ALLEVIATING OR ELEVATING POVERTY

AROOJ ASGHAR
(arooj.asghar@crosby.com)
Aug 20 - 26, 2007

GLOBAL OUTLOOK

Since long we have been witnessing the slogans of poverty alleviation from the developing and underdeveloped world. But the gap between rich and poor is increasing. Rising inequality is also evident in the patterns of global trade. While foreign investment has expanded dramatically across the developed world, the world's least developed countries see less than 3% of investment. 17% of those living in the developing world are undernourished. In Africa it rises to 33%, whereas roughly 13% of the United States (US) population falls below the poverty threshold. It is interesting to note that; poverty rate in the US is one of the highest among the post-industrialized developed world. It should be noted that poverty rates provide only a snap-shot of the percentage of persons who are currently poor. African nations typically fall toward the bottom of any list measuring economic activity, such as per capita income or per capita GDP, despite a wealth of natural resources. The bottom 25 spots of the United Nation (UN) quality of life index are regularly filled by African nations rest with Asian and Latin American countries. In 2006, 34 of the 50 nations on the UN list of least developed countries are in Africa. In many nations, the per capita income is often less than US$200 per year, with the vast majority of the population living on much less. In addition, Africa's share of income has been consistently dropping over the past century by any measure. In 1820, the average European worker earned about three times what the average African did. Now, the average European earns twenty times what the average African does.

In order to provide an international standard for world poverty, the World Bank in 1990 introduced a common international poverty threshold of 1 Dollar a day, measured by purchasing power parity exchange rates. The threshold is based on sample taken from developing countries. This implies that after adjusting for cost of living differences, 1 Dollar a day is the average minimum amount required for subsistence in the developing world. Recently it has been revised to 2 Dollar a day. Even today despite all the efforts, more than 1.2 billion and 2.8 billion people of the world live on less than 1 Dollar a day and 2 Dollar a day at purchasing power parity respectively. The Dollar a day poverty gauge immediately grabbed attention worldwide and since then has been employed in a range of policy analyses. It plays a key role in determining resource allocation priorities, and in assessing the reduction impacts of policies and programs. The concept gained importance in September 2000, when the United Nations Millennium Summit adopted it as the benchmark for monitoring progress in curtailing the incidence of this phenomenon around the world. The very first goal of Millennium Development Goals (MDGs) was to eradicate extreme poverty and hunger first. For the purpose, it sets a target of halving by 2015 the proportion of people whose income is less than 2 Dollar a day.

Root cause analysis in the developing countries and its correlation with the development process has been the subject of intense analysis for the last so many years. As a result, a consensus has emerged on a number of issues. Every economy requires faster rate of growth and its economists know how to get that but question arises what sources are to be employed for achieving projected growth. It was once considered, though pessimistically, that taking money out from the rich and distributing to needy will eradicate this social evil. With the passage of time, this theory has been discarded. Now it is widely recognized that eradication can be done by providing incentives to established people where they onward create opportunities for the minors, famously called trickle down effect strategy.

PAKISTAN SITUATION

Pakistan is a country of 160 million people out of which according to the Economic Survey of Pakistan 2006-07, around 40 million and 90 million people live below and fall under quasi non-poor poverty line respectively thus leaving only 30 million people for non-poor category. One of recent studies shows that majority of Pakistanis live on less than 2 Dollar a day. In per capita terms, Pakistan's production and income levels are less than half of those of Indonesia and the Philippines. Pakistan's average Gross Domestic Product (GDP) for the last five years is impressively 7%, which is one of the highest in the region.

This issue has many dimensions in Pakistan ranging from lack of financial resources to technical training, from deficiency in basic social services to inadequate infrastructure. There is continuous increase in number of people suffering from hunger, illiteracy and preventable diseases despite high economic development during recent years which is undermining their capabilities to grow and limiting their opportunities to earn. Based on above facts, one wonders where all economic development is going. This Social, economic, political and cultural disparities have split society between rich and poor, strong and weak, haves and have nots which takes under- privileged people to social exclusion and expose them to various non-productive thinking and unhealthy (even dangerous) activities. Pakistan's current economic polices are based on the World Bank's strategy for its elimination i.e. trickle down effect strategy. Under this strategy, foreign and local investors are encouraged by providing various incentives so as to create not only maximum employment opportunities but also to generate industrial, commercial and trade activities.

