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PROFILE

HAFEEZUR REHMAN BUTT

COLUMN FOR THE RECORD
SOCIETY TOWARDS POVERTY REDUCTION IN PAKISTAN

 

TOWARDS POVERTY REDUCTION IN PAKISTAN


A review and suggested framework
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PROF. DR. KHAWAJA AMJAD SAEED
Principal, Hailey College of Banking & Finance, Constituent College of the University of the Punjab Lahore.
email: kamjadseeed@yahoo.com

Mar 08 - 14, 2004
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KEY TERMS

1)

ADP

Annual Development Plan

2)

f

Frequency

3)

FY

Fiscal Year

4)

GDP

Gross Domestic Products

5)

HRD

Human Resource Development

6)

HRM

Human Resource Management

7)

IFAC

International Federation of Accountants

8)

ISPWP

Integrated Small Public Works Programs

9)

MTBF

Medium Term Budgetary Framework

10)

ND

No Date

11)

P3

Public Private Partnership

12)

SAARC

South Asian Association for Regional Cooperation

13)

SECP

Securities & Exchange Commission of Pakistan

14)

SME

Small and Medium Enterprises

15)

TOR

Terms of Reference

16)

UK

United Kingdom

PRELUDE

The world faces several challenges which are being addressed but tangible solutions have yet to be found. Pakistan too has several socio-economic challenges. One of these include Poverty Reduction. This article looks at the perceptions relating to poverty, global plight and poverty, Allama Iqbal on Poverty and Poverty in Pakistan with suggested directions for its reduction. World Development Report 2004 has also selected the theme entitled "Making Services Work for Poor People".

CONSTITUENTS

The article consists of four parts which are listed below:

PART

CONSTITUENT

I

Poverty Perception

II

Poverty and Global Plight

III

Allama Iqbal on Poverty

IV

Poverty in Pakistan and suggested framework

POVERTY PERCEPTION

ENCYCLOPEDIA BRITANNICA:

"The state of one who lacks a usual or socially acceptable amount of money or material possessions. Poverty, condition of having insufficient resources or income".

PLANNING COMMISSION OF PAKISTAN:

The poverty line for Pakistan FY 1999 has been defined at Rs. 670 per capita per month".

DEFINITION OF POVERTY:

1. Poverty is defined as a state of possessing extremely low or no income.

 

 

2. International donors benchmark is of US 1-2 dollars per day an indicator in this reference.

3. General perception regarding poor people is that they are unable to purchase the essential items due to their acutely low money power.

4. Consequently poverty stricken people are reduced to the status of weak participants in the market economy practices. As against the proponents of globalization who wish to see world which is full of financially capable individuals who could purchase and consume their products to the maximum, this world has a massive chunk of people not capable to purchase and consume. This obviously makes an undesirable experience.

As a result of above one can conclude that there is all the uproar about poverty and its reduction.

ARISTOTLE:

"Poverty is the parent of revolution and crime."

BENJAMIN FRANKLIN:

"Poverty often deprives a man of all spirit and virtue, it is hard for an empty bag to stand upright."

POVERTY AND GLOBAL PLIGHT

Some of the known facts relating to poverty and global plight are:

1. Half the world nearly three billion people live on less than two dollars a day.

2. To satisfy the world's sanitation and food requirements would cost only $ 13 billion, hardly as much as the people of the United States of America and the European Union spend each year on perfume. Less than one percent of what the world spend every year on weapons was needed to put every child into school by the year 2000 and yet it did not happen.

In the above crucial realities the following quotations are interesting:

1. Motto of the World Bank as displayed in the glass lobby of the World Bank building is: "Our dream is a world free of poverty".

2. The Universal Declaration of Human Rights 1948 pronounced: "Everyone has the right to work, to just and favorable conditions of work and to protection for himself and his family [and] an existence worthy of human dignity .... everyone has the right to a standard of living adequate for the health and well being of himself and his family, including food, clothing, housing and medical care".

The foregoing appear to be wish list. However, gap between haves and have nots continue to increase. This speaks of breakdown of fiscal discipline in most countries of the world. Poverty as an issue is assuming glaring importance and the search to its solution in terms of reduction in the short run and elimination in the long run is continuing.

