Former President First Women Bank

May 28 - Jun 03, 2007

Fast economic growth is universally recognized as the most important factor facilitating low income developing countries to achieve all the eight Millennium Developmental Goals (MDGs) self imposed by international community eight years ago. It is particularly poverty reduction, which is immensely influenced by faster economic growth rate of a country provided it matches population growth rate. But experience in majority of developing countries as enumerated by World Bank in their various reports indicates that unless and until economic growth is pro - poor or in other words targeted towards improving welfare of impoverished population, the said goal cannot be achieved within specified time.

General idea regarding pro-poor growth is that it must be visible as sustained increase in income of those living below poverty line, but study conducted at UNDP Poverty Centre has emphasis on reducing income gap between the poor and non-poor. Increase in income of poor resultant of fast economic growth must reduce inequality, but in majority of low income developing countries ineffective monetary policy, irrational fiscal and tax policies and particularly poor governance have failed to lessen inequality or rather have widened the gap between rich and poor.

In South Asian countries including Pakistan concerted efforts have been made to reduce poverty by creating employment opportunities for poor through infrastructure development programs and greater spending on social services to ensure fast growth in agriculture, manufacturing and service sectors, but due to lack of monitoring and vigilance, weak institutional set up and poor governance at all tiers of establishment, non-poor have been major beneficiaries of the fast economic growth and most importantly it has failed to build up physical and social assets of poor particularly land to poor cultivator and education for children of under-privileged, which are essential for working efficiency and growth of poor work force.

Pakistan's government claim that number of poor has reduced by 10% since what was in 1999 (35% of total population) is no doubt true statistically, but in relative terms inequality has been intensified and poor have become poorer. At the same time disparity in social sector has further gained grounds. Poor do not have access to medical care and now greater number of children is deprived of quality education, which is likely to result in more psycho social repercussions impairing political climate of the country. Hence there are grim chances of achieving 50% reduction in the number of poor by 2015.

For achieving sustained and accelerated economic growth 'Washington Consensus', articulated by Williamson in 1990, taken as tenet and integral part of World Report, advocates for right policies to be undertaken by developing countries to check their fiscal deficit and to stabilize their economies through rational monetary and fiscal policies aimed at controlling inflation and improving Tax-GDP ratio so as to reduce fiscal deficit, open their markets to international trade through fewer restrictions on international trade and capital flow and bringing in market oriented reforms by ensuring free market through retrenchment of public sector, privatization of state owned entities.

Overall strategy for poverty reduction put forth by World Development Report has focus on promoting labor intensive economic growth and investing in health and education of poor. In other words sound strategy for economic growth must be accompanied by a sound policy towards social sector development for initiating sustained process of reducing income inequalities.

With Pakistan's experience regarding impact of economic growth towards poverty reduction and purging gap between rich and poor has not been at all encouraging at any point of time. During sixty years of country's history wide divergence in income growth have been noted due to abrupt change in policy choices, internal and external shocks like floods, drought conditions, devastation caused by earth quakes, adverse terms of trade influenced by trading partners and conflict situation on all external borders of the country. During times when country had achieved macro economic stability, it failed to pass on benefits of economic betterment to common men specially those living below poverty line. It did not help building up physical assets of poor and making social services freely accessible to them.

No doubt sound economic policies are always conducive to macro economic stability, but micro economic stability, which is reflected from reduced inequalities with regard to assets ownership and human capital development of the society as a whole, is linked to sound social policy if simultaneously followed like investment on education, health care, removing gender disparities with regard to female population's accessibility to all social services and economic opportunities and also putting in place sound disaster management arrangements to combat natural calamities as poor are more vulnerable to disasters. No doubt public sector spending on basic education and health care has considerably increased in recent years ( though still much below internationally established bench mark), but lack of commitment in delivery of social services and general lack of responsiveness to poor people's needs has failed to bring a tangible improvement in quality of life of poor.

Poverty in Pakistan truly concentrates in rural areas where 70% of country's population is accommodated. Agriculture growth rate and various subsidies allowed by successive governments from the very inception have failed to lift rural poor out of poverty. There is need for greater investment in infrastructure, particularly construction of dams to fight against drought and flood conditions frequently faced by agriculturists and also financial and technical support for promoting non- farming activities so as to create more self-employment and employment opportunities in rural areas. In view of great potentials for livestock, dairy farming and fish pond cultivation, rural poor need to be motivated and facilitated to go into these lines of micro businesses so as to have better return on their investments and at the same time create jobs for idle labor force in their community/village.

Most importantly, there is need to ensure land ownership for even poorest of the poor tiller of soil. Land reforms with focus on land distribution need to be initiated and implemented in letter and spirit. This would pave the way to elimination of feudalism being the root cause of all political, economic and social imbalances, culminating into great divide between haves and have-nots. It will also inject a sense of social mobilization among poor enabling accessibility of their voice to assemblies and higher echelons of establishment to have their say in policy making.

The structural reforms under taken since late nineties were meant for speeding up economic growth rate and curtailing high and stagnant inflationary pressure through efficient supply and demand management of goods and services in the country, but despite a significant improvement in GDP growth rate growing inflationary pressure has negated the trickle down effect of economic growth achieved. Unabated hoarding and speculative trading in essential food items has not only caused abrupt rise in Consumer Price Index (CPI), but also forced government to import such commodities and supply essential food items at subsidized rate for the last three years resulting in growing fiscal deficit and falling terms of trade and abrupt increase in government borrowings both from internal and external sources.

Overall economic environment cannot be termed as pro poor due to irrational fiscal and tax policy. A rational tax system must result in rapid economic growth ensuring equitable distribution of income and wealth in a country. The fiscal policy announced every year is devoid of soft corner for the common man. Every year lot of tax and tariff incentives are allowed to business community, but despite these relaxations privileged one resort to tax evasion by passing it on to common man. This is the outcome of lack of control and poor governance at all levels. This unchecked tax evasion culture continues to give a very low Tax-GDP ratio (9%). Accordingly it is imperative on the part of government that intended tax reforms when implemented must result in creating broad tax base with moderate marginal tax rates improving equity in the country.

Regressive and unfair tax regulations along with total tax exemption provided to agriculturists has further widened the gap between rich and poor.

High fuel cost and expensive utility services apart from bringing direct impact on economy by adding to manufacturing / production cost of all items including exportable goods has added to cost of living indirectly, thus adversely affecting quality of life of not only of poor who are already highly miserable, but also of middle class, which is also gradually sliding down towards poverty level.

To conclude, in order to ensure pro-poor growth our economic managers must see to it that macro economic stability achieved must result in creating tangible opportunities for poor like jobs, access to institutional credit, infrastructure like roads electricity, market for their products and at the same time quality education and health care without gender disparity for improving their working efficiency.