There is no denying that different methodologies for the calculation of poverty lead to different numbers that at times vary significantly and some times do not reflect the situation on ground. Every government tries to increase the living standard of its people by forming people friendly policies after evaluating various economic parameters but what matters most is the authentic numbers not the twisted ones. That is where the crux of the issue lies. Various statistics and analysis are issued by various ministries in order to assert Government of Pakistan (GoP) stance of successfully bringing down the level during their eight year tenor. State Bank of Pakistan has issued Economic Survey of Pakistan for the year 2006-07 and according to the survey; poverty headcount had fallen from one-third to less than one-fourth of the population. Likewise, as of 2006, Pakistan's Human Development Index was 0.530, higher than Bangladesh (0.530) but lower than India (0.611). Government claims that its numbers for the last financial year, estimates and their calculation methodology leading to those numbers are also endorsed by the World Bank and the United Nations Development Program and other experts. Contrary to that, local economists as well as both the international agencies challenge their methodology and resultant numbers. According to the reports of the World Bank and UN Development Program, incidences of poverty rose from 22-26% to 32-35% in nineties but later dropped to 25-28%. These reports contradict the claims made by the government i.e. 23.1% whereas CIA fact book also says 24%. Despite all this, government circles like to defend their numbers without realizing the consequences where such misreporting raises serious doubts on the integrity of the data and economic performance of the country thus leaves everyone including business community in confusion.

There is a consensus that such numbers must be calculated with care and honesty. A minor shift from the yardstick can distort results. For instance, slight twist in the rate of inflation and per capita income can significantly change the product. With the existing level of inflation, necessities like education, food, shelter, transportation and health are turning expensive and becoming less affordable for the common man. Pakistanis are now compelled to spend more on these basic necessities.

UNDERLYING CAUSES

Time and again analyses have been done for the identification of causes of this issue in Pakistan. Poverty alleviation has become a buzzword these days in our economic and social circles where political leaders, social workers and civil society activists throw their intellectual thoughts on its eradication but they lack implementation methodology and remain non conclusive. Few of the causes of consistent and constant upsurge are as follows, (not in any order of importance);

*Lack of institutions of vocational and technical education is one of the most important factor; distinguishing poor from the non-poor. It is important to generate skilled work force so that they can not only earn for themselves any where in the world but could also contribute their share in nation building.

*Mostly low income people have more children than high earners. Most of those children don't get education due to obvious reasons i.e. non-affordability of educational expenses thus story never ends.

*Poor households on average have 75 percent (1:3 ratio) more children than that the non-poor households. It is an established fact in Pakistan that kitchen is being run by one individual's earning and family members depend on that individual which compel them to spend their limited earnings only on very basic needs. Similarly, more than one third of the poor households are headed by aged persons who are dependent only on transfer incomes, such as pensions, zakat and other forms of social support.

*The poor obviously have few physical assets, and according to one study, if a rural household possesses physical assets (land/livestock) the probability of it being poor declines by 55 percent.

*Most of the poor people associate themselves with such occupation or activities which are hardly affected by economic reforms like casual daily labor in cities, day laboring in agriculture, construction, trade and transport sectors. Incidence of poverty is also high among self-employed, which includes street vendors in urban areas, and sharecroppers in rural areas.

*Gender discrimination is another key attribute that characterizes the poor. Financial position of women in Pakistan is comparatively worse than men, and is attributed by low endowment of land and productive assets, unemployment, discrimination in the labor market, and limited access to economic options and political processes.

*Inflation especially food inflation has direct impact on the living conditions of common man, in recent years food inflation has crossed double digit which is a big jolt for not only poor people but also for decent earners. Prices of fuel, electricity and blunders made in forming the power polices has also made life of common man miserable.

*There is a dramatic migration between rural and urban areas, which is turning cites over crowded. The pattern of migration too is not restricted to uni-directional flows to international or metropolitan centers; which a critical part.

*Pakistan's social security system doesn't cover large section of the population, especially in terms of provision of pensions and/or old-age benefits. Although, government employees and their dependents are entitled to pension and medical support however, only a small fraction of private employers provide such support. Not all salaried persons are government servants, majority works in private companies where, compensation and old age benefits are not up to the reasonable standards. Though there are few companies which are good employers but most are exploiting the needs of their workers.

