November 4, 2002	Monday	Sha’aban 28,1423

The outgoing military regime has added millions to the already very high population of poor in this country as it single mindedly kept its focus on accumulating foreign exchange reserves in the three years of its rule. These millions have started eating into Pakistan’s vital but already negligible economic assets ensuring that in the coming years life would become harder to live in this country for even those who today can barely manage to get two square meals and could afford a shelter.

The State Bank of Pakistan’s Annual Report for 2001-02 which was released the other day has written one full chapter on poverty and what this chapter contains must be read along with the claims of the outgoing rulers that they have put the country’s economy on the way to recovery.

The report says that the prospect of any significant poverty reduction have ‘considerably mitigated’ since 1999 when this government took over the reins in Islamabad. The report attributes this sorry pass to what it calls the shocks the economy has been facing during this period. But somehow these shocks did not seem to have made any difference to the government’s ability to ‘earn’ as much as 8 billion dollars in foreign exchange reserves.

In fact, while the FER kept growing at a phenomenal speed the rate of unemployment in the country also went up with equal pace and reached an all time high of 9 per cent in 2002 as investment to GDP ratio climbed down to 13.9 per cent from an average of over 18 per cent in the ten years since 1990.

The following are some important findings of the last Labour Force Survey (LFS) 1999-2000 quoted in the SBP Report:

1. In Pakistan, the participation rate in economic activities has decreased from 29.4 per cent in FY98 to 29.0 per cent in FY00. The decrease has been observed for male as well as females.

2. The structure of employment by industry shows that the share of agriculture sector has increased from 47.2 per cent in FY98 to 48.4 per cent in FY00 which is an year of exceptional growth. This may be related to a disguised unemployment in agriculture sector. Persons who are not getting employment in the non-agriculture sectors are accommodated by the growing agriculture sector.

Further, within the non-agriculture sector, two-thirds (65.8 per cent) of the employed persons were engaged in informal sector. Informal sector in rural areas has accommodated relatively more employed persons (68.0 per cent) compared to urban areas ( 63.8 per cent).This shows that the formal sector is unable to create enough jobs consistent with the labour supply.

Parallel to the increase in agriculture sector, farming activities have also shown an upward trend from 39.9 per cent in FY98 to 40.6 per cent in FY00. In addition to other reasons, the disguised unemployment factor may have also contributed to its size, as persons who are not getting employment in other sectors are engaged in farming activities.

The employment status indicates that self-employed category has increased from 41.5 per cent in FY98 to 42.2 per cent in FY00. Similarly the employees categories have also shown increasing trend. In contrast, the unpaid family helpers and employers categories have experienced a downward trend.

In the last three years despite tall claims the government has also totally failed to make much progress on literacy and education fronts adding to the factors that go into expanding poverty. According to the report the inter-country comparison of selected indicators reflected very poor standing for Pakistan. Education sector has generally remained starved of resources needed to bring it at par with at least the regional countries, “ despite its important role in economic growth and poverty reduction.”

The situation is more disturbing as lower quality of education and mismatch of acquired skills with the market demand lead to lower returns on investment in human capital. This, in turn, weakens the role of education as a catalyst in poverty reduction efforts.Poor education also drags country’s ability to adopt technological innovation, and in turn integrating with the global economies.

In the health sector too Pakistan’s performance in comparison to other regional and developing countries has not been found to be satisfactory. According to the SBP report the low budgetary allocation explains much of the poor performance in the health sector. In the last five years expenditure on health had remained unchanged. After having peaked at 0.8 per cent of GNP in 1996-97, it reverted back to 0.7 per cent of GNP, the same as it was between 1991 to 1994.

The persistently higher rural poverty has also been attributed to the highly skewed pattern of land holdings. While more than one-half of the rural population in Pakistan is landless, 93 per cent of total farms( covering 60 per cent of the area) was smaller than the subsistence landholding of 10 hectares. The land ownership is also important in determining the access to credit from the formal banking system. In addition, the nature of contract between landowner and cultivator also influences the economic status of the rural population. For example, a more traditional contract based on ‘sharecroppong’ ( whereby the landowner and the cultivator share the cost of the inputs and the revenues from the harvest) is chosen when the lesee is poor and cannot raise the funds to pay the amount for lease and inputs beforehand. In such a case, the risk for the cultivator are lower, but so are the revenues.Furthermore, low level of mechanization does not allow significant increases in value addition and consequent reduction in poverty incidence. According to census of Agriculture (1990) , a 35 per cent of total farm area was cultivated by other than owners.

The population pressure is also adding to the expansion of poverty in the country. Pakistan is the 7th most populous country in the world and 4th in Asia. It is expected that by 2050, Pakistan’s population will rank fourth in the world after India, China and USA. Even considering the projected world population increase during 2000-05, Pakistan ranks third in absolute numbers after India and China.

According to the projections provided by the Ministry of Population Welfare, if the fertility rate declines to replacement level of 2.1 children per woman by the year 2003, Pakistan’s population will reach 204 million. However,, due to momentum alone, population will continue to grow for another 3-4 decades. Thus, the attainment of population stabilization is not possible before 40-50 years now onward. Indeed,any shortcoming in the actual fertility rate from the targeted level will further stretch the projected time-line.

The slower pace of fertility transition has strong implications for economic and social development. In particular, this results into relatively higher dependency ratio. According to 1998 census, only 32 per cent of the total population lies in the working age group (25-59), which is almost unchanged since 1981. The resulting high dependency ratio not only constraints the saving capacity of average households but it also has strong implications for their consumption pattern and overall quality of life.