GROWING inequality is a serious economic and social issue. Internally, we tend to treat poverty and inequality as separate problems. They are closely connected but not identical. Poverty is about deprivation; inequality is about how income, wealth, opportunities, and economic power are distributed. An economy can grow and even reduce poverty temporarily while allowing wealth and privilege to become concentrated.
Household data underlines the problem. The consumption-based Gini coefficient increased from 28.4 in 2018 –19 to 32.7 in 2024 –25. This figure does not capture the full extent of inequality in income and wealth, because household surveys tend to underrepresent the assets and incomes of the richest households.
The distribution of income and wealth influences what people consume, what businesses produce, where investment flows, and how much a country imports. In Pakistan, a relatively small segment commands a disproportionately large share of purchasing power and assets, while much of the population struggles to meet basic needs.
A relatively small segment commands a disproportionately large share of purchasing power and assets.
The benefits of economic growth have been distributed unevenly. Expanding sectors such as banking, telecommunications, IT, energy, oil and gas require capital, technology, and specialised skills, favouring those who already possess financial resources or access to quality education. The state’s failure to provide decent education and healthcare has denied much of the population a fair opportunity to participate in these activities. Hence, economic disadvantages are passed from one generation to the next.
Equally damaging is the continued protection of selected businesses from competition through high import duties, subsidies, tax exemptions, and special regulatory concessions. Powerful business groups have resisted competition, sometimes forming cartels to influence prices and markets. Profits earned through state protection rather than efficiency reward influence instead of innovation, raise costs for consumers, and weaken competitiveness.
The tax system has reinforced these inequalities by treating similar incomes from different sources unequally. Salaried individuals face substantial income taxes, while earnings from property, capital gains, and certain commercial activities have historically enjoyed relatively favourable treatment.
The state itself has been a major contributor to wealth concentration. Valuable public land and plots have been given to officials and influential individuals, while discretionary powers over building permissions, zoning regulations, and public contracts have created opportunities for private enrichment. Rising property prices, reinforced by speculative investment and the use of real estate to park undeclared wealth, have further increased the fortunes of existing asset owners. Corruption, smuggling, tax evasion, and manipulation of import and export prices have provided additional avenues for accumulating wealth, often beyond the reach of effective taxation and accountability.
Together, these factors constitute a system in which public authority is used to transfer economic opportunities and resources to privileged groups. The consequences extend beyond unfair income distribution; they also distort how the economy allocates and uses its scarce resources.
When fortunes can be made through political connections, regulatory concessions, and protection from competition, capital and entrepreneurial talent are diverted towards securing favours rather than 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 the structure of domestic demand and, therefore, what businesses choose to produce. Businesses often respond to this purchasing power by directing investment towards activities serving a narrow market.
Meanwhile, the limited purchasing power of the majority constrains demand for mass-consumption goods, discouraging investment in industries that could serve a broader domestic market, create jobs, and compete globally.
This distorted pattern of consumption and production also contributes to our recurring external imbalances. The concentration of disposable income generates demand for imported vehicles, electronics, luxury goods, foreign travel, and education abroad, adding to the foreign exchange needed for machinery, fuel, technology, and industrial inputs. Not all imports are undesirable. Many are essential for productivity and exports. However, our consumption and production structures generate substantial demand for foreign exchange without a corresponding capacity to earn it through competitive exports.
Remittances from overseas Pakistanis have helped bridge this gap. But however valuable these inflows, they cannot substitute indefinitely for an economy capable of financing its import requirements through its own export earnings.
Inequality is certainly not the sole 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 remains substantial even when we face severe foreign exchange constraints. There is another damaging effect.
When influential groups secure tax exemptions, subsidies, and protected markets, government revenues suffer. The burden of financing an oversized, extractive state, with its extensive controls and perks and privileges, consequently falls disproportionately on salaried workers, compliant businesses, and ordinary consumers unable to escape taxation.
Public expenditure compounds the problem. Chronic underinvestment in quality education and healthcare has denied millions of children a fair start. Affluent households can purchase good private education and medical care, while poorer families depend on poor and overstretched public services. Their children’s prospects depend on family circumstances. The failure to provide equal opportunities thereby perpetuates inequality across generations.
Addressing these disparities does not mean penalising wealth creation. It means distinguishing wealth earned through enterprise, innovation, and productivity from fortunes accumulated through political connections, monopolies, and state-granted privileges. This requires a fairer tax system.
Protection must give way to competition, while discretionary allocations of public land, contracts, and regulatory concessions need to be replaced by transparent, rule-based processes. Foreign aid, remittances, and favourable global developments have provided only temporary relief, enabling successive governments to shelve tough reforms, thereby sustaining 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, regardless of 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
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