ALLAMA IQBAL ON POVERTY

Allama Iqbal, the thinker of Pakistan, underscored the relationship between economic activity and human psychology and raised the question of the effect that a man who have on his body and mind affected human soul very deeply. The mirror of soul is tarnished and man is reduced to nonenty both morally and socially. He felt deeply at the poverty the people in the then British sub-continent in the post 1857 war period. He identified the following soul searching questions:

1. Is poverty indispensable in the present day world economic order?

2. Is it not possible to free each individual from the shakles of poverty?

3. Is it not possible that the heart-rending bewailings of the poor in the streets of British India are silenced for ever?

4. Is it not possible that heart moving and pathetic scenes of poverty are removed from the world map for ever?

The above questions were raised in his book Al-Iqtisad in 1903. He found the answer in 1930 when he delivered the historic address at the Allahabad session of All India Muslim League. At that time the poverty in India specially of Muslims had touched the rock bottom due to British policy of Imperial Preferences to shift the burden of the world economic crisis namely, Great Depression of 1929-30 to the colonies.

The foregoing questions created awareness about the crucial issue of poverty and help develop a sound framework to reduce the poverty and finally eliminate it.

POVERTY IN PAKISTAN WITH SUGGESTED FRAMEWORK

GINI INDEX:

Economists have created Gini Index. This measures the level of income equality. Its scale is from 0 to 100. The higher the scale, the bigger is the level of inequality. The lower the scale the lessor is the level of inequality.

Based on the World Development Report 2003, the following box has been prepared:

BOX NO. 1: GINI INDEX GLOBAL

CLASS INTERVAL

FREQUENCY (F)

1-20

01

21 - 30

15

31 - 49

98

50 - 63

19

 

133

Computed from: World Development Report 2003: Selected World Indicators. Table 2, pp 233-237.

The best country, based on the above calculation is Singapore where the Gini Index is 19. The highest Gini Index is 62 relating to Sierra Leon. The World mean is 41% and the Gini Index relating to Pakistan for 1998-99 is 41%. It is coincidence that Gini Index of Pakistan represents the average of the World.

Efforts need to be made to ensure a steadily declining Gini Index.

1973 CONSTITUTION OF PAKISTAN

Constitution of a Country is the mother of all laws. Besides several contents, it generally contains guidelines for the parliamentarians to alleviate poverty way for socio-economic stability. In this respect the crying need of the national and assemblies of Pakistan is to address the issue of poverty by holding special sessions of assemblies and develop an action plan to start the reversal of rising trend of poverty. Our research reveals that attention focused on Articles included in box No. 2:

BOX NO. 2: 1973 CONSTITUTION OF PAKISTAN AND POVERTY REDUCTION ISSUES

ARTICLE

FOCUS

3

Elimination of Exploitation

18

Freedom of Trade, Business or Profession

37

Promotion of Social Justice and Reduction of social evils

38

Promotion of Social and Economic Well Being of the People

POVERTY TRENDS:

Most of the researches conducted during 1990s have highlighted that poverty has been on the rise. However, General Pervaiz Musharraf, the President of Pakistan has recently stated that during 2002, poverty has reduced by 0.8% for the first time compared to the decade of 1990s.

Based on various researches the growth trend of poverty presents a rising position namely, Amjad & Kamal, 1997: 22.1% in 1991 and 22.4%. In 1993, Ali & Tahir: 27.9% in 1994, Federal Bureau of Statistics: 32.2% in 1999.

Economist London on Pakistan (November 01, 2003):

".... rising level of poverty. About a third of the population live below the poverty line.''

POVERTY ALLEVIATION SCENARIO BACKDROP AND SUGGESTIONS:

The following represent backdrop relating to overall poverty alleviation scenario in Pakistan:

1. ECONOMIST SYSTEM:

Pakistan is still in search of economic system. We tried to follow capitalism during 1950s and 1960s but the gap between haves and have nots widened. Social destabilization took place and resulted in breaking away of former East Pakistan which became Bangladesh towards the end of December 1971. During 1970s an attempt was made to introduce socialism later labeled as Islamic Socialism. This also failed. In 1980s and 1990s we tried mixed economic system but ended up as messed up economic system. Now in 2010s we are now trying P3 (Public Private Partnership) but continue to await for results ensuring declining trend of poverty.

