Introduction
Growing inequality is a serious economic and social issue in Pakistan. People often treat poverty and inequality as separate problems, but they are closely connected. Poverty means deprivation. Inequality means how income, wealth, opportunities, and economic power are distributed. An economy can grow and reduce poverty for a short time while still allowing wealth and privilege to become concentrated in a few hands.
What the Data Shows
Household data highlights the problem. The consumption-based Gini coefficient rose from 28.4 in 2018-19 to 32.7 in 2024-25. This number does not show the full extent of inequality in income and wealth because household surveys often miss the assets and incomes of the richest families.
A relatively small segment commands a disproportionately large share of purchasing power and assets.
The way income and wealth are distributed affects what people buy, what businesses produce, where investment goes, and how much a country imports. In Pakistan, a small group controls a large share of purchasing power and assets, while much of the population struggles to meet basic needs.
Uneven Benefits of Growth
The benefits of economic growth have not been shared equally. Growing sectors like banking, telecommunications, IT, energy, oil, and gas need capital, technology, and special skills. This helps those who already have money or access to good education. The state has failed to provide decent education and healthcare, denying many people a fair chance to take part in these activities. As a result, economic disadvantages pass from one generation to the next.
Protection for Selected Businesses
It is equally damaging that some businesses are protected from competition through high import duties, subsidies, tax exemptions, and special regulatory concessions. Powerful business groups have resisted competition and sometimes formed cartels to influence prices and markets. Profits earned through state protection instead of efficiency reward influence rather than innovation. This raises costs for consumers and weakens competitiveness.
Unfair Tax System
The tax system has made inequalities worse by treating similar incomes from different sources unequally. Salaried individuals pay substantial income taxes, while earnings from property, capital gains, and some commercial activities have historically received more favourable treatment.
Role of the State in Wealth Concentration
The state itself has contributed greatly to wealth concentration. Valuable public land and plots have been given to officials and influential people. Discretionary powers over building permissions, zoning rules, and public contracts have created chances for private enrichment. Rising property prices, helped by speculative investment and the use of real estate to hide undeclared wealth, have increased the fortunes of existing asset owners. Corruption, smuggling, tax evasion, and manipulation of import and export prices have provided more ways to build wealth, often beyond effective taxation and accountability.
Together, these factors create a system where public authority is used to move economic opportunities and resources to privileged groups. The effects go beyond unfair income distribution. They also distort how the economy allocates and uses its scarce resources.
Impact on Investment and Production
When fortunes can be made through political connections, regulatory concessions, and protection from competition, capital and talent are diverted toward securing favours instead of productive investment. It becomes more profitable to lobby for higher import duties or special exemptions than to invest in technology, improve quality, or develop export markets.
The concentration of purchasing power also shapes what businesses produce. Companies often direct investment toward activities serving a narrow market. At the same time, the limited purchasing power of the majority reduces demand for mass-consumption goods. This discourages investment in industries that could serve a broader domestic market, create jobs, and compete globally.
External Imbalances and Imports
This distorted pattern of consumption and production also contributes to recurring external imbalances. Concentrated disposable income creates demand for imported vehicles, electronics, luxury goods, foreign travel, and education abroad. This adds to the foreign exchange needed for machinery, fuel, technology, and industrial inputs. Not all imports are bad. Many are essential for productivity and exports. However, our consumption and production structures create substantial demand for foreign exchange without enough capacity to earn it through competitive exports.
Remittances from overseas Pakistanis have helped bridge this gap. However valuable these inflows are, they cannot replace forever an economy that can finance its import needs through its own export earnings.
Other Factors and Revenue Loss
Inequality is not the only cause of external deficits. Exchange rate policies, tariffs, energy costs, inflation, low productivity, and weak export competitiveness also matter. Still, the concentration of purchasing power helps explain why import demand stays high even when the country faces severe foreign exchange constraints.
There is another damaging effect. When influential groups get tax exemptions, subsidies, and protected markets, government revenues suffer. The burden of financing an oversized state with extensive controls and perks then falls disproportionately on salaried workers, compliant businesses, and ordinary consumers who cannot escape taxation.
Education and Healthcare
Public spending makes the problem worse. Chronic underinvestment in quality education and healthcare has denied millions of children a fair start. Affluent households can buy good private education and medical care, while poorer families depend on weak and overstretched public services. Their children's prospects depend on family circumstances. The failure to provide equal opportunities continues inequality across generations.
Way Forward
Addressing these disparities does not mean penalising wealth creation. It means telling apart wealth earned through enterprise, innovation, and productivity from fortunes built through political connections, monopolies, and state-granted privileges. This requires a fairer tax system.
Protection must give way to competition. Discretionary allocations of public land, contracts, and regulatory concessions should be replaced by transparent, rule-based processes. Foreign aid, remittances, and favourable global developments have provided only temporary relief. This has allowed successive governments to delay tough reforms, keeping an economic structure that rewards privilege over productivity.
Unless this system of privileges and unequal opportunities is dismantled, Pakistan will remain trapped in recurring internal and external imbalances, no matter how many stabilisation programmes it negotiates with the IMF and others.
The writer is a former governor of the State Bank.
Published in Dawn, November 11th, 2026
Source: dawn