June 18, 2007	Monday	Jumadi-us-Sani 02, 1428

The government frequently points to the increase in the number of mobile phone users as an evidence of progress. But this argument misses some crucial points.

The spread of technology, its tremendous benefits, and its ever-declining cost represent a global phenomenon that has made it possible for people to buy phones — sometimes on even borrowed money-as a long-term investment. Take Kenya’s example. In 2000 some 300,000 people used mobile phones; now, in that country of 35 million plus, nearly nine million do.

Statistics from other African countries like Nigeria, Ghana, Swaziland, Egypt, and Senegal reveal a similar trend. The efficiency gains from mobile phone usage, particularly savings in transportation costs, have made this a self-financing investment for hundreds of millions of low-income people around the developing world. It is therefore incorrect to present this as evidence of a significant change in living standards or of success of a government’s economic policies.

The only objective measure of a government’s performance is the improvement in real (or inflation-adjusted) incomes across all income classes. Now, how do we reconcile two seemingly contradictory facts that Pakistan has one of the lowest growth rates in real per capita (person) income in purchasing power terms despite having recorded one of the highest GDP growth rates among the Asian countries in the last four years? The fundamental reason is higher inflation compared to the rest of Asia. Pakistan’s current inflation rate is 7.8 compared with five per cent in India and about 1.50-2.4 per cent in Thailand, Malaysia, Korea and the Philippines and 3.40 per cent in China. Hence, it is important to measure progress and growth in real or inflation-adjusted terms.

The government cites the increase in per capita income from $586 in 2002-03 to $925 in 2006-07 as one of its principal achievements and its claim to a significant poverty reduction rests to a great degree on this argument. While it is true that Pakistan’s GDP growth since 1999-2000 has been higher than it was in the 1990s, real measure of the improvement in the wellbeing of the population compared to other economies is the GDP per capita in purchasing power parity terms.

Pakistan’s GDP per capita (or per person) increased to $925 by an average of 9.3 per cent per annum during 1999-2007 when measured in nominal dollar terms but since the dollar has depreciated against euro, this growth rate falls to 5.59 per cent when measured in euros and to only 2.5 per cent when measured in real or purchasing power parity terms in 2000 constant dollars as shown in the graph.

In other words, the average real income of a Pakistani has increased by only 2.5 per cent per annum since 1990-2000 and as income inequalities have not improved according to the government’s own admission, it is but logical that the incomes of the upper and middle classes have risen more rapidly than the average. It therefore follows that the per capita real income growth for more than 80 per cent of the population has been less than 2.5 per cent. According to a World Bank report released on March 30, 2007, Pakistan’s agricultural GDP per capita growth rate during 1999-2000 to 2004-05 was only 0.3 per cent annually.

What has made it worse for the lower income groups is the well-established fact that the food inflation has been higher than the overall inflation. The food inflation accounts for about 40 per cent of overall inflation and is therefore critical to improvement or deterioration in the purchasing power. The current food inflation rate is four and half times as high as it was in 1999-2000 as shown in the graph.

The surge in food inflation to 10.24 per cent during July 2006-May 2007 followed a fall of 4.1 per cent in the major crops (wheat, rice, cotton, sugarcane) and a negligible increase of 0.4 per cent in minor crops (potatoes, pulses, other grains, etc.) during 2005-06 despite an overall GDP growth of 6.6 per cent in that year. Both crop groups staged a recovery during 2006-07 and it remains to be seen if the recent gains in their production would translate into lower food price inflation.

The last year’s GDP growth of seven per cent was helped by a five per cent growth in the agriculture sector, which accounted for 20.9 per cent of the GDP. However, the growth in the crops sub-sector (which accounts for only 47.9 per cent of the agriculture sector, the livestock’s share being 49.6 per cent) masks the fact that the (i) 7.5 per cent growth in major crops was from a low base as prior year’s growth was negative and (ii) the minor crops grew by only 1.1 per cent during 2006-07.

However, going beyond a single year’s production data, the last seven years’ record indicates more fundamental and structural problems with the growth trend of the agricultural crops. As shown in the table, the production of cotton, wheat, rice and sugarcane grew by a yearly average of 1.63, 1.23, 0.59 and 1.87 per cent respectively during the seven years from 1999-2000 to 2006-2007 and was below the estimated average population growth of 2.2 per cent or so during this period. An examination of a sample of the production of other agricultural produce reveals similarly low and volatile rates of growth.

The country witnessed unprecedented drought during the first two years of the decade, (that is, 2000-01 and 2001-02), which resulted in contraction of overall agricultural production or negative growth in these two years. However, the 7-year growth rates of agricultural crops compared with even the more normal levels in 1999-2000 are quite low and have failed to keep pace with the population annual growth rate of over 2.2 per cent..

The official statistics on fertiliser, water, and improved seeds distribution indicate some improvement. However, water availability has not materially changed during the past seven years not to mention the worsening power shortages and higher oil prices.

The Economic Survey for 2006-07 claims that this year’s wheat crop was higher due to a number of reasons including a more seed availability, greater subsidy on fertiliser, introduction of three new higher yielding wheat varieties, etc. This begs the question as to why these measures were not taken in the earlier years because wheat production remained stagnant during 2000-2004 and even in 2005-06, it just managed to recover to its 1999 level.

This underscores the need to undertake major reforms in the crops sector to bring the long-term growth rate to a level that is consistent with the population growth trends. However, improving growth rates in crops production alone will not be enough to bring the 74 per cent poor out of poverty; that is those who earn around or below $2 a day. Rural population accounts for 70 per cent of the total but 80 per cent of Pakistan’s poor live in the rural years. Agriculture (including both crop and livestock production) accounts for only about 40 per cent of rural household incomes and the poorest 40 per cent of rural households derive only about 30 per cent of their total income from agriculture.

According to the World Bank, a major reason for the large proportion of rural non-agriculture poor in Pakistan, as well as poverty levels among small farmers, is the prevailing “highly unequal distribution of land and access to water”. According to the 2000 Agricultural Census, only 37 per cent of rural households owned land, and 61 per cent of these land-owning households owned fewer than five acres, or 15 per cent of total land. Access to usable water is also quite unequal, a major cause of lower productivity in the dry lands (barani) relative to irrigated land, land at the tail end of watercourses relative to land at the head end, and areas with saline groundwater as compared with areas that have sweet groundwater.

“Because of this skewed distribution of ownership and access to productive assets, much of the direct gains in income from crop production, particularly irrigated agriculture, accrue to higher-income farmers” according to the World Bank study. This implies that much of the gains from the recent growth in the crop production in 2005-07 have accrued to the higher-income farmers. It is ironic that the same higher-income farmers pay little or no income taxes while the small farmers and the poor are regressively taxed in the form of higher inflation.

This reinforces the view that despite higher overall GDP growth, higher food inflation and inequitable distribution of resources have prevented the flow of benefits to the vast majority of the people and no amount of the so-called “trickle down” can have a significant impact on their incomes and living standards in the absence of radical reforms in the agriculture sector as well as about an estimated $17 billion in investments in large and smaller dams to ensure more water and electricity without which 7-8 per cent growth rate is likely to remain a dream in the long-term.

yousufnazar@yahoo.com