It would be interesting to note an excerpt from the inaugural speech of Quaid-e-Azam Mohammad Ali Jinnah, the father of Pakistan of July 01, 1948 delivered in Karachi on the establishment of State Bank of Pakistan the Central Bank of the Country:

"In achieving our goal of creating a happy and contended people, we must work our destiny in our own way and present to the world an economic system based on the true Islamic concept of equality of manhood and social justice."

The crystallization of the dream of the father of the nation stays as a future hope.

2. LEGACIES:

Pakistan has inherited the following significant legacies which are directly attributable to growing poverty:

A) DEBT BURDEN

At present there is an internal debt burden of Rs. 1.17 trillion and US $ 36 billion as external debt. Debt servicing of these debts has put 40% on the recurring budget for 2003-2004 of Pakistan. This significant amount is not available for poverty reduction.

B) DEFENSE IMPERITIVES

Due to hostile postures of a neighboring country, Pakistan is forced to maintain a large standing army. This has put 36% burden on the above budget. If diplomatic initiative is unleashed, twenty years no war pact execution between Pakistan and India can enable both countries to save substantial amount and divert it to development which, in turn, can reduce poverty in SAARC region and usher in an era of prosperity. Based on India-Pakistan foreign exchange parity, India has allocated Pakistan Rupee equivalent of Rs. 934 billion in their recurring budget for 2003-2004 which is higher than the total Federal Budget of Pakistan for the above year namely, Rs. 805 billion.

C) PRIVATIZATION

Due to global unsupportive scenario and perhaps lack of law and order situation in Pakistan, privatization process of state owned loss making enterprises have not been completed. The consequential effect has been in the shape of loss burden on the Federal Budgets. Hopefully the situation will improve in the future and therefore it is expected that due to accelerated efforts of the Privatization Commission and Board of Investment, privatization process will be speed up and accordingly the possibilities of collection of money due to privatization will brighten up. Thus more proceeds will be available for allocation to poverty reduction.

D) POPULATION GROWTH

Based on Pakistan's Census of 1981, the yearly population growth was 3.1%. However the actual results turned out to be around 2.6% per annum based on population Census of 1998. The population growth of the past has been instrumental in the increase of poverty. Fortunately declining trend is now seen in the recent few years. If this continues in future, the poverty reduction curve would be seen.

E) TAX EVASION

Tax evasion is a curse and instrumental to poverty increase. This is due to three major factors, namely:

i) Lack of commitment to contribute to national exchequer due to low moral standards and keep self above the interest of the Country.

ii) Availability of tax exemption regime and tax immunities of the past: The existence of the Second Schedule annexed to the Income Tax Ordinance 2001 is also instrumental for poverty increase. The vested interest needs to be given good bye and the coffers of the state will be beefed up if the above schedule, except for pensioners, is scrapped immediately.

iii) The total number of income tax payers as on 30-06-2003 is around 1.5 million which is slightly above 1% of population. Potential, according to several sources, is much higher than the above number. Some estimate this number in the neighborhood of 7 to 10 million. If Central Board accepts this single agenda, prosperity will usher in and poverty trends will manifest declining curve. This niche needs to be tried and will substantially increase the revenue base and accordingly will make lot of funds available for poverty alleviation.

F) BURDEN OF AUTONOMOUS BODIES

A sum of Rs. 36 billion (23%) has been allocated in Pakistan's Federal Budget for 2003-2004 for autonomous bodies. These bodies should be asked to undertake domestic resource mobilization from the Capital Market and spare consequential savings for poverty reduction.

POVERTY REVIEW AND STEPS FOR POVERTY REDUCTION

It is generally believed that one third (1/3) Pakistan's population (45 million) is unable to generate income sufficient to provide minimum nutrition and other necessities of life. The breakup of the above number is: Rural 32 million and Urban 13 million.

Poverty alleviation measures have included the following:

1) ISPWP (INTEGRATED SMALL PUBLIC WORKS PROGRAMS)

These have now been transformed to Provinces which are expected to properly utilize the amounts for efficient and effective development needs. They must ensure that the fruits of development reach the doors of poor segment of society and their socio-economic plight continues to be ameliorated. A strong and effective monitoring system should be institutionalized to achieve productive results.

2) FOOD STAMP SCHEME

This scheme is being steadily expanded to alleviate poverty.

