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Poverty in Pakistan: Measures, Causes and Responses

POVERTY IN PAKISTAN

Measures, Causes and Institutional Responses

 

ABSTRACT

This research paper explores the different methodologies, trends, causes and institutional policies to diminish poverty levels in the rural and urban areas of Pakistan. Four years ago, the World Bank Group set 17 Substantial Development Goals – adopted by countries all around the world including Pakistan. One of their goals is to end poverty in all forms everywhere. Poverty is not limited to just lack of income and resources to ensure a sustainable livelihood, there is more to it.  It extends to factors such as hunger and malnutrition, limited access to clean water and food, lack of education, lack of employment opportunities, social discrimination in decision making process and land ownership. By 2030 the United Nations intentions are to “reduce at least by half the proportion of women, men and children of all ages living in poverty, ensure that all men and women get an equal opportunity and have equal rights, build the resilience of the poor, ensure significant mobilization of resources from a variety of sources and create sound proof policies at the national, regional, and international level”.

INTRODUCTION

In 2015 the United Nations General Assembly introduced a collection of 17 goals, now commonly known as the “Sustainable Development Goals”, targeted towards improving the overall economic growth and development of countries in a sustainable manner. It is a call for action by all countries to promote affluence while protecting the planet Earth. It is a call of action to end poverty in all countries – poor, rich and middle income by 2030.

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More than 80 percent of Pakistanis have repeatedly described that “their economic wellbeing has either deteriorated or remained the same”. On the other hand, some say that their economic situation in terms of poverty has improved over time.

Some longitudinal surveys state otherwise, that poverty levels in Pakistan have adequately increased drastically rather than fallen ever since the 1990s.  Poverty in Pakistan endures to be a source of anguish for the country yet there is no accurate guideline to measure poverty. Developing countries such as Pakistan seem to be one of the worst victims of extreme poverty. The World Bank ranks Pakistan “43rd in the list of poor countries”. UNESCO in pure economic terms defines income poverty as the following – “is when a family’s income fails to meet a federally established threshold that differs across countries. Typically it is measured with respect to families and not the individual, and is adjusted for the number of persons in a family. Economists often seek to identify the families whose economic position falls below some minimally acceptance level. Similarly, the international standard of extreme poverty is set to the possession of less than 1$ a day”.  In more general terms poverty refers to “the condition of not having the means to afford the basic necessities such as clean water, clothing, food, shelter, nutrition and a good health-care system”.

Poverty in both developed and developing countries is assumed to be a structural, long-term phenomenon. In 1993, Duncan, et al., conducted a longitudinal household survey in the UK, USA and Germany that indicate poverty as a temporary phenomenon. The studies indicate that a high percentage of households suffer from transient poverty due to temporary income shocks such as unemployment, mental illness and debt, but often recover gradually.

If we look at poverty in this light, we can state that the poverty problem is “one involving a large turnover of vulnerable people rather than a hard-core of the chronically poor”.

National representative data on household expenditures was collected by the government of Pakistan in between 1963-64 in attempt to assess the incidence of poverty.

Studies that calculated the poverty line often did so based on per capita income or spending required by a household to fulfill their basic needs. On 20th June 2016, the Ministry of planning and Development released its first Multidimensional Poverty Index (MDI) report in Pakistan. The MDI focuses on factors such as health, education and the standard of living, thus, providing a more inclusive picture in regards to understanding extreme poverty. Multidimensional poverty can be broken down to reveal specific areas that experience poverty and among different sub-groups of people.

In Balochistan and the Federal Administered Tribal Areas are included in the 39 percent who live in Multidimensional Poverty.  Between 2004-14, the national poverty line fell from 55 percent to 39 percent. Poverty levels are more advanced in rural areas compared to urban areas, and often suffer from lack of access over basic necessities and low income.

According to some reliable reports, “around 58.7 million out of a total population of 180 million survive below the poverty line”. There is often a debate regarding the method used to assess poverty levels in countries. Every country uses a different approach to estimate the rate of poverty.  But most commonly, there are three methods of assessing the rates of poverty. The first approach arbitrarily specifies a monetary amount as the poverty line. More specