How to define “poverty” is a complex and debatable issue. The complexities include the question whether poverty line should be determined on the basis of an “individual” or a “family”. In the developed world where each adult member of the family earns, it may be fair and equitable to determine the poverty line based on the income of an individual.
But in the developing countries like ours, where only the head of the family earns, he is required to cater to the each and every requirement of his family members, it would not be equitable to link the determination of the poverty line on the basis of “individual”. Rather it will be fair to do so on the basis of the family which usually comprise at least 6-7 persons e.g. husband/ wife, 2-3 children, parents, etc.
However, family-based estimation of the poverty line does not appear to have taken place any where in the world. The individual-based formula envisages that if the income level is $1 per capita per day or below, concerned individual will be considered poor (or below poverty level).
The other formula is calories consumption-based. In case, the calories consumption per capita per day is 2350 or less, the concerned section of the populace shall be deemed poor.
The income at $1 per capita/per day means monthly income of approximately Rs1,750.00 at the current exchange rate. However, it seems strange that the Planning Commission of Pakistan has fixed the poverty line at Rs670.00 per month (see footnote No.2 page 199 of the State Bank of Pakistan’s annual report for the fiscal year 2002-02 (FY-02)] which works out to just 38 per cent of the income level of $1 per capita per day.)
In case, poverty estimates compiled in Pakistan are based on the income of Rs670.00 per capita per month, such estimates cannot obviously depict the reality.
Adhering to the $1 per capita per day income as the level of the poverty and a family in Pakistan comprising 6-7 persons, if the income of the head of the family is less than Rs12,000 per month that family will fall under the category of “poor”.
Although no official estimates based on the family-based income may be available in Pakistan, one can safely assume that, whether living in rural or urban areas of the country, not more than 20 per cent of the families would have earnings of that level and hence 80 per cent would fall under the category of “poor”.
The lessening of the impact of poverty, inter-alia, depends on the following factors:
(a) increase in the employment opportunities; (b) curtailing the population growth rate; (c) relief to the poor segments of the society in the matter of taxation; (d) increase in the GDP growth and its equitable distribution among the population; (e) decrease in the inflation
A few days prior to the announcement of the budget for the current fiscal, the finance minister had claimed that there had been a reduction of 0.8 per cent in the poverty during the fiscal 2002-03 (FY-03).
However, the International Monetary Fund (IMF) and the Asian Development Bank (ADB) in their recent reports have talked of increase in the poverty in the country after October, 1999. It appears that with a view to hiding the facts, the government has withheld the data about the poverty pertaining to the post-1999 era.
The successive governments in Pakistan since 1960s have been insisting that in the scenario of higher GDP growth, the benefit will reach the poor sections of the populace through trickle-down effect.but this trickle-down could not be practically felt during the last four decades.
Coming to the factors (a) to (e) above, the question of employment opportunities will be taken up in the later part of this write-up in a bit detail. As for the population growth, the statistics given in the 2003 Economic Survey issued just before the announcement of the budget for the current fiscal (FY-04) indicates that the population grew from 136.64 million in June, 1999 to 149.03 million in June 2003.
As per the said Survey, tax collection increased from 11 per cent of the GDP in the fiscal 1999-00 to 11.5 per cent of the GDP in the fiscal 2002-03— a marginal increase of 0.5 per cent of the GDP.
The GDP growth figures are: FY1999-00 3.9 per cent, FY2000-01 2.5 per cent, FY2001-02 3.4 per cent and 2002-03 5.1 per cent. This totals to 14.9 per cent but when compounded on year-over-year basis, it comes to 15.74 per cent.
The official figures of inflation— which are believed to be just half of those compiled by independent sources—are: FY1999-00, 3.6 per cent; FY2000-01, 4.4 per cent; FY2001-02, 3.5 per cent;and 2002-03, 3.3 per cent. This adds up to 14.8 per cent but when compounded on year-over-year basis like GDP growth, it would work out to 15.64 per cent.
