Poverty has intensified in the last decade



Aug 19 - 25, 2002


Most of the rhetoric and tall claims made by the present government about poverty alleviation, improvement in economic conditions and recovery of defaulted loans appeared hollow after listening to the resident chief of Asian Development Bank in Pakistan at a press conference on Monday at which the bank released a special report "Poverty in Pakistan: issues, causes and institutional response."

According to this study the number of people living below the poverty level has increased considerably since 1999. The report finds several reason deteriorating poverty in Pakistan, including weak governance, political uncertainty, law and order and macro-economic constraints. Poverty level in 1999 was estimated at 32.2 per cent (with 36.3 per cent in rural areas and 22.6 per cent in urban areas). The ADB report noted that rural poverty was now about 40 per cent hence the number of people living below the poverty line has further increased since 1999. The Finance Minister in his budget speech in June last estimated poverty level at 28 per cent. He was, perhaps referring to poverty level in urban areas.

The ADB report regretted that while poverty has intensified in the last decade, the country's long term prospects for achieving high growth was also being compromised by the low level of social sector investment. "The growth in the past was not pro poor and did not contribute to employment generation.

According to ADB there was no general or universal social protection available in Pakistan, neither there was any umbrella institution that would extend social protection and social safety nets to poor and the vulnerable.

While talking to the newsmen on the occasion, country Director of the ADB, Mr. Mashuk Ali Shah, disclosed that the Agriculture Development Bank of Pakistan has technically become insolvent due to huge burden of over Rs.50 billion non-performing loans (NPLs).

The financial state of affairs of most of the Development Finance Institutions (DFIs) was not very different from the ADBP. Out of the total stock of Rs.278.6 billion of NPLs in the financial sector, special banks and DFI constitute over Rs.107.5 billion, which is almost 60 per cent of their advances.

The ADBP was particularly a bad performer due to years of political interference in the loaning process. Political heavy weights were awarded lucrative loan deals to win their loyalties, which most of them never paid back. He stressed the need of immediate downsizing, change of management and stringent loan recovery drive, as part of a larger rescue package to save the institution from total bankruptcy. The Asian Development Bank (ADB) is likely to provide $250 million package to make the institution financial viable.

According to data compiled in the report, the incidence of poverty increased from 26.6 per cen tin 1993 to 32.2 per cent in 1999 that means 12 million people were added to the ranks of the poor taking the aggregate figure to 47 million. The ADB cautioned that slowing economic growth, lower development spending and a severe continuing drought that has adversely affected agricultural growth mean that the level of poverty today is significantly higher than the data for 1999 indicates.

The bank says that income inequality had also intensified in 1990s, with income distribution in urban areas being consistently more unequal than rural areas. In 1997, the income share of the bottom 20 per cent of households had declined to 6.9 per cent from 7.9 per cent in 1987, and the income share of bottom 40 per cent of households declined from 20 per cent to 18 per cent. During the same period, the ratio of the share of the top quintile to that of the bottom quintile increased to 6.5 from 5.2 for all areas.

The Bank, while stressing the need of higher growth rate, stated that poverty alleviation had to be effected not only through macroeconomic policies, but also by bringing about significant improvements in the structure and functioning of systems of governance. The Bank, in this regard, supported fiscal devolution, public expenditure management, anti-corruption initiatives, and the independence of the State Bank of Pakistan.

What the ADB report portrays is an exceedingly poor show for a government supposedly on an aggressive path of reform for almost three years now. There are several principal causes for this abysmal performance.

The first is the direct effect on poverty, through unemployment and low economic growth. GDP growth has languished at around 3 per cent with both agriculture and manufacturing growth capped by low investment, poor economic conditions and a serious lack of political stability. Lower growth has meant fewer employment opportunities and a widening inequality gap. The second is the negative effect created by poor governance and bad national security policies that spawn terrorism and war mongering in the region. This has resulted in uncertainty, low business confidence and reduced efficiency in the provision of social services. It is also directly responsible for the creation of resource-draining public sector organisations like WAPDA and KESC which have sucked away funds that could have been diverted towards development spending. Pakistan's public sector spending on education and health is just 2.1 per cent of GDP, significantly below all other regional comparisons.