INCOME DISPARITY BETWEEN THE 'HAVES' AND 'HAVE-NOTS' IN PAKISTAN HAS INCREASED SIGNIFICANTLY

KANWAL SALEEM
(feedback@pgeconomist.com)

Aug 20 - Sep 2, 20
12

With nearly 67 per cent of Pakistan's households are landless and approximately two-thirds of the people live in rural areas, rural poverty is a major destabilising factor posing manifold challenges.

The income disparity between the 'haves' and 'have-nots' in Pakistan has increased significantly causing surge in poverty graph. Apart from this, poor governance, inflationary trends, fiscal deficit and poor economic indicators are contributing factors for increase in poverty graph in the country.

Rural poverty was going down in Pakistan in the 1970s and 1980s but started increasing steadily during the 1990s. Although, the methodologies and assumptions interpolated into the projection by a publicly funded Pakistani body are open to discussion, the poverty increase trend from the 1990s onward is alarming.

Strikingly, poverty levels tend to decrease in inverse proportion to land-holdings, with poverty virtually disappearing with holdings of 55 acres and above. This indicates that poverty and landlessness are directly related to each other in Pakistan's rural areas. In terms of the spatial distribution of landlessness, 86 per cent of the households in Sindh were landless (landless plus non-agricultural), followed by 78 per cent in Balochistan and 74 per cent in Punjab. The evidence of the income disparity rampant in Pakistani society is bolstered by statistics, with the Lorenz curve of 2001-02 for Pakistan lying below the 1984-85 levels. In economics, the Lorenz curve is often used to represent income distribution and can also be used to show the distribution of assets.

This indicates that income distribution patterns have gradually worsened, resulting in higher income inequality in 2001-02 relative to 1984-85. Greater changes are visible in the higher part of the income distribution curves than in the middle and lower parts of the income brackets. This stipulates that during 2001-02, the upper income brackets registered a gain in income share to the richest 20 per cent at the expense of the poorest 20 per cent and middle 60 per cent. This increased poverty levels in the lower and middle brackets. This projection also indicates that the richest one per cent who used to get 10 per cent of the total income in 1984-85 was, in 2001-02, getting almost 20 per cent.

On the other hand, the government has made strategic shift in its strategies to assist infrastructural development of Small and Medium Enterprises (SMEs) in order to enhance productivity and exports of this particular sector to help reduce poverty in the country.

Currently, the Small and Medium Enterprises Development Authority (SMEDA), is implementing 28 projects under Public Sector Development Programme with a total estimated cost of Rs.2.8 billion in major SME clusters, official sources said.

The impact of these projects on over-all development and prosperity would be tremendous and will result in enhancing the standard of living, poverty alleviation and human resource development. In addition to the implementation of a PSDP project portfolio, SMEDA in collaboration with United Nations Development Programme (UNDP) has launched 'Early Recovery and Restoration of Flood Affected Communities in Pakistan' project with estimated cost Rs.256 million that is aimed at establishment and operation of Business Support Centers in 29 districts severely affected by the floods.

The aim is to provide communities support for economic development through extending small grants. "SMEs are considered an important tool for poverty alleviation, human resource development, accelerating economic growth and employment generation," sources said.

SMEs contribute over 30% to GDP, 25% to manufacturing export earnings, 35% to manufacturing value addition and employ around 78% of non -agriculture labour force, the sources said.

The SMEs projects not only provide technical support to SMEs but also play an important role in poverty alleviation by generating direct and indirect employment in their respective areas.

The sources maintained that currently the absence of proper accounts management, business planning, missing formal management, lack of collaterals to meet banks' requirements, low level of awareness about different financing options and absence of reliable and credit worthy data were the main issues and constraints hampering the development of SMEs in the country.

On supply sides, shortage of credit evaluation, product design, marketing skills and non- innovative products, perceived to be high risk projects by banks, absence of credit scoring, cash flow based lending, program based lending, downscaling and absence of SME R&D in Banks were the other restraints effecting the growth.

In order to address the problem of poverty, it is necessary to accelerate economic growth through promotion of trade and industry particularly cottage industry. The model of microfinance can help yield positive results.