? According to the latest international estimates, Pakistan’s PPP conversion factor is about 72.3 rupees per international dollar. This means spending roughly Rs72 in Pakistan allows you to buy what an American would purchase for $1. This reflects the fact that many goods and services are cheaper in Pakistan than in the United States. When the World Bank sets the poverty line at $4.20 per day, it refers to PPP dollars, not market dollars.
Let’s compare this poverty line with Pakistan’s wage structure. The current statutory minimum wage is Rs37,000 per month. A worker earning this amount and supporting a family of six falls dramatically below the international poverty line. This stark arithmetic reveals a troubling reality: Pakistan’s minimum wage is not a living wage. It is not even close to what would be required to lift a typical family above the poverty line. To bridge this gap, minimum wages would need to be increased well above the current level. The poverty line is not merely an abstract concept, it is meant to represent the income required to secure basic nutrition, shelter, clothing, healthcare, and other essentials. If a full-time worker cannot earn enough for basic needs —it represents a failure of wage policy.
At present, the minimum monthly taxable income is Rs50,000. On contrary, as shown above, a family requires around Rs 54,600 per month to remain above the poverty line. This means that individuals earning incomes below what is needed to escape poverty are also liable for income tax. A household struggling to meet basic needs is simultaneously treated as part of the taxable population. This contradicts the most basic principle of progressive taxation: the poor should not be taxed. Is inflation really the main problem? This discussion also challenges a popular narrative in Pakistan: that inflation is the primary cause of hardship. Inflation is real and painful, but it does not fully explain why so many Pakistanis remain poor. In PPP terms, Rs72 in Pakistan buys what $1 buys in the United States, where $1 is worth about Rs280 at the market exchange rate. This means that, comparatively speaking, many goods and services are much cheaper in Pakistan.
Yet despite these lower prices, millions of Pakistanis cannot afford basic necessities. The core problem, therefore, is not simply high prices —it is chronically low incomes. When wages are depressed, even relatively low prices become unaffordable. This distinction matters for policy: if the diagnosis is “inflation,” the response may be to tighten monetary policy and curb demand. If the diagnosis is “low income,” the response must be to lose monetary policy to allow income growth and employment. Pakistan’s policy formulation has focused overwhelmingly on inflation, further dampening the acute low level of income.
From this analysis, several conclusions emerge: First, Pakistan’s crisis is not merely about rising prices. The cost of living in Pakistan is relatively low. What makes life unaffordable is the extremely low level of income. Second, despite lower prices, a vast proportion of Pakistanis live below the international poverty line and a large segment of the population are unable to meet even basic consumption standards. Third, the current minimum wage is far too low to lift a typical household out of poverty. To make meaningful progress, minimum wages would need to be increased substantially. Fourth, Pakistan’s tax policy is deeply regressive in practice. People earning below the poverty threshold are required to pay income tax, a situation that is economically unjust and socially damaging.
These figures are not merely academic; they point to a fundamental misalignment between Pakistan’s economic policies and the lived realities of its citizens. When the official minimum wage does not guarantee escape from poverty, when taxation reaches into subsistence incomes, and when public debate treats inflation as the sole villain, the result is a cycle of hardship. Addressing poverty in Pakistan therefore requires a reorientation of wage policy, a progressive restructuring of the tax system, and a serious focus on raising real incomes through productivity, skills, and decent employment.
—The writer is Associate Professor, Kashmir Institute of Economics University of Azad Jammu and Kashmir.
