KARACHI, Nov 3: As many as 63 per cent of poor in Pakistan have been interestingly classified as ‘transitory poor’ by a study conducted by the Centre for Research on Poverty and Income Distribution (CRPID). This had been observed by the State Bank in its annual report 2004-05.
The standard definition of ‘transitory poor’ includes those households that are below the poverty line for most of the time but not always during a defined period.
The rest of 32 and five per cent of the population that subsist below the poverty line were found to be ‘chronic’ and ‘extremely poor’, respectively. Chronic and extremely poor are households that are always below the poverty line, all the time during a defined period. Similarly on the other side, 13 per cent and 21 per cent of total non-poor (above the poverty line) were classified as ‘transitory vulnerable’ and ‘transitory non-poor’, respectively. In the standard definition, transitory non-poor are defined as households that were not above the poverty line for most of the defined period but not always, while transitory vulnerable and transitory non-poor that have high probability of getting poor.
“This distribution structure of household around poverty line presents both an opportunity and a threat,” says the SBP, adding that it suggests that a positive shock at macro level can push majority above the poverty line, while a negative shock may drag a large number of households into the category of poor people.
Speaking of ‘poverty’ in general, the SBP report mentions that while the real per capita income in Pakistan saw a strong recovery since FY03, a legitimate question to ask is: How much has this recovery helped in reducing the poverty in the country?. “Unfortunately, comparable data on poverty measures for the period of improvement is not available,” the central bank says.
It observes that in fact the Pakistan Living Standard Measurement (PLSM), conducted by the Federal Bureau of Statistics (PBS), during the April-May 2004 period could be used to derive latest poverty estimates, but due to its short duration and much smaller sample size, the data is not comparable with statistics of 2000-01. Although the FBS has tried to make the results of this quick survey of 2004 comparable with the survey of 2000-01 by adjusting the period, still the sample could result in some biases regarding comparison of current poverty estimates with the past trends.
The SBP report observes that the year 2004 showed that the poverty had declined during the 2001-2004 period. Specifically, percentage of population below the poverty line stood reduced from 27.3 per cent in 2001 to 23.1 per cent in 2004. Both urban and rural areas shared the improvement, while the former saw a significantly larger reduction in headcount ratio. “Moreover, the decline in unemployment and improved participation rate also support the view that poverty has improved in Pakistan during the last couple of years,” says the report, adding that to identify the extent of decline, one has to wait till December 2005 when the FBS is expected to release detailed results of the comprehensive PSLM survey for the 2004-05 period.
The SBP report admits that poor people are also more prone to ‘idiosyncratic shocks’. Lack of access to financial services, such as insurance or formal banking services limit their ability to save at good time for rainy days or limit their losses in case of negative outcome by getting insurance money or temporary borrowing against future income. In fact, studies for other countries suggest that a significant portion of transitory group falls into poverty due to seasonality in their income and lack of appropriate income smoothing mechanism available to them. “Since a large portion of households in Pakistan fall in ‘transitory’ group, increased access to micro-finance facility may help in reducing the poverty in the country,” suggests the central bank.