CORRECTIVE MEASURES

Improving quality of life and eliminating obstacles in this regard is a global issue. In order to address this dilemma, various steps have been taken so far worldwide but a lot can be done further. Every government and civil society intends to over-come this problem by making polices however usually misses the vital step in concluding their strategy i.e. implementation. Pakistan is no exception; we do get influenced by new developments, fresh theories, and strategies continuously arising around the world. During the last few years, inequality among society took place significantly where it raised serious concerns on how effectively this issue had been taken. Experts believe that much more could have been done. Various Pakistani governments have taken numerous steps in enhancing the living condition of its people, out of which few measures are as follows, (not in any order of importance);

*Majority lives in rural areas and have few opportunities for employment other than self-employment. In order to fulfill their basic needs, these poor people are forced to get credit from the local moneylenders who sometimes charge premium up to 200% per annum. There are thousands of stories where needy person is facing extreme financial distress which forces him to borrow money at such exorbitant rates. It is believed that majority of such transactions are based on life cycle needs of poor people like marriage expenses or healthcare requirements, rather than for productive purposes. One of the weapons that have proved most effective in dealing with this in most of the third world countries is microfinance. UN marked 2005 as International Year of Micro credit on recognition of its capability to transform the status of minor members of the society. With this declaration by UN, new panorama of opportunities emerged in this sector. Microfinance is commonly known as an effective tool for poverty alleviation by providing financial services to those who do not have access to or are neglected by the commercial banks and financial institutions. In poor countries like Pakistan greater attention is being paid to its lessening through microfinance for the last decade or so. Currently a number of institutions are working in Pakistan with the objective to support and provide financial assistance to poor. The case for micro finance as a mechanism for making better conditions of people is simple. If access to credit can be improved, it is argued, the poor can finance productive activities that will allow income growth, provided there are no other binding constraints. One of the most broadly shared perceptions about this kind of financing is that it is beneficial and therefore everyone needs and demands it. The approach generally followed is to explain the benefits of it without citing any empirical evidence. Following a similar approach, the Pakistan Poverty Reduction Strategy Paper (PRSP) asserted that, "access to credit is the surest way of empowering the poor and improving their income generating opportunities" and that "international experience has shown that micro-credit can be an important instrument in improving the income generating capabilities of the poor." Similarly, the Asian Development Bank's assessment of this sector in Pakistan was that the "poverty reduction potential of micro-finance is widely recognized at the policy level and among the development community."

*The Pakistan Poverty Alleviation Fund (PPAF) was established in 1997 to cater to the needs of retail microfinance programs. There are five project components; 1) Micro-credit; 2) Community infrastructure; 3) Capacity building of partner organizations; 4) Capacity building of the PPAF and; 5) Endowment from the government. World Bank provided funds which were designed to reduce poverty and to empower the rural and urban poor in Pakistan. It needs support of microfinance institutions to which it extended facility of loan disbursement and guidance for the deprived group for utilization of the resources. Since its inception, it has become an active and dynamic partner in promoting the growth and to date has disbursed over Rs 1.2 billion to over 25 micro finance institutions or have been able to support loans for over 125,000 clients cumulatively. Micro credit helps in reducing this by providing the poor with credit facility to start a small business. It not only supports the economic condition of the poor people but also has positive impacts on their social life through better standard of living with greater access to education and health facilities and empowerment to participate in decisions of the society.

*GoP along with the Asian Development Bank (ADB) initiated Khushal Pakistan Program-(Poverty Alleviation Program) through Khushali Bank with the objective to generate economic activity through public works. This program is administered by districts administration of the provincial governments; while schemes are identified and selected at the district level through active community participation. This program has created numerous employment opportunities and is providing essential infrastructure in rural and low-income urban areas. ADB provided millions of funds so far for loan investment, social development fund, and community investment fund.

*Being Muslims, every Pakistani gives zakat either on his own or deposits it in government treasury. It is one of the government's central program for social safety instrument for alleviation of this problem. However, potential and productivity of this fund is yet to be fully realized. Zakat is distributed for fulfillment of basic needs, rehabilitation of needy people, assisting them in the establishment of small-scale commercial projects or other means of living suitable to their qualifications, skills profile, and local conditions, thereby allowing them to achieve self reliance.

*Pakistan Bait ul Maal has also been established which supports needy people for a number of purposes including medical support, fund for bonded labor, students' stipends, community education and dialysis support.

*GOP's devolution plan is basically the decentralization of delivery of services in the social and other low income sectors, where mandate, responsibility to manage the operations of social services has been delegated to elected local governments.

*Various NGOs' are working throughout Pakistan covering a wide range of activities including creation of opportunities for income-generation, and providing credit initiatives. For the last many years private sector has played an active role in the development of the social sector, particularly in the health and education. With the passage of time, these NGOs' have increased their role and fresh avenues are emerging in public-private partnerships which onward would facilitate and enhance the quality of services in social sector in the country.

*Recently Food Support Program for the poorest sections of the population has been revived and funds for this program have been allocated. The purpose of this program is to mitigate the impact of increase in wheat prices.