It can thus be seen that the inflation as admitted by the government itself has totally negated the impact of the GDP growth.
We would now try to strike the balance between the positive and the negative impact of the items discussed above:
I: Positive impact:
Cumulative GDP growth since
July, 1999 to June 2003 15.74 per cent
II: Negative impact:
(a) Inflation 15.64pc
(b) Population growth 9.06pc
(c) Taxation growth 0.50pc
25.20pc
Resources squeezed from the public (I-II) 9.46pc
The impact of the population growth can be explained in yet another way. As per the above Economic Survey (page 10) the market price GDP during the fiscal 2002-03 was estimated at Rs4018.1 billion. If it is distributed among June 1999 level population, the per capita works out to Rs29,406 while based on June 2003 population, the per capita GDP stands reduced to Rs 26,961 only- a reduction of 8.31 per cent. Thus the negative impact of population explosion under both the methods is almost the same.
Resources of the order of 9.46 per cent have been squeezed from the public during the regime of the present economic managers which estimate is based on the assumption of even distribution of resources among the masses which obviously does not depict the real story. The prevalent system of uneven distribution of resources helps only the aristocratic sector of the society to gain. Judging from that angle squeeze of the resources from the public will be much greater. In the scenario of huge squeeze of resources from public, imagination of reduction in the poverty is a mere farce.
Here, it can be argued that in the post-September11.2001 era, there has been sharp increase in the workers’ remittance resulting in the sizable growth in the per capita GNP. But in my view, per capita GNP growth may not have any substantial effect on the poverty alleviation because the families of the Pakistanis working abroad were already receiving remittances from abroad - even though bulk was received through informal channels because of quick service of the hundi-operators and better exchange rates,which have since been diverted to the banking channels.
Dr. Ashfaque Hasan Khan, Advisor in the Ministry of Finance, in his article published in Dawn-EBR dated August 5-11,2002, had, in the context of heavy purchases by the State Bank of Pakistan of US dollars from the open market, stated that the government was mopping up only the amounts of workers’ remittances which passed through the informal channels. His estimate of the quantum of the workers’ remittances was $ 3 billion per annum. During the previous fiscal, workers’ remittances through the banking channels slightly exceeded $4 billion. So the amount may include $l billion on account of reverse capital flight. That too may not have impact worth the name in the reduction in the poverty level because the government has not been able so far to channelize the amount of the reverse capital flight in the productive avenues generating employment opportunities.
Let us now examine the anti-poor policies of the government with particular reference to post-October 1999 era.
(i) The post-October 1999 policy instead of creating new jobs, is running in a reverse direction, curtailing employment opportunities through privatization/ right-sizing / down-sizing in the government departments including the nationalized commercial banks. The data about all the government departments / agencies in this regard is not available. The data about the closure of branches/retrenchment of staff by the nationalized commercial banks is, however, available in their annual reports. At the time of closing down of the branches/exodus of the staff in bulk, it was claimed that it was being done in order to saving the expenditure but it has not happened. Despite substantial reduction in the number of employees/branches, salary/allowances expenditure has registered increase instead of decline as would be perused from Table A:
The government also contemplates to enter into a venture of “corporate farming” for which about 20 million acres of land is believed to have been earmarked. The high-tech mechanized farming will most probably provide opportunities to the multinational corporations to dislodge the local farmers in large number. The other aspect of the matter is that when we cannot cater to the water requirements of the existing cultivated acreage, how will it be possible to meet the water requirements of such a vast additional land? The third aspect of the corporate farming is where will the excess production be utilized? In the last 2-3 years we have been experiencing difficulties in the matter of export of small surplus of wheat and sugar.
If the corporate farming generates huge surpluses of agricultural commodities, we shall not be able to export the same because of the uncompetitive prices compared to the similar products of the USA and the European Community as these rich countries are paying subsidies to the agricultural sector at the rate of one billion dollar a day. So, then the multinational corporates shall put pressure on the government to provide subsidies. What will then happen to our already deficit budget? Can we afford such anti-labour / anti-finance policies of the government in the long run?
