Where has the middle class gone?
Published on: January 16, 2024.
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The Disappearance of the Middle Class: A Crisis in Pakistan
In countries like Pakistan, the middle class is slowly disappearing due to a combination of factors such as lack of job opportunities, inflation, and economic crises. The Covid-19 pandemic has exacerbated this crisis, causing global supply chain disruptions and economic turbulence.
Technological advancements, particularly in the field of artificial intelligence, have also contributed to the decline of the middle class. The middle class is essential to any economy as it drives economic growth through hard work and aspirations for upward mobility.
The Shrinkage of the Middle Class
In Pakistan, the middle class earns between Rs600,000 and Rs1,500,000 annually. However, earning opportunities for this group are decreasing, leading to the shrinking of the middle class. This is a worrying trend as the middle class plays a crucial role in ensuring economic progress.
There are five indicators that define the middle class in Pakistan: education, occupation, income, lifestyle, and housing. Unfortunately, the middle class in Pakistan is currently facing challenges such as high inflation, unemployment, and a debt-ridden economy.
Estimates suggest that the once vibrant middle class, which comprised around 35% of Pakistani society, has been wiped out in the last four years due to factors like the effects of Covid-19 and high inflation. The investment atmosphere in the country has also suffered, with minimal investments coming in.
A Vicious Cycle of Debt
Within Pakistan, the burden of external loans and the associated interest rates has adversely affected the middle class. Loan programs from international financial institutions have led to increasing tariffs and fueling inflation, trapping the country in a cycle of debt. These loans should have been used for sustainable economic growth and employment generation, rather than funding social safety net programs.
Impact of Inflation
The rising energy tariffs, especially inflated electricity and gas bills, have made the lives of ordinary Pakistanis miserable. Overall inflation, particularly in food prices, has pushed middle-income individuals below the poverty line. The shrinking economy has resulted in a lack of job opportunities, making it challenging to find employment in the high-tech world.
The Role of the Informal Economy
The informal sector plays a significant role in uplifting the middle class in Pakistan. About 60-65% of economic growth in Pakistan is contributed by the informal sector, which includes retailers, street vendors, small-scale agriculturists, and middle-level entrepreneurs. However, this sector has been negatively impacted by increasing energy tariffs and currency devaluation.
Saving the Middle Class
To ensure sustainable economic growth and the well-being of the people, it is crucial to support and protect the middle class.
Controlling Inflation
The first step is to control inflation to alleviate the burden of price hikes on the middle class. The policy rate should be reduced to create an investment-friendly environment.
Formalizing the Informal Sector
Bringing the informal sector into the tax net through a well-thought-out process will help improve economic stability and support the middle class.
A vibrant middle class is crucial for sustainable economic growth and serves as an effective social safety net for the poor. It is essential to address the challenges faced by the middle class in Pakistan and ensure their well-being.
Source: The News
