ECONOMIC GROWTH AND POVERTY

SHAHZEB KHANZADA
Aug 20 - 26, 2007

Poverty is one of the critical problems faced by the developing economies across the world specially Asia. Pakistan is no exception to this, where role of poverty has been very critical in the economic progress. After the recent economic growth across the world, economists have consensus on the assumption that, poverty in underdeveloped economies and both poverty and inequality in the developing economies is the biggest hurdle to economic growth. The inequality can be considered as a term that is the result of the ineffectiveness of the economic growth on the well being of rural and urban poor due to the failure of so called trickle down effect. According to a study of World Bank, poverty declines with growth, but the effect of growth on inequality varies across the countries. However, reduction in poverty with economic growth in Pakistan is a debatable issue.

TRICKLE DOWN EFFECT:

Five years back, trickle down effect was the favorite word for Economic managers of the country. They kept giving hopes to the people that economic growth will bode well for Pakistan and it will trickle down to the poor masses and hence will bring Pakistan out of the abject poverty. According to the economic managers, the trickle down impact has actually played its role as poverty level in Pakistan has been reduced to 23% from 33%, a remarkable reduction of 10%. These claims appear very eye-catching, when one merely looks at the numbers and achievements as portrayed by the government officials. However, reality is different if one looks at the key factors that contribute to the economic conditions of the poor and has immense importance for the poverty line.

The media has increased the public awareness. Masses, now realize their basic economic problems. According to a recently conducted public opinion poll by the International Republican Institute, the people responded with more interest on the economic issues as compared to the non-economic issues. In the survey, inflation was termed as the most important issue as 92% polled of the people; it was followed by 85% for unemployment

PER CAPITA INCOME:

Per capita income is improving every year due to increasing size of GDP. Government is very optimistic that this number will cross $1000 this year. Internationally, per capita income is an obsolete measure as it does not incorporate the negative effect on the income of the people due to inflation. If one assumes that economic growth positively impacts every individual in Pakistan due to trickle down effect, then 7% GDP growth should will definitely have positive impact on the income of the people. However, if 8% CPI and 10% food inflation is also put in the model, then in real terms, a negative effect can be observed on the income. Therefore, the widely used criterion is per capita income in purchasing power terms. Based on this, Pakistan is ranked the lowest in the region. In actual terms, real income of the people has seen a nominal decline of 3% as compared to 1997 level. Moreover, the gap between per capita income of Pakistan and India had also widened on purchasing power parity terms. India's per capita income is 48% higher in purchasing power terms as compared to 25% in 1999.

Instead of the statistical data, that government uses to hide the sufferings of the poor people, one should look at the basic needs of life that should be provided to the each and every individual of the country. It is the basic right of all the Pakistanis, as they directly or indirectly contribute to the exchequer in form of taxes.

EDUCATION:

Education is the key factor that has changed the fates of economies. If other factors are in favor of economic prosperity, then a country with high literacy rate can get rid of poverty easily. Pakistan can be considered as a country where all other factors were in favor of economic growth in last few years, but low literacy rate remained the biggest stumbling block in the way of sound economic growth that could reduce unemployment and hence poverty. In the modern era, where technological advancements have replaced old practices, a well developed human resource base could play a vital role in attracting investment in manufacturing sector in Pakistan. It could create jobs in the economy and could also improve productivity. Globally, due to upbeat corporate performance, shortage of human resource has become a big problem. Had Pakistani Government have invested in the education, the economy could greatly benefit from this global shortage of skilled human resource as the country has comparatively a large unskilled young population base.

Pakistan still has lowest primary school enrollment rate. Women literacy is considered as a key to the development of an educated family and thus an educated society. Unfortunately, in rural areas, the number of girls that have completed primary schooling is half to that of boys. In last few years, Government started giving incentives in form of cash to those parents who send their girls to the schools. It was a right move in the right direction but political mistakes of past, have not produced good teachers for the government schools in the rural areas. Government announced to conduct an examination of the existing teachers but political pressures and strike threats stopped government by making such a move that could improve the system as a whole.