3) ZAKAT AND USHR SYSTEM AND BAIT-UL-MAL

The Government deducts Zakat at source before disbursement of specified amount and later distributes. The informal sector is said to distribute around Rs. 70+ billion for poverty alleviation. No winder the social order is not cracking down. The management system of Zakat and Ushr leaves much to be desired for improvement. An action plan needs to be developed for starting income generating efforts to alleviate poverty rather than perpetuate it.

The Bait-ul-Mal system of Malaysia needs to be properly comprehended for implementation in Pakistan. A delegation may be sent to benefit from the above system in vogue in Malaysia.

4) MICRO CREDIT

Several Countries have tried introduction of micro credit to alleviate poverty. Two successful examples from Bangladesh include: Grameen Bank and activities of BRAC. Pakistan has made a modest start in Government and Private Sectors. The performance of these institutions need to be carefully studied to examine the impact over reduction of poverty. The earlier this is done, the better. Greater allocation to these institutions needs to be made with quantum jump to achieve earlier results in respect of poverty reduction.

PAKISTAN'S INTERIM POVERTY REDUCTION STRATEGY

Effective 2002-2003, Pakistan is following Interim Poverty Reduction Strategy with financial assistance from IMF. This is a part of poverty reduction and growth facility. This strategy together with our review is given below:

1) ACCELERATING ECONOMIC GROWTH AND MAINTAINING MACRO-ECONOMIC STABILITY:

 

 

During the last several years of 1990s, GDP growth has been volatile. However, during 2002-2003, GDP growth was achieved at 5.1%. The forecasted growth for 2003-2004 is 5.4% and for 2004-2005 is 5.8%. By Allah's grace, macro-economic stability has been achieved. It will be further strengthened in future years as is apparent from the following forecasts:

BOX NO. 3: FORECASTED INDICATORS

 

INDICATOR

2004 (%)

2005 (%)

1.

GDP

5.3

5.8

2.

Agriculture

4.0

4.3

3.

Manufacturing:

   
 

Large Scale

8.8

9.0

 

SME

7.8

8.0

4.

Other Sectors

4.7

5.7

5.

Inflation

5.0

5.0

Source: Extracted from Federal Budget in Brief, 2003-2004, Islamabad, Finance Division, Government of Pakistan, Table 33, p.38.

Economists strongly believe that there is a positive correlation between growth of GDP and reduction in poverty. Therefore, Pakistan is on the right track, but significant increase in GDP is a long term goal.

However, the Government of Pakistan, in Economic Survey 2002-2003 (p-52) has listed the following aspects to be pursued for productive results:

a) Maintaining fiscal discipline,
b) Rule based fiscal policy,
c) Financial sector reforms,
d) Investment Climate and privatization,
e) Augmenting regulatory framework, and
f) Building supportive infrastructure.

It is too early to comment on the above. However the steps being pursued by the Government are in the right direction.

2. INVESTING IN HUMAN CAPITAL

Earlier there has been lip service to HRM/HRD efforts. It is high time to realize that the developed countries successfully followed the path of economic development through HRM/HRD revolution. The success story of Japan, South Korea, Singapore, Taiwan, Malaysia, etc. testify and strengthen the above hypothesis. The Government has identified the following dimensions of work:

a) Comprehensive reforms in education including:

i) Special education, health and population welfare.
ii) Capacity building for service delivery through National Commission on Human Development.

b) Involvement of private sector through public-private partnership (P3) and NGOs. The Government of Punjab has allocated a sum of Rs. 5 billion for Special Education Programs of the Chief Minister in a total allocation of Rs. 6 billion in ADP of Rs. 30.5 billion for 2003-2004. Hopefully the other suggested directions will be pursued in future.

3. AUGMENTING TARGETED INTERVENTIONS:

Targeted interventions to be made by the Government include:

a) Small and Medium Enterprises
b) Micro-Finance
c) Public Works Program (Tameer-e-Pakistan Program, Khushal Pakistan Program, Drought Emergency Relief Fund)
d) Rural Development (including: agriculture, irrigation, livestock and fisheries and rural electrification)
e) Housing

The Government is pursuing institutionalized approach for (a) above. Projects to be undertaken for (b) above have been authorized to be undertaken by provinces. Solid efforts are needed for achieving higher results under (c) and (d) by all stakeholders. A confident start has been made under (e) by the Government. This housing sector has backward and forward linkages. Several industries get energized and employment openings grow in numbers. Therefore the implementation of the foregoing will be instrumental in alleviating poverty.

