Since even the official inflation rate has doubled from 3-4 percent in 2002-03 to 7-8 percent in 2006-07, the claims about any significant poverty reduction appear to be far from reality.

SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
May 21 - 27, 2007

While the Prime Minister and his economic managers maintain that Pakistan is all set to become Asian tiger with GDP growth rate to continue at the rate of 7 to 8 percent, the independent economists and even the international donors are of the view that the economic indicators on the micro-level are not encouraging. Ever-rising cost of living in the form of stubborn inflation is adding to the magnitude of the poor and poverty in the country. According to them, growing economic inequities have reached an alarming stage, which is a real cause of concern.

According to a latest report of the World Bank, 74 percent of Pakistan's population survives on a daily income of $2 or (Rs. 120 only) or Rs 3600 per month. While the government uses a different definition of poverty, the international definition of extreme poverty implies daily income of less than $1 and that of moderate poverty with an income of $1 to $2 a day. The percentage of Pakistanis living below the poverty line (income of less than $2 a day) is much higher compared to 58, 43 and nine percent in Kenya, the Philippines and Malaysia, respectively. Given that 74 percent of people survive on less than the official minimum wage of Rs.4000, it is rather hard and even absurd to argue that anyone living on an income of less than the minimum wage is not poor. But that has not stopped the government from claiming a figure of 29 to 34 percent as the one representing those who are poor.

Furthermore, since even the official inflation rate has doubled from 3-4 percent in 2002-03 to 7-8 percent in 2006-07, the claims about any significant poverty reduction appear to be far from reality because the poor are most vulnerable to inflation particularly food price inflation, which has been persistently higher than the overall consumer price inflation (CPI), which remains stubbornly high at eight percent and is unlikely to come down to this year's original target of 6.5 percent despite the central bank's tight monetary policy.

Talking to PML parliamentarians at Parliament House in Islamabad, Prime Minister Shaukat Aziz had said that "during the present government's initial years in office, it focused more on achieving macroeconomic stability to take the country out of financial crisis", but later gradually increased spending on the social sector. "As a result, the benefits of growth started trickling down to the grassroots level and people have now better facilities of education, health, drinking water and infrastructure," he said, adding that during fiscal 2001-02 to 2005-06, the government spent close to Rs.1480 billion on the social sector and poverty reduction programmes. The overall pro-poor expenditures, as a percentage of GDP, increased from 4.0 percent in 2001-02 to 6.1 percent in 2005-06. "In monetary terms, these expenditures have increased form Rs.180 billion in 2001-02 to Rs. 464 billion in 2005-06, showing an average annual growth of 27 percent," he added.

Aziz said the government had increased expenditure on the social sectors i.e. education, health, population welfare, social welfare and safety nets at an average annual rate of 22 percent during the period 2001-02 to 2005-06. "These expenditures increased from Rs.103.1 billion in 2001-02 to Rs.227.7 billion in 2005-06. "It is heartening to see that poverty has declined in both rural and urban areas," he said, adding that high GDP growth, a decline in unemployment and higher government spending on poverty reduction projects have contributed to a 10.6 percentage point decline in absolute poverty. "The poverty head count, which was 34.4 percent in 2001, came down to 23.9 percent in 2005.

Aziz further said the bumper crop of wheat this year, the on-going reforms in the social sector and social protection would further improve social indicators and help reduce poverty in both urban and rural areas. "It is also making targeted interventions for the poor through the Bait-ul-Mall and Zakat systems, among other measures," he added.

It is pertinent to point out that at the present price level of food and kitchen items in Pakistan the old yardstick of measuring poverty with the income level of one dollar a day has become meaningless. Even with an income of 2 dollars a day (which comes to Rs. 3600 per month) a family of four persons cannot meet their kitchen expenses of two meals a day. At the current exchange rate, a dollar a day translates into a per capita income of Rs.60 a day or Rs. 1,800 a month. Do top government officials sitting in their ivory towers in Islamabad have any idea of the sort of standard of living that is possible on an income of Rs. 1,800 a month at today's prices?

If the poverty line level is raised to a somewhat more realistic level of a per capita income of two dollars a day (Rs.120 a day), the poverty head count figure of 23.9 percent in 2005, cited by Aziz, straightaway jumps to 47.8 percent. Secondly, while the growth in social sector spending levels cited by Aziz sounds impressive, it doesn't really amount to all that much when viewed against the backdrop of the fact that Pakistan is a country of 160 million people, with a population growth rate of 2.5 percent a year.

Based on a population of 160 million, social sector and poverty reduction spending of Rs.464 billion in fiscal 2005-06 translates into spending of Rs.2900 per capita for the year, or Rs.241 per capita a month. Can one realistically expect to lift significant numbers of people out of poverty by spending Rs.241 a month per capita on social sector and poverty reduction schemes? The answer is 'no', one can't.

Thirdly, the spending figures cited by the Prime Minister do not take into account the fact that at an annual growth rate of 2.5 percent, Pakistan's current population of 160 million is increasing by 4 million a year. That's 4 million additional people to feed, house and clothe every year. It's also 4 million additional youngsters to educate every year. And, in due course, when those youngsters reach adulthood, it is also 4 million additional people for whom jobs have to be created every year.

With almost 45 percent of total expenditure going towards defence and debt servicing, another over 44 percent towards development expenditure, grants and subsidies, there is just nine percent that goes towards general administration that includes law and order, socio-economic and community services. Almost 89 percent expenditures are allocated for creating an enabling and a conducive production climate with less than nine percent aimed directly at the uplift of the poor.

Direct beneficiaries of the production climate that the budget focuses on are the upper income groups whose lot is more a function of budgetary outlays as compared to that of the poor who are expected to wait for the "benefits to trickle down" to them at an unknown point in time in the future. The government insists that their strategy is pro-poor growth and has benefited the poor. This assertion, however, requires closer examination to assess the effectiveness of the pro-poor growth slogan.

The policy makers are all out to prove that with their less than nine percent federal expenditure on social, economic and community services and some "trickle down effect", the poverty picture has improved. According to official estimates, percentage of population below the poverty line has declined from 34.46 in 2001 to 23.9 percent in 2004-05 i.e. a decrease of 10.56 percentage points. Rural poverty decreased by 11.16 percentage points and urban poverty by 7.79 percentage points, according to official claims. While the above may look encouraging on the surface, it is important to know the poverty line that cuts off the poor from the non-poor. The latest inflation adjusted poverty line is Rs.878.64 per adult equivalent per month (Pakistan Economic Survey 2005-06. For an average household size of 6.55, it may translate approximately to Rs.5755 per month. Who would believe that an income of Rs.6000 per month for a family of 6.55 would lift them out of income poverty or private consumption poverty?

The percentage of population with monthly household incomes roughly between Rs.5755 and Rs.15000 needs to be known, failing which our poverty estimates will be grossly under estimated. Even at Rs.15000 per month, a household of 6.55 will barely get by. There is actually a sea of poverty whose severity cannot be reduced no matter how much the volume is scaled down in imagination for rosy paper presentations.