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An unrecognised success story

August 12, 2013
- Illustration by Abro
- Illustration by Abro

When the World Bank comes up with a fresh indicator, ‘Shared Prosperity,’ later this year to better identify and explain how countries make progress and pull their populations out of poverty, Pakistan would perhaps be among the few to stand out.

The Bank’s case studies would focus on how growth, poverty reduction and the graduation in standards of livings are correlated.

This is one of the reasons that gains on poverty reduction achieved by Pakistan over almost 15 years have again come into focus following a policy note, ‘Recovering Strong Positive Trends and Opportunity,’ by the World Bank’s John Newman who noted that even with paltry growth rates of 3-4 per cent, Pakistan has been a good achiever on the poverty reduction front.

Absolute numbers, based on the World Bank standard of $1 a day about the incidence of poverty in Pakistan, have always been a political issue during this period, and hence no government ever officially acknowledged or was able to take/give credit for the outcome of household income and expenditure surveys in 2005-06, 2007-08 and even 2010-11.

It was, however, evident that since 2001-02, the incidence of poverty has been on a decline, from somewhere above 30 per cent to little over 11 per cent in 2010-11.

While successive governments, as well as the media and the academia have talked more on the number of poor living below the poverty line (itself a debatable definition), and the authenticity of the data, a stellar performance as far as poverty declining trends are concerned remained buried, even though it became a case study among multilateral agencies for a deeper look.

Despite controversies over surveys, data and ultimate numbers, there has almost been a consensus among all on two counts: that absolute poverty has declined in Pakistan despite the economic boom and bust cycles, and that poverty could not be eradicated completely.

This was despite difficulties or deficiencies with data from three provinces — Sindh, Khyber Pakhtunkhwa and Balochistan — as well as repeated cycles of natural disasters and an ongoing war on terror. Mr John Newman noted, “Indeed, Pakistan has turned economic growth rate into poverty reduction. In Punjab (where data appeared more reliable and hence analysed in detail), poverty has fallen considerably, from 33.5 per cent in 2001-02 to 16.4 per cent in 2007-08, after adjusting for higher food prices,” and further down to 14.6 per cent in 2010-11.

Without adjusting for food prices, poverty in the province dropped from 33.5 per cent in 2001-2 to 24.3 per cent in 2004-05, followed by 14.1 per cent in 2007-08 and 11.8 per cent in 2010-11. This shows that the price of food had a significant impact, and hence points to the need for updating global standard of $1 per day benchmark.

A multilateral expert believed the results showed that change in poverty numbers, when adjusted for food prices, would mean that the poverty rate is to increase, and hence a more pressing need for an accurate assessment of the impact of food prices was necessary. But one has to decide about a base year first to be able to move forward.

This also proved that while Pakistan was relatively quicker in reducing the poverty rate when economic growth was on the higher side, it was not a bad performer even when the economy was just going at 3.5 or 4 per cent after the global economic crisis. But this does not mean that the country should be complacent with positive trends despite low growth.

It calls for a stronger, sustained growth of at least 7-8 per cent over a long period to not only minimise poverty, but also create job opportunities for the growing youth that would ultimately improve living standards of the population and the need for capturing the ‘shared prosperity index,’ as is being pushed forward by the World Bank. This also explains why Pakistan has historically done better in consumption-based poverty measures than improving social indicators.

It showed that when per capita income is growing, the country gaining ground on poverty reduction and with a larger youth population would ultimately contribute to lowering the poverty rate. This has been contributed by a robust flow of remittances from overseas Pakistanis and targeted towards the very people who were required to be pulled out of poverty, followed by good agricultural production, targeted interventions like income support programmes and education, which create individuals’ own initiative to move out of poverty that has been the basic objective of poverty reduction efforts worldwide.

Specific analysis suggests that labour contributed 50 per share in poverty reduction in Pakistan, including 13 per cent from farm-labours and 37 per cent from the non-farm labour force. This was followed by a 23 per cent contribution by non-labour efforts like implicit rents or returns on investments, 10 per cent each by population and demography (age and gender), and eight per cent because of shift from unpaid towards salaried workers.

At the same time, the informal sector working parallel with the formal economy may have significantly contributed to poverty reduction, given the fact that it may not be fully reflected in the GDP growth rate but still playing a key role in pulling people away from abject poverty.

The improvement in poverty reduction was driven largely by increasing returns in the non-farm sector. Between 2001 and 2007, the growth of per capital consumption of the bottom 40 per cent of Punjab’s population exceeded GDP per capita growth. This measure — an indicator the World Bank is testing for application worldwide — recognised that consumption growth in the bottom 40 per cent will matter the most in building ‘shared prosperity,’ which is different from the Ginni coefficient, with a higher focus on equitable distribution of wealth, but not growth, at the bottom of the curve.

Subsequently, over 2008-2011, per capita real consumption growth in Punjab was stagnant. The equality of opportunity for primary education completion rate seemed to improve, but it did so alongside a slowdown in the rate of improvement in indicators for water, sanitation and primary enrollment. Nationwide, the rate of improvement for gas and electricity deteriorated.

This sharp reduction in the poverty rate over short period also suggests that poverty in Pakistan is highly elastic to growth. However, while the country has been doing well, converting growth into poverty reduction, it has been struggling to sustain that growth beyond four years at a stretch.

These growth interruptions apparently mean that Pakistan needs an adequate social protection system, because the poor are vulnerable to shocks like natural disasters, health and macro policy, so that they can still maintain the investments they need to increase their incomes and their children’s welfare.

The World Bank argues that the poverty line should be recalculated in Pakistan, using either the 2007-8 or 2010-11 household income and expenditure survey, at which time the government should also discuss the choice of the price index to adjust the poverty line for inflation. It should have an oversight over the Pakistan Bureau of Statistics to pursue proposed changes and resolve anomalous results to put in place a system for more reliable, regular and timely poverty data compilation and swiftly made public.