Pakistan Economy

SOCIAL SECTORS
Poverty
Poverty
 Visible characteristic of underdevelopment
 According to estimates during 1990 there were over a billion
living below poverty line
 Poverty reduction is an important goal , which was also
specified in Millennium Development Goals of UN, which
committed to reduce incidence of poverty by half by 2015
Poverty Measure
 Poverty line: a critical threshold of income, consumption, or
, access to goods and services below which individuals are
declared to be poor
 Head count Measure: simply count the number of people
below the poverty line
 Head count Ratio: H/N
 Total poverty gap

H
TPG = i =1
(Yp − Yi )

 Where Yp is the absolute poverty line

 Yi is income of person I
Extent of Poverty and Characteristic of
Poor
 Demographic features:
 Large family size
 High dependency ratio
 Education
 Rural and urban Poverty:
 Rural poor usually small farmers
 Lack of ownership of assets
 Poverty and under nutrition
 Poverty incidence amongst household
 Poor lack access to market, credit etc
Solving Pakistan’s Poverty Puzzle: Whom
Solving Pakistan’s Poverty Puzzle: Whom
should we believe? What should we do?
should we believe? What should we do?
By: Rashid Amjad
Introduction
 Pakistan generated impressive growth rates in the 60’s and
80’s with low levels of saving, investment and very poor
human development indicators.

 Pakistan’s growth performance has been among the top ten in

the world during the period 1960 – 90.
Introduction
 Understanding the wide fluctuations in its poverty level are
even more difficult to explain
 60’s: high economic growth but increasing poverty levels
 70’s; low economic growth accompanied by reduction in
poverty levels
 80’s: high economic growth leading to decline in poverty
 90’s: low growth and high poverty
Poverty Trends in Pakistan (1960 –
2001)
 1960 – 1987:
 Poverty levels increased in the 1960’s and fell in the 1970’s and
80’s although the extent of the decline in the 70’s is disputed
 Post 1987:
 Significant difference between the result of studies done by the
World Bank and those done by other institutions.
 The WB study shows that poverty declined till 1996 and
increased after it, leaving overall poverty stagnant during the
90’s.
Poverty Trends in Pakistan (1960 –
2001)
 Anwar and Qureshi (2002):
 The headcount measure of poverty has increased from 17.2 in
1990 to 30.4% in 1998 and further to 35.6% in 2001.
 Doubt the WB study and conclude that the stagnation in poverty
estimates are due to the overestimation of poverty in earlier
years by the World Bank
Poverty Trends in Pakistan (1960 –
2001)
 Why this controversy?
 No established ‘official poverty line’
 2002: an official poverty line defined by the Planning
Commission as being 2350 calories per day per adult as an
average requirement for all individuals
 Based on the official poverty line, overall poverty level declined
from 29.1% in 1986 to 26.1% in 1990, but then increased to
32.1% by 2000.
 Major increase in poverty was witnessed in the rural areas;
poverty in urban areas actually declined
Whom should we believe?
 Two important facts:
 Both the levels and trends in poverty are very sensitive to the
choice of the poverty line
 A significant portion of the population is clustered around the
poverty line. The transitory vulnerable and the transitory poor
can move above or below the poverty line even if there is a
marginal change in the economic conditions.
Whom should we believe?
 The lack of agreement on poverty trends may be the
reason why significant importance was not given to
poverty and unemployment issues by successive regimes
during the 90’s.

 1994: first higher level recognition of poverty as an

important issue.
 The Economic Coordination Committee asked the Federal
Bureau of Statistics to submit a report on income dist and
poverty in the country
 The report, which concluded that poverty had increased in the
country b/w 88 – 91, was never submitted to the ECC.
Cross-country Comparisons
Cross-country Comparisons.
 How does Pakistan compare with other countries, especially
over the 1990’s

 The choice of countries is explained by the fact that the

structural and economic features of these countries are
broadly similar to that of Pakistan.

 Countries examined: India, Bangladesh, Indonesia,

Philippines, Thailand and Egypt.
Cross-country Comparisons: India
 High poverty levels of around 55% during the 70’s, but
have shown a steady decline during the 80’s and 90’s.

