The World Bank president, James Wolfensohn, wants the rich nations to step up aid and facilitate trade to fight poverty “rising at an alarming pace and to make the world a safer place.”

Pointing out the global fiscal imbalances, he says, the rich spend $56 billion on foreign assistance, the lowest level in 40 years, $300 billion on farm subsidy and $600 billion on defence.

Wolfensohn has called for a new global equilibrium and a new balance in the relationship between poor and rich nations. He sees the WTO failure at Cancun as a “ a wake-up call” for rich nations.

In country-specific reference, the latest World Bank Development Report warns Pakistan that broad improvements in human welfare will not occur unless people receive wider access to affordable and better quality services in health, education, water and sanitation.

As reports go, much-debated 5.1 per cent growth rate achieved last year has not dented poverty. About one-third of the population lives below the poverty line. Unemployment is at a high rate of 7.8 per cent.

The industrialized world, particularly the United States, is trying to retain domination in a faltering global system rather than working for a more equitable and just world economic order that serves the needs of both rich and poor nations alike.

Within the nation-states, the poor have lost their voice after the virtual collapse of the trade union movement and the demise of socialism. But it cannot be denied that reducing poverty in a nation’s people is the responsibility of their own government. Here there is a lack of efforts and a failure.

For example, macro-economic policies in Pakistan are so designed that improvements in economic growth rate have been a jobless one. In fact, too much focus on fiscal stability has fuelled poverty.

Now the policy-makers are trying to shift towards a consumer-focused growth strategy. It has its own perils. Lending money to consumers for spending on house-building and durable goods mortgages unpredictable future incomes in flexible job market that denies security of service and reduces employment. The purchasing power of consumers is also eroded by an exorbitant rate of sales tax.

Much of the rising poverty can be largely explained by a strategy of export-led growth that is designed to depress domestic demand to create trade surplus for foreign markets.

The export sector has been heavily subsidized by tax incentives, low interest rates and devaluation. Though it is the most patronised sector, earnings from exports have hardly ever exceeded import bill. An export-led growth policy has only produced trade deficits and led to debt trap.

Under this policy, the poor are taxed disproportionately. First, presumptive tax, treated as business expense,is bracketed as tax on incomes.

It accounts for 39 per cent of the direct taxes. If surcharge on petrol, gas,etc are taken into account, the share of direct taxes drops to 16.82 per cent in the total revenue of Rs459 billion. Though agriculture contributes a quarter of the GDP, its share in income tax ranges between a paltry Rs1-2 bn.

The fastest growing is the sales tax, levied at a rate 15-20 per cent or more, that hits the consumer directly. Sales tax impoverishes the consumer and reduces the demand for goods and services that keeps our traditional industries running at below their installed capacity.

Export earnings shot up to $11 billion last year as full export prices were declared and these also included reversal of flight of capital specially from Dubai.It did not fully reflect the improvement in the real economy. Direct taxes have been reduced on banks and businesses at a time when corporates are reaping rich harvests from low interest environment and a strong rupee. The lowest ever interest rates have enabled the business to replace their expensive debt by low -priced credit. A strong rupee has translated into cheaper imports. Corporates have posted huge profits.

The benefits of lower financial charges and reduced cost of imported inputs has not been passed on to the consumers. Instead prices of cars and building materials like cement and steel have been raised because of manufacturing cartels and oligopolies and growing domestic demand generated by soaring remittances and speculative investors.

Economic managers have failed to contain cartels and monopolies operating at the cost of consumers. At a workshop held in Islamabad last week, officials debated on how to go about updating laws, capacity building of Monopoly Control Authority (MCA) and adopting professional approach to tackling the problem,indicating their lack of capacity to act.

Normally, tax rates are adjusted to economic cycles of boom and busts. At times of recession, taxes are reduced to help businesses come out of slump.If the economy is on the growth track, as policy makers claim, and that too in an environment of low interest rate and strong rupee, the claim of corporates for tax concessions can not be justified. However, the tax concessions can be linked to specific investments as has been done in case of mortgage finance. It is time to reduce taxes on consumers, middle and low income-groups to expand domestic demand for local goods and services.

The current macro-economic policies have also failed to create the right environment for investment in real economy. In the given situation,the commercial banks tend to make profits by trading in Pakistan Investment Bonds, Treasury bills and stock market. Too much money, priced cheap, is chasing too few assets, inflating prices of stocks and property. The speculative investments havedriven small investors out of the stock market and financial market is being turned into a casino. The linkage between money and economic development is becoming weaker. And the money needs a speculative environment for making gains and losses like in any other business. This includes leading commercial banks.

Yet the government’s focus is on its own balance-sheet rather than development spending on infra-structure to spur investment and employment despite the fiscal space it has gained by replacing costly debts by cheaper borrowings.It is a major beneficiary of lowest ever interest rates.

Interest rate regime also tend to favour big businesses and the rich. Banks lend to the corporates at 2-3 per cent but to small and medium sized- industries at double digit rates. The SME Bank is run by bureaucrat-bankers and needs to be reformed. Lending to SMEs had not gone beyond rhetorics.The return on bank deposits are below the inflation rate. Consumers end up paying loans at 16-17 per cent. And micro-finance that is supposed to help reduce poverty carries interest rate of 18-19 per cent. Experience has shown that micro-finance does not reduce poverty. Dr Kaiser Bengali, a social scientist, says “the role of micro-credit in poverty alleviation is somewhat controversial.” The much-celebrated Grameen Bank has also excluded the poorest of the poor from its lending operations. Agriculture suffers from an outdated cultural practices that sustains rural poverty. The zamindari system under which the crop is shared between the landlord and the tenant is inefficient in production.

Without modernising agriculture, social and economic progress will continue to be tardy. Nor will the issue of poverty be tackled effectively. A prosperous countryside is needed to provide expanded market for industrialization.