HEALTH:

Health is also a one of the biggest problems for the poor especially for the rural poor. Income inequalities have increased the differences in the health of rich and poor people. Pakistan has highest infant mortality rate in the region and according to a latest Asian development bank report, about 7% of the children are severely underweight among the richest 20% household. In the case of poorest 20% households, this share is 20%. Government's focus on the provision of cheap health facilities is limited to the restriction on any increase in the medicine prices which, according to the pharmaceutical industry, have not increased since last five years. However, conditions of government hospitals are very poor and it is not at all affordable for the poor people to even think of private hospitals.

WATER:

Access to clean drinking water is a still one of the biggest problems. After so much economic growth, it is surprising to see the import of mineral water. Isn't it the extreme of poor policies that Government has not been able to provide clean drinking water to its people? According to a report by WHO and UNICEF, over 40% of the world population does not have access to basic sanitation and, more than 1bn people still use unsafe sources of drinking water. Pakistan has one of the biggest share in this total. Being an agrarian economy, there should not be any problem of water shortages to the rural farmer. However, no improvement has taken place in this regard and, crops still suffer due to water shortages. Government has been planning to make dams since a long time, but practically no progress has been witnessed. The irrigation system though, is the biggest in the world but also the poorest. The canals are badly silted and despite allocations in the PSDP no improvement has taken place. This leaves poor farmer on the mercy of big landlords, who due to their political influence get the major share of water and hence increase the sufferings of the poor.

ELECTRICITY:

Electricity is also a basic need. The current shortage has badly effected the urban and rural population of the country. This is very surprising that five years back, Government was encouraging private sector to invest in the country. Economic growth targets were very ambitious and officials were very optimistic about the future. Economic growth objectives have been achieved more or less up to the expectations of these officials. However, it also indicates the poor planning by these concerned authorities. None of the speeches made by the higher authorities in past, showed their concern on the upcoming power shortage that will result due to higher economic growth. As a result, people of Pakistan suffer even in this area.

The poor faces two problems in this regard. One is shortage of electricity and the second is its rates. Pakistan is the only country in the region where, the rates of electricity are progressive in nature. The poor cannot imagine to consume more electricity as more you consume the impact on the bill will rise exponentially. The electricity prices have been increasing at consistent intervals. The poor farmers cannot afford to use tube wells as it is highly uneconomical in the present scenario.

HOUSING:

Government has not been able to devise a strategy that can overcome the backlog of 5.6mn houses. The rate of population growth is 2% and it is much higher then the rate of building houses and hence this backlog is widening with each passing day. Land, steel and cement prices have made it a dream for the poor people to own a house.

Lower interest rates in past, could not bring an upturn in the housing mortgage. Role of house Building Corporation is though supportive but lacks innovation. Government should seriously consider this housing backlog and devise strategy to overcome this increasing and challenging problem.

MINIMUM WAGES:

Government, in last four years has increased the minimum wages consistently and it has almost doubled in this span of time. However, the extent of its positive impact can be observed if one looks at the structure of rural income. It can be considered a good concept but it should always be kept in mind that Pakistan is an agrarian economy with about two third populations in rural areas. The main source of earning for them is agriculture, which is highly unregulated and undocumented and where concept of minimum wages has no practical significance. This means that this concept does not benefit to the majority in Pakistan. Government introduced support price mechanism, but it could not also ensure a fair pricing mechanism for the poor farmers, as middleman and hoarders still dominate the markets and hence do not let the poor farmer to get his due share.

Government has to play a very crucial role in the eradication of poverty in Pakistan. The rural areas should also be put on the preference list, as far as infrastructure development is concerned. According to a World Bank report

Two-thirds of the country's population and 80 per cent of the poor live in rural areas; unless there is sustained progress in these areas, rapid overall economic growth and poverty reduction are impossible.