 Reasons:
 Higher econ gr, especially in the agri sector (3.4%)
 Real wages increased during the 80’s and 90’s
Cross-country Comparisons: India
 Points to note:
 Although agri gr rate (3.4%) was high in India, it was lower
than that of Pakistan (4%)
 Continuing rise in real wages during the 90’s
 Subsidies and current transfers for the poor decreased from 43
to 41% in India, whereas they were halved in Pakistan from
20% to 11% during 1990 – 2000.
Cross-country Comparisons:
Bangladesh
 Fluctuations in its level of poverty.
 Reasons:
 Low economic and agricultural growth
 Low investment rates
 Public development expenditure in agriculture was reduced
drastically, without introducing any alternative incentives.
 Real rates of interest increased sharply.
Cross-country Comparisons
 Comparing the three South Asian countries:
 13.4% of the pop lived below the poverty line in Pakistan in
1998
 India: 34.7% in 1999 – 2000.
 Bangladesh: 36% in 2000.
Cross-country Comparisons: Indonesia
 Poverty has decreased steadily since 1976.
 Witnessed an increase after the East Asian crises, but has
subsequently decreased.

 Reasons:
 High rate of labor intensive manufactured export goods
 High levels of foreign direct investment
 Sustained increase in agricultural production
Cross-country Comparisons:
Philippines
 Why a comparison is useful:
 Both countries have a significant proportion of their labor force
working abroad.
 Both were cited as the two potential Asia tigers based on their
growth rates during the 60’s; their subsequent performance did
not live up to the earlier expectations.
 Large inflow of remittances in both the countries
Cross-country Comparisons:
Philippines
 Despite the inflow of remittances, Philippines was unable to
reduce poverty as Pakistan and during the 70’s and 80’s.
 Reason:
 Inability to sustain growth in contrast to its South-East Asian
neighbors.
 Overall growth was just 1% during the 80’s.
 Badly affected by the E.Asian crisis.
Cross-country Comparisons: Thailand
 Poverty levels declined steadily since the 70’s, but went up
during the East Asian crisis.
 Main engine of poverty reduction:
 Sustained economic growth
 Sustained agricultural growth
 Impressive growth of labor-intensive manufactured exports.
Cross-country Comparisons: Egypt
 Poverty decreased during the second half of the 90’s.
Reasons:
 Rapid economic growth during this time
 Significant improvement in its human development indicators
 Rapid growth in jobs, incomes and productivity
 Safety nets:
 Food subsidy programme (bread, sugar, cooking oil etc.)
 Social Fund for Development targeted towards new graduates,
unemployed youth and female headed households. It supports HRD
through training and skill development.
Cross-country Comparisons: Broad
Conclusions
1. The performance of the agricultural sector has a very
important impact on poverty in these countries, because a
significant proportion of their population works and lives
on this sector
• India: agri growth translated into a rise in real wages and a
decrease in poverty.
• Pakistan: high agri growth was not able to reduce poverty
during the 90’s.
Cross-country Comparisons: Broad
Conclusions
2. The impact of economic growth on poverty is most
strongly transmitted through the labor market, i.e. it
should be employment generating and enhancing labor
productivity
• Bangladesh during the 90’s
• Pakistan in the 70’s as opposed to the 60’s
• Indonesia and Thailand’s success in reducing poverty by
labor-intensive exports
Cross-country Comparisons: Broad
Conclusions
3. Incomes of the poor are not only a function of economic
growth and better job opportunities, but also of what
happens to prices of basic food items and other necessities
=> govt. subsidies
4. Micro interventions in the form of public work programs
and wage guarantee schemes can help reduce
unemployment and hence poverty.
Economic Management in the 90’s
 Major reasons for the rise in poverty:
 Slowing down of economic growth
 Large fluctuations and decline in cotton production (pest
attacks)
 Continuing slowing down of remittances
 Bad weather conditions, which affected agri
 Economic sanctions
 Economic uncertainty due to frequent changes in govt.
 Lack of continuity in economic decision making
 Interim govt’s entered into agreements with MFI’s.
Responses to Poverty

Report By Asian Development Bank

 What needs to be done:
 Improve governance and accountability of public institutions
 Assist the poor economically by responding to their needs
 Create income and employment opportunities
 Improve the access of the poor to basic services

 Who has a role to play?

