Poverty cannot be tackled without having credible data and figures related to poverty incidence in Pakistan. Poverty reduction has been a major official development objective in the country over the past many years. Critics however blame the governments for downplaying the figures related to poverty incidence to cover up their respective acts of omission or commission. Despite tall claims of the present government about putting the economy on growth track, it is undeniable fact that, poverty level would increase in the coming days as dependence on foreign loans would hurt economy, ultimately pushing more and more people below the poverty line.
Headcount poverty was computed in Pakistan in 2001. The 2001 model of poverty measurement was based on food energy intake (FEI), which was not a representative one. The 2001 poverty line formula placed 20 million people poor was outdated and misleading. Since 2001, the ground reality has changed altogether amid structural reforms, liberalization, social safety nets, increase in remittances and natural calamities.
In the 16 years, the country has changed in many important ways. To make it more transparent and coherent, the present government incorporated costs of basic needs (CBN) for capturing non-food expenditures in the new formula. Last year, the government announced that 60 million Pakistanis are living below the poverty line. The number of poor increased owing to the adoption of a new methodology for measuring poverty, which used the 2013-14 survey data. Using 2013-14 data, the poverty headcount ratio comes out to be 29.5 percent of the population. In monetary terms, poverty line stands at Rs3,030 per adult equivalent per month. Under the old poverty line, the percentage of the poor fell by around 25 percentage points, from a high of 34.6 percent in 2001-02 to 9.3 percent in 2013-14.
According to the World Bank estimate, the poverty levels were in decline since 2001, falling from 34.7 percent in 2000-01 to 23.3 percent in 2004-05, 21.9 percent in 2005-06, 16.5 percent in 2007-08, 12.2 percent in 2010-11, 12.4 percent in 2011-12 and 9.3 percent in 2013-14.
The Multidimensional Poverty Index (MPI) uses a broader concept of poverty than income and wealth alone. It reflects the deprivations people experience with respect to health, education and standard of living, and is thus a more detailed way of understanding and alleviating poverty.
In June 2016, the country’s first ever official report on multidimensional poverty was launched by the Ministry of Planning, Development and Reform. The report was compiled with technical support from UNDP Pakistan and the Oxford Poverty and Human Development Initiative (OPHI), University of Oxford. According to the report, nearly 39 percent of Pakistanis live in multidimensional poverty, with the highest rates of poverty in FATA and Balochistan. Pakistan’s MPI showed a strong decline, with national poverty rates falling from 55 to 39 percent from 2004 to 2015. However progress across different regions of Pakistan is uneven. Poverty in urban areas is 9.3 percent as compared to 54.6 percent in rural areas. Disparities also exist across provinces. The report found that over two-thirds of people in FATA (73 percent) and Balochistan (71 percent) live in multidimensional poverty. Poverty in Khyber Pakhtunkhwa stands at 49 percent, Gilgit-Baltistan and Sindh at 43 percent, Punjab at 31 percent and Azad Jammu and Kashmir at 25 percent.
Poverty should be more comprehensively measured through an index that uses multiple indicators. These may be broadly categorized as socioeconomic and demographic indicators related to income and wealth, housing, transport and communication, education, health and gender equality. The government must take steps for supporting the poor and reducing their vulnerability. The government should also create conditions for the development of insurance markets, encourage the use of other risk-spreading financial instruments and design economic and regulatory incentives for risk reduction behavior.
Micro financing can prove a vital approach to alleviate poverty in the country. It has emerged out to be an effective tool to combat wide spread poverty in the third world countries. Provision of credit to the people at grassroots level and small firms is an excellent strategy to boost economic activities and generating job opportunities. The development of micro-finance sector can bring about a real change in the lowest strata of society and improve the socio-economic status of the poor segments of the society. Micro-credit may be used as an effective tool to combat wide spread poverty. An informal credit supply is not the answer to ameliorate poverty, as the poor frequently turn to the informal credit suppliers that put crippling terms and conditions for micro-credit. Efforts should be made to maximize to outreach of the clients for promotion of private banks willing to invest in the micro credit. The government should extend small interest free loans up to Rs500,000 to the trained youth to enable them to establish micro enterprises. The scheme can be implemented through different micro loan facilitators, including banks while big industrial concerns can also be encouraged to support the endeavor.
There are multiple factors pushing people below poverty line in Pakistan. Unemployment is a major factor. With an unemployment rate up to 10 percent, unemployed youth continues to experience the pangs of poverty for they are unable to meet basic needs of life. Unemployment is rampant not only among the unskilled labor but also among the educated youth, many of them with professional skills. The unemployment rate in Pakistan has surged at a time when major portion of the population belongs to the working age. The country’s technical vocational education and training system lacks meaningful participation of stakeholders, and not geared to meet the market needs. Due to shortage of skilled labor and necessary equipment, local industry is finding it hard to adapt to the demands of the work force mobility, particularly in the implementation of innovative processes. The existing training institutions are not capable of imparting and developing skills required for competitiveness, productivity and employment. There is a need to standardize training, raise its social perception, make it available to marginalized sections of the society and improve the mechanisms for its delivery.
Worst power crisis is another factor that caused closure of many industrial units all over the country rendering thousands of people jobless. Due to power shortages, industries are unable to operate full-time to increase production and earn maximum profit. Alternate power arrangements increased the expenses of the units forcing them to downsizing to meet their expenditures. The acute energy crisis has virtually suffocated the industry, causing widespread discontentment in the business circles. This could result in closure of more industrial units and increase in the unemployment rate in the war-torn country. The country is losing at least 2% of the GDP growth annually due to the power shortages.
Law and order problem has critically marred overall business environment in Pakistan. Foreign investors and businessmen fear to invest or expand their existing stake in the country due to security concerns. The country faces serious threat from religious extremists who have so far killed over 50,000 citizens in terrorist attacks across the country. The law and order problem continues to evaporate foreign investment in the country. Thousands of people lost their lives in multi-faceted violence in last two years in Karachi. For years, lawlessness ruled supreme in Karachi where people were daily killed in politically and ethnically motivated violence. The country’s industry and exports are worst hit by the unsatisfactory security situation in the port city of Karachi. The law and order problem has shattered the investors’ confidence. The cash-strapped country direly needs foreign inflows to revive the economic growth. Peace and stability is vital to economic activity, which creates employment opportunities.