4. EXPANDING SOCIAL SAFETY NETS

Unfortunately we, in Pakistan, have neither pursued the Western Model of Social Safety nets nor we implemented the spirit of Quran and Sunnah. Consequently we could not provide relief to poor sector of our economy. Suggested approach of the Government will be as under:

a) Zakat Program
b) Food Support Program
c) Employees Old Age Benefits Institution
d) Indigenous Philanthropy

Comments on the above have already been offered. The following box captures budgetary expenditure in respect of above aspects:

BOX NO. 4: PRO-POOR NON-BUDGETARY EXPENDITURES
(Rs. in billions)

 

SECTORS

2000-01

2001-02

2002-03
(9 Months)

1.

Zakat Disbursements

2

5

3

2.

EOBI Disbursements

1

1

1

3.

Micro-Credit Disbursements

1

1

2

   

4

7

6

Source: Extracted from Economic Survey 2002-2003, Islamabad, Finance Division, Government of Pakistan, Table 4.5, p-54.

Some pertinent figures relating to 2002-03 (9 months) other aspects include: Land Distributed 2,538 acres, food support program 1 million persons, Zakat 617,000 persons, temporary employment 318,089 persons, micro credit 225,000 persons, EOBI 132,000 persons and state land recipients 310 persons.

5. IMPROVING GOVERNANCE:

Suggested directions to be followed include:

A) POLITICAL AND ADMINISTRATIVE DEVOLUTION

District Government experiment has been introduced and is expected to inspire confidence for local level decision making.

B) FISCAL DECENTRALIZATION

A sizeable chunck of money is being allocated to District level governments out of Provincial Annual Budgets. A sum of Rs. 65 billion has been allocated out of Rs. 148 billion revenue budget of Punjab for 2003-2004.

C) ACCESS TO JUSTICE

Through establishment of Ombudsman at Provincial level and Federal Tax Ombudsman, access to justice is being facilitated.

D) CIVIL SERVICE REFORMS
E) FREEDOM OF INFORMATION ACT
F) ANTI-CORRUPTION STRATEGY: STEPS ARE BEING INITIATED IN RESPECT OF ABOVE DIMENSIONS.

FINANCIAL ALLOCATIONS

Since there is no five-year development plan in Pakistan, Medium Term Budgetary Framework (MTBF) is being pursued. The 9th five year development plan could not be finalized during Nawaz Sharif's Government. Accordingly financial figure are now available regarding pro-poor budgetary expenditures. The following box includes data relating to pro-poor expenditures:

 

 

BOX NO. 5: PRO-POOR BUDGETARY EXPENDITURES
(RS. IN BILLION)

 

SECTORS

2000-01

2001-02

2002-03
(9 Months)

1.

Education

57

66

51

2.

Health

18

19

14

3.

Rural Development

11

12

10

4.

Food Subsidies

9

6

3

5.

Irrigation

8

10

8

6.

Roads, highways & bridges

8

6

5

7.

Water Supply and Sanitation

5

5

2

   

116

124

93

8.

Others (Population planning, social security, natural disasters and clamaties, land reclamation and food support program)

6

10

6

   

122

134

99

Source: Computed from Economic Survey 2002-2003, Islamabad, Finance Division, Government of Pakistan, Table 4.4, p-53.

There is a need to substantially increase allocations to generate employment and result in income generating activities.

POVERTY AMONG FARMERS

Most of the farmers depend on farming or farm-related jobs for their livelihoods. Two-thirds live in South Asia and Sub-Saharan Africa. Possible solutions to poverty in farmers lie in the following areas:

1. Increase in yields
2. Switching to horticultural and animal products of a higher value
3. Improving the marketing and transportation system and related institutions

CONCLUDING COMMENTS

 

 

By the grace of Allah, Pakistan has achieved macro stability. All the macro indicators have been positive. The expectations of the common man are rising. It is high time that all stakeholders should commit themselves and pursue the noble cause of reducing the poverty in the short run and eliminating the same in the long run. Positive consideration be given to various suggestions offered in this article. Indeed the curve of poverty decline will take its shape and the dawn of prosperity will benefit millions of people and indeed the wish list of poverty reduction will crystallize in reality.