 The government (public sector)
 NGO’s
 The private sector
The Public Sector
 Initiated reforms to improve the functioning of state
institutions

 Historically, all poverty-targeted public policies can be

categorized into 3 sectors:

 Public works program for asset creation and employment

generation
 Micro-finance, to promote income opportunities
 Social Protection Programs
 Governance Reforms
 Devolution Plan
 Access to Justice
 Civil Service Reforms
Governance Reforms: Devolution Plan
 Announced in March 2000

 Aim:
 To replace the existing highly centralized and control
oriented govt. with a three-tiered local govt. system
Governance Reforms: Devolution Plan
 Under the plan, the bulk of basic poverty focused services
(health, edu) have been devolved to district and lower local
govt.

 Devolution can make a difference by:

 Promoting competition, ownership and accountability in
delivery of public services
 Involving people more actively in community issues
Governance Reforms: Devolution Plan
 Setbacks:
 Intl. experience shows that devolution takes some time to have
an impact

 Technical and institutional capacity at the local and district level

is extremely weak
Governance Reforms: Access to Justice

 Building on the strengths of existing local conflict resolution systems (Panchayats) to

establish new institutions, called Masalihat Anjumans (Conciliation Committees)

 Aim to reach quick resolution of private disputes at the local level

 Reduce the time lag between filing of court cases and finalization of case decisions

 Priority has been given to cases filed in court under the Family Laws

 Re-organization of the police system. Aims:

 Upgrade its professional standards

 Enhance its accountability at the local level.
Governance Reforms: Civil Service Reforms

 Improve the financial management system

 Separation of audit and account functions
 Institutional strengthening of the Central Board of Revenue
 Establishment of the NAB to check corruption
 Publish fiscal accounts on a quarterly basis
 Promote merit in recruitment for public services
Public Works Programs
 Khushhal Pakistan Program
 Targets employment creation through the construction of
infrastructure
 Implemented through a three-tier govt. structure
 Attempts to involve local people in identification, management
and implementation of small projects
 Inculcate a sense of ownership among the beneficiaries
 A large no. of farm to market roads, water supply schemes and
schools have been constructed or renovated under this scheme
Microfinance

 Historically been provided by NGO’s, with the pioneers being

the AKRSP.

 1990’s: replication of the AKRSP by the govt, in the form of the

National Rural Support Program (NRSP)

 Recent initiatives:
 PPAF
 Khushhali Bank
Microfinance
 Small Business Finance Corporation established to provide
credit to borrowers from small and cottage industry

 Youth Investment Promotion Scheme

 SME Bank, to support the financing needs of small and

medium scale enterprises
Poverty Reduction Strategy
 Medium term development agenda focuses on reducing poverty in
Pakistan

 IPRSP released in 2001; incorporates the discussions between the

government, civil society and donor agencies.
Poverty Reduction Strategy
 Four sectors are to take lead in the revival of growth:
 Agriculture
 SME’s
 Information technology
 Energy (primarily coal and gas)
 Although the strategy is quite comprehensive, its
implementation will depend on the adequate provision
of financial resources
Non-profit Sector and Civil Society
 Emerged as an important player on the development
scene in Pakistan in the last to decades.

 About 45,000 registered and unregistered non-profit

org’s, that collectively employ 264,000 people and have
an operating annual cash expenditure of Rs. 12.959
million
 Non-profit Sector

 NGO’s at present are working in a diverse set of activities and

offering a diverse portfolio of opportunities.

1. Welfare Oriented NGO’s: philanthropic institutions working with

vulnerable groups, e.g. EdhiWelfare Trust

2. Social Sector Service Delivery NGO’s: focus on health and

education, e.g. Family Planning Association of Pakistan, Aga Khan
Health service, Aga Khan education service. Private initiatives,
such as the Shaukat Khanum and The Kidney Center also fall
under this category
 Non-profit Sector and Civil Society

3. Rural Support Programs and other Development NGO’s:

implement an integrated rural and urban development
plan, by adopting a participatory approach and work closely
with local communities

4. Micro-finance institutions
Non-profit Sector and Civil Society

4. Advocacy Groups
• Became active in the 1980’s
• Took on the role of ‘watch-dogs’ and formed pressure groups to lobby
on specific issues
• Broadly deal with human rights, women and child rights and
environmental issues
• Examples: Human Rights Commission of Pakistan, Aurat Foundation,
Women’s Action Forum etc.

5. Key International NGO’s:

• Focus on:
 Direct implementation
 Capacity building of local institutions
Assignment
 Do a cross country analysis of the 6 countries and discuss
what Pakistan can do in order to reduce its poverty levels.