RECURRENT POVERTY & ROLE OF PRIVATE SECTOR
TARIQ AHMED SAEEDI
Mar 28 - Apr 3, 2011
Poverty is a recurrent phenomenon in Pakistan with numbers of people being trapped into the clutches of its jaws rising very fast. There are total 60 million estimated population living below the poverty line in the country and this number is feared to be added by another six to seven million every year unless the economy of Pakistan is rescued. The revelation was made by Shahid Javed Burki, chairman private sector development task force in his report presented before the planning commission October last year.
Since the Pakistan assumed independence, nothing was parallel to the economic mess of today, according to a highlight in the report. "Today, Pakistan is South Asia's poorest performing economy with GNI (gross national income) growth rate 33 per cent that of India and 50 per cent that of Bangladesh."
The report further said, "Unless the trend is reversed the pool of poverty will be increasing by 6-7 million people a year, from the current estimated size of 60 million, with most of the increase taking place in urban areas contributing to social and political instabilities".
Food inflation is the major trigger of poverty in Pakistan as people spend most of their incomes on food buying leaving them with meagre or no disposable income to save. This is a disastrous situation, many experts believe. Simply when saving declines, government has to resort to artificial ways to meet development and non-development expenditures. The outcome is rise in inflation and resultant increase in interest rate.
While inflation has made the life of poor masses miserable, high interest rate is crowding out private sector in dire need of capital. Due to the scarcity of capital to finance projects or its availability at high cost, it would become very difficult for private sector to invest in expansion and modernisation. Consequently, it has become difficult to bridle monster of unemployment. Without sources of income, people have to look for alternatives that can go against the social and economic wellbeing as a whole. Law and order situation has deteriorated to a considerable level because the malefactors in shape of unemployed youths are in abundance in Pakistan. Small and medium enterprises that constitute significant parts of industries and that can play crucial role in increasing employment opportunities are reeling under funds constraints, and operating without proper guidance from the state and financing from banks.
Capacity underutilization is the bane for manufacturing industry in the country and results in underproduction or supply less than demand. The impact on one hand is narrow job market and gross products much below the needs of total population. While one cannot overlook supply constraints that are responsible for widening demand and supply gap especially in case of food items, yet weakness of domestic economy is a prime cause. An official of World Food Programme said Pakistan was facing food insecurity not because of shortage of food but food price hikes. He reportedly said the country has sufficient food. However, its people's buying power is not enough to buy staple foods, he said while referring to high wheat price. It is a pity. Wheat crop of this year escaped the damages unleashed by powerful and comprehensive July/Aug floods of last year and it is extremely expected that crop production would surpass the target. Notably, there is also carryover stock available in government's warehouses. Thus, all factors support the heavy price cut in flour to give a relief to malnourished and impoverished population at least regarding the staple food.
Prices of food staples are high in Pakistan. Today's wheat prices are 60 per cent higher than that before the wheat crisis in late 2008 and early 2009 despite the fact that prices of food staples are declining in many South Asian countries. People in Pakistan spend 70 per cent of their income on food buying because of the very reason of unabated rise in prices of essential items, according to a World Bank's report released recently. It classified 17 to 38 per cent of population as poor and 51 per cent as vulnerable.
Planning commission's report that was released last year underlined the vulnerability of people living in urban areas. It said they were being affected by unabated rise in prices of essential items. The statement was endorsed by the World Bank's report. It noted urban people in Pakistan are susceptible to whirlpool of poverty and are not powerful to shield them against the price storm. A simple logic underscored in the report was that as opposed to the farmers, urbanites have to purchase all food items. The report said farmers hold wheat crop to meet their household consumption needs while people in cities have to buy the staple. Blowing wind to the raging waves of price is squeezing buying power. Wages are not increased in consonant with price spikes, rendering low- and middle-income groups defenceless to price inflation. At the present situation, when the government is inclining to cut development expenditures, the prospect of reduction, let alone alleviation, of poverty is dimming briskly.
Private sector can play an important role in rescuing the sagging economy, suggested the Burki's report criticising the government's improper policy framework. Had the government adopted right policy framework focusing on leveraging resources of private sector, even the flood's financial impact to the tune of nine to 10 billion dollar on the economy could have been offset plainly noted in the report. From 1947-1972, private sector had played major role in economic growth. Both disposable income and government incentives triggered private-led growth, it said. Regulation should be relaxed to give small and medium enterprises breathing space to grow and contribute extensively towards economic growth, the report advised. The report recommended push to tax to GDP ratio, fiscal decentralisation (fiscal autonomy to the provinces and to the administrative units), promotion of export-led growth, financing infrastructure building and improvement, and improving education.