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Poverty challenge amidst data deficit

Updated May 22, 2017

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The budget strategy unveiled for the next fiscal year is stated to have been designed with a view to achieving higher, sustainable and inclusive economic growth in order to provide employment and reduce poverty.

On the face of it, an integrated approach should help the three elements of the growth strategy to reinforce each other. With the conventional model of the welfare state losing its relevance and the Chinese and Russian brands of socialism having lost their way, new ways have to be found to take an egalitarian course.

But, as they say, the taste of a pudding lies in its eating. The outcome will depend on how strong the policy commitment is and the government’s ability to implement the three stated aspects of growth in a balanced way.

There is no doubt that CPEC- related debt financing and investment of infrastructural development will largely serve as a catalyst for higher and sustainable growth for a while.

Long-term sustainable growth is only possible if Pakistan is able to access regional markets, particularly China, to boost export earnings required to service debts and afford rising repatriation of profits on Chinese investments. From a short-term point of view, the target of higher growth of 6pc for the next fiscal year may not sound too ambitious.

The real challenge for policymakers is how to steer the course of economic growth to make it inclusive — without which higher growth will be unsustainable. The problem is aggravated by the policymakers’ effort to paint a rosy picture rather than make serious efforts to resolve the problem of poverty which, it may be conceded, is an uphill task in the current economic environment and the state of governance.

According to a research report completed this month by the Social Policy and Development Centre, the old and flawed methodology used to measure poverty was difficult to sell even to different government wings. So the Planning Commission of Pakistan had to set up a technical committee in 2012, to review the official methodology and remove limitations, to estimate consumption data through Household Integrated Economic Surveys.

The report prepared by SPDC consultant Haroon Jamal points out that even in the revised methodology formulated in light of the technical committee’s recommendations, the “choice of reference group casts doubts over the whole exercise of poverty estimations and it seems that the methodology is adjusted to obtain the required number by trial and errors.”

Some shortcomings in the revised methodology pinpointed by the SPDC are: the unique calorie threshold for both urban and rural areas seems inappropriate, ignoring the difference in consumption pattern between the two segments of the population.

Another worrying factor is the non-adjustment of regional and provincial differences in the cost of living (food and non food expenditure). And despite criticism, CPI formulated with limited geographical coverage has been used for updating headcounts.

Haroon Jamal concludes: according to the official estimates, the poverty reduction phenomenon does not has any link to the performance of the economy. For instance poverty is continuously decreasing — seven to eight per cent points — since 2001-02 irrespective of trends in GDP growth and macroeconomic indicators.

The methodology adopted in the SPDC study takes care of the flaws highlighted by the Technical Committee which were underlined in old official methodology. Its estimates show that 38pc of the population was poor in 2015-16. In terms of absolute numbers, 74 million persons were estimated poor in that fiscal year, up from 61m in 2010-11.

As traditional poverty measures often neglect several important dimensions, the research note attempts to assess the extent of household vulnerability to poverty in Pakistan. Vulnerability estimates show that close to 51pc of the population was vulnerable to poverty during 2015-16, with probability being more pronounced for rural dwellers.

Any serious planning and strategy for inclusive growth, which is now a global concern, has to be based on realistic estimates and authentic data. It is time to go beyond rhetoric and window dressing, given the big picture.

The various conventional methodologies used for research are being questioned and described as old and outdated. Some methodologies are also suspected to have been designed to obtain the desired results. For this state of affairs, some blame a segment of consultancy operating in the field of specialised knowledge in a complex and changing world.

As though that was not enough, critics have often described economics as a dismal science. Lately some eminent scholars have accused free market advocates of turning economics from a social science to a religious faith. And there is also a view that much of the economics science has lost its validity in a sea of change and owing to the absence of real creativity to update it.

Apparently in this context the issue of unemployment, poverty and inclusive growth is lost in the wilderness.

Published in Dawn, The Business and Finance Weekly, May 22nd, 2017