Two queues are gaining attention in Pakistan these days. On the one hand, the line outside Tim Hortons, a Canadian coffee shop that opened last week in the city of Lahore, Punjab province, in which people eagerly hold their money and wait for their turn.
It is believed that shopping from here is beyond the reach of a common man or he might not even be aware of their name.
On the other hand, the queues where people with desperate faces stand outside cheap ration depots and stores to buy flour and basic ration supplies. These queues can be seen in many places and their pictures are appearing in local media for many days.
After seeing the first type of queue, some users especially those discussing on social media think that 'Look, who says that people of Pakistan are poor or they don't have money.'
Long queues, packed hall, no space in parking, almost chaotic. Tim Hortons at 9:00 AM in Lahore on its first day.
— Tehseen Bajwa (@TBajwa7) February 11, 2023
Kithy aey Mahngae? pic.twitter.com/NoLK3HMVoe
According to some people, these two pictures represent the two extreme classes in Pakistan economically, i.e. the 'extremely rich' and the 'extremely poor'.
So the question is why the middle class i.e. 'middle class' is not visible.
According to economists, the middle class or the middle class of any country is considered the backbone of the economy. These are the people whose purchasing power keeps money in circulation. These people also drive the wheels of industry.
If the size of the middle class is large, it will show that the number of people living below the poverty line is decreasing, i.e. they are entering the 'middle class'.
Some people watching the recent scenes outside the ration shops in Pakistan are also asking the question of whether it is not the case that the 'middle class' in Pakistan is shrinking, i.e. the number of people who fall below the poverty line is increasing.
According to economists, it would not be wrong to think so, especially when inflation in Pakistan is continuously increasing and foreign exchange reserves are continuously decreasing.
Two crore people will fall below the poverty line.
Dr. Hafeez Pasha, Pakistan's prominent economist, and former finance minister said that there is a fear that in the next few years, around two million people will go below the poverty line in Pakistan.
According to him, these are the people whose monthly income is between 30,000 to 40,000 rupees.
Economist and Dr. Sajid Amin from Sustainable Development Institute Islamabad (SDPI) say that internationally according to the World Bank, a person who earns ten dollars a day is considered middle class. His income is three hundred dollars a month, according to which the current exchange rate is about 80 thousand Pakistani rupees.
Dr. Sajid Amin says that the middle class has been growing in Pakistan for the past two decades, but this trend stopped in 2018. "The downward trend that started after 2018 reached the extent that the middle class almost halved in the following year," he said, adding that the trend is still continuing.
What is causing the shrinking middle class?
Economist Dr. Hafeez Pasha says that the main reason for this is that the recent floods in Pakistan have damaged the country's economy, but at the same time, Pakistan's foreign exchange reserves have decreased to less than three billion dollars, while industry and exports have declined. The wheel has stopped.
He says that the government imposed restrictions on imports to control the situation, due to which industrialization in the country stopped and on the other hand, foreign exchange reserves are continuously decreasing. Therefore, the rate of economic growth (economic development) in Pakistan has been extremely low and will continue to decrease.
They believe that Pakistan's growth rate is likely to go negative by the end of this year. According to Dr. Hafeez Pasha, Pakistan currently does not have much economic capacity to increase these foreign exchange reserves quickly.
According to Dr. Sajid Amin, Economist of SDPI, there are mainly three reasons for the continuous shrinking of the middle class in Pakistan after 2018.
According to him, in 2019 and thereafter, the government tightened the fiscal policy. It is a policy in which governments reduce their spending and increase taxes. This leaves less money for businesses and consumers to spend, and the purchasing power of people continues to decline.
A lower growth rate, he says, "will further increase unemployment and further reduce the growth of the economy."
Dr. Sajid Amin says that the value of the dollar was artificially kept at a certain level in Pakistan till the year 2018, but after 2019, the value of the rupee started falling against the dollar and now it has fallen a lot.
'Thus the person who was earning Rs 105 earlier was earning one dollar. He is indeed earning 105 rupees as the dollar is expensive, but it is much less than one dollar. Therefore, he does not meet the World Bank's definition of the middle class.
Dr. Sajid Amin says that at the same time, inflation in Pakistan is at the highest level in history and rising inflation is also a reason for the shrinking of the middle class.
The downside of a shrinking middle class and how it can be prevented?
Dr. Hafeez Pasha says that the shrinking of the middle class will further slow down the growth rate as the demand that drives the economy comes from the middle class itself.
"In the next few years, Pakistan's growth rate is likely to remain negative, which is very dangerous, and it is even more dangerous because the inflation rate in the country may exceed 25 percent."
Dr. Sajid Amin says that every type of demand in any country's economy, i.e. demand and supply, comes from the middle class.
"If the middle class shrinks, this demand will also decrease, meaning there will be fewer spenders, so there will be fewer business opportunities, fewer employment opportunities, and as a result, less money to spend."
According to him, one of its disadvantages will be that the number of people saving money will decrease. Generally, the upper class generates investment while the savings that come from the middle class by depositing money in banks will also disappear.
Dr. Sajid Amin believes that if the trend of shrinking the middle class in Pakistan continues and the economy of Pakistan does not improve, then the time is not far from when the middle class will disappear in Pakistan.
At present, the middle class in Pakistan is facing annihilation. The economy of the world is not very good, the civil war in Ukraine is also going on and the effects of Pakistan going to the IMF will continue because Pakistan has to stay with the IMF because it has not lived without it.
Dr. Sajid Amin believes that this year will be the most difficult if we look at the shrinking trend of the middle class in these difficult financial conditions. "The year 2023 will be the year in which the middle class may disappear completely."
Dr. Hafeez Pasha believes that unless Pakistan's foreign exchange reserves go into double digits, i.e., to the level of ten or more billion dollars, there is little chance of improvement.
Pakistan's problems may increase further when oil prices increase in the world. "If the price of ten dollars per barrel increases, the impact on Pakistan is around three billion dollars."
And in his view, the increase in economic activity in China is likely to increase the price of oil.
Can the government help the middle class?
Economist Dr. Hafeez Pasha believes that the schemes that the government had started to give relief to the people were also withdrawn such as the subsidy program for farmers etc.
He says that the government is facing a budget deficit and the debts are so high that the government does not have enough room to start relief schemes.
If you want to estimate, it can be estimated from here that the interest that Pakistan has to pay on loans is five thousand billion rupees every year. Compared to this, which is the largest relief scheme of the government, the Benazir Income Support Program, its total volume is 360 billion rupees.
Economist Dr. Sajid Amin says that in these circumstances, the government should identify locally such developmental activities that do not depend on imported goods, that is, those sectors in which labor (labor) work is more.
Otherwise, the import pressure on Pakistan will be very high. Therefore, the government should identify labor-intensive sectors within the agriculture, food security or food chain sector, and small and medium-scale industries. Thus economic activity can be initiated.'
Otherwise, Pakistan's debts will increase and foreign exchange reserves will decrease further.
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