KEY ISSUES IN DEVISING STRATEGIES

This issue remains so pervasive that a million priorities are unlikely to exhaust it from the agenda. Improvement in the political structure and functioning of governance can play an important role in its alleviation besides macroeconomic policies. Few areas where government has taken measures but needs more are the implementation of good governance, devolution of power, management of public expenditures, unbiased anti-corruption initiatives, independent State Bank of Pakistan, tax administration, reforms in judiciary, police, and in the civil service. Few of the areas where attention can be drawn in order to accelerate development are given as follows, (not in any order of importance):

*Implementation of polices is the real test of the policy makers, well thought policy can face failure if it is not effectively implemented. The biggest irony of Pakistan is that numerous good policies were made in the last sixty years but were hardly properly implemented. An effective implementation of polices would definitely improve the living standards of people.

*With nearly a million new members joining the labor force every year and with the growth in GDP, employment demands the highest strategic attention. Addressing the employment challenge has several facets; i) increase in wage employment, ii) increase in real wages, iii) increase in self-employment opportunities, iv) increase in labor productivity, and v) improved terms of trade for the products of labor particularly in agriculture and informal sector.

*Pakistan doesn't have any Either Or policy choices. Government has to take tough and unpopular decisions which can even affect political giants. Likewise, good governance, transparency of polices and distributions of funds are one of the key factors to address development of the society, this is where we lack the most for obvious reasons.

*It is also important to focus on strengthening of women in Pakistan. Pakistan is first Islamic country to have women Prime Minister but this is not sufficient. It is nearly impossible to turnaround economy without inclusion of 50% population of Pakistan.

*One can see a lot of activity in the Microfinance sector but it is still in infancy and lot should be done. Micro-credit has rightly come to be seen as the most visible of anti-poverty instruments. But industry experts estimate that only 10% of people are getting credits from microfinance institutions of Pakistan. Up scaling micro-credit and enhancing its impact will be important factors in realizing the goals of acceleration of development going forward.

*It is important to build and maintain connectivity among rural and urban areas. There are various areas where proper infrastructure is not available due to that larger community is not getting benefits from the natural resources available in those areas.

*An energized strategy for accelerated reduction can only be result-oriented, if credible and conceptually sound benchmarks are established. It is important to monitor and measure progress according to those benchmarks.

*Education is the most important step in improving the quality of life of people. Quality Education, particularly in primary, secondary and vocational levels with strong emphasis on girls' can improve the situation.

*Policy attention to technology has not been robust and in pace with rapidly transforming social and economic demands. A reluctant mind-set and a bookish approach have been major hindrances to up scaling technology as a policy focus. Critical challenges include overcoming reluctant mind-sets, more effective engagement with application issues and choice of technology which emphasize productivity, low thresholds for entry and high self-dissemination potential. A priority area for policy attention is agriculture technology including technology for related fields such as fisheries.

*A key instrument for social rehabilitation and enhancing living condition of people is the establishment of transparent system of Zakat and Ushr. Zakat is being collected and disbursed by various Zakat Committees; however effectiveness and efficiency of this system can be improved by its reorganization and proper monitoring. However, additional measure related to transparency and distribution of funds should be taken.

*The Poverty Reduction Strategy of GoP recognizes the role of NGOs. These organizations can play constructive role in providing social service delivery, advocacy, and empowerment. In recent years, NGO sector has risen considerably to meet the growing demand for social services. Civil society is involved in field operations but should also be engaged in the policy making process.

*It is critical to control inflation specially food inflation. It would not be wrong to say that this is single most important factor which can impact drastically on the living conditions of people. It is important to give autonomy to SBP so that they could make independent monetary policies for reduction in inflation.

Summing up, growth comprises six components, namely transparency, tax reforms, expenditure management, prudent monetary policy, external adjustment, and debt management. GoP is taking various reform measures including devolution of power, and fiscal and financial transparency. Government is putting efforts in marketing economy tending to sustain economic growth of 7 percent to 10 percent for next few more years. This is undoubtedly a high target keeping in view current political and geographical unrest. Policy makers are striving but economic fundamentals need to be corrected first. The government also needs to revisit its free market regulatory framework, formalizing of an automatic minimum wage structure, bridging income inequalities, revising the ratio of indirect taxes to direct taxes and making as well as executing pro-poor policies. Needless to say that every one wishes to live in prosperity but it's beyond one's control. The poor of Pakistan have to undergo a personality revolution and become more assertive and pro-active towards opportunities and clearer on life-goals. With perseverance and determination, they can devise a new ground reality of initiatives leading to an escalating refusal to remain content with the vagaries of a poverty-laden fate.