(ii) The increase in the tax-GDP ratio is apparently marginal but in the numerical terms, bulk of the burden has been shifted from direct to the indirect taxes and the share of the regressive sales tax being recovered at the highest rate over the globe has sharply gone up. It is affecting the whole population. As would be perused from the 2003 Economic Survey (page 66), the sales tax forms over 44 per cent of the total tax collection during the fiscal 2002-03.
(iii) While retrenching the employees in the public sector, it was claimed that they are not going empty-handed but with substantial cash. But the reduction in the interest rates on the government securities/ bank deposits has been so substantial that the cash in the hands of the retirees has become meaningless. The interest rate on the Special Savings Certificates has gone down from 14 per cent p.a. in 1999 to 7.5 per cent p.a in 2003 which after payment of withholding tax stands further reduced to 6.75 per cent p.a. If we deduct 2.5 per cent Zakat, the accrual will be bare 4.25 per cent p.a.
It may be added that the retirees were not required to pay Zakat so long as they were in employment because the cash was not in their ownership. Suppose, an employee drawing monthly salary of Rs15,000.00 retired with the cash amounting to Rs1.5 to Rs2 million, what will be his monthly income @ 4.25 per cent p.a. Rs5,312 to Rs7,083. The interest rates on the deposits with the banks in most of the cases do not even cover the amount of Zakat In fact the anti-poor policies of the government has thrown away the per-force ( falsely termed as voluntary ) retirees—based on family-based income from slightly above poverty level group to the group of the poor.
(iv) It is true that the high interest rates charged by the banks in the past (ranging upto 22 per cent p.a) did not have any justification. But how the current lowest lending rates charged by the banks by squeezing the depositors can find moral and social justification. The principle advocated in the past was that the depositors should get something above the prevailing inflation rate. How will the Government justify its monetary policies by allowing the banks to pay negative interest to the depositors? And who is the beneficiary of the historical lowest lending rates?
The big-belly ‘seths’ (please refer to the recent Special Savings/Defence certificates scam), the corporate sector and non-corporate businessmen. Why the government does not ensure that the beneficiaries of the interest rate cut pass on a part of their gain to the general public? The irony is that the banks have not reduced the lending rates for Small and Medium Enterprises (SME) sector/micro-finance sector so large-heartedly. Conclusion : anti-poor policies more the poor higher the lending rate ( refer to 16 per cent p.a interest on micro-finance).
(v) The persons who were living marginally above the poverty level before October, 1999 have also migrated to the “poor” class due to sharp reduction in the interest rates on the National Savings Schemes instruments.
(vi) In the end, most interesting example of the anti-poor policies of the present economic managers. Following the deregulation of the pricing policy of the petroleum products, the Oil Companies’ Advisory Committee fixes the prices of various products on fortnightly basis. It is claimed that the committee fixes the prices in a very transparent manner keeping in view the international prices. But the transparent formula was never made public either by the government or the committee. Prices of various products fixed in September,2002 and October,2003 are given in Table B.
It will be seen from the above table that the prices of the petrol which is used by persons falling in “above poverty” category was reduced by about 9-10 per cent while the price of the kerosene oil which is used by the poor class,particularly in the rural areas where gas is not available, was raised by the committee by about 6 per cent during the last 13 months. Similarly, the price of diesel used by the public vehicles- -means of transportation for general public— was increased by about 8 per cent. This is also a reflection of the anti-poor policy of the government. Could the committee publish the formula for fixation of the prices and also the authentic data on international prices of the kerosene oil on the basis of which the prices of that product were fixed during the last 13 months.
(vii) It is generally said that after the Multan oil refinery commenced operation, we have become self-sufficient in the matter of petrol. Not only that, we are also exporting that product. If the position being that why the committee has been assigned the job of fixing prices of petrol. In fact it should be the committee of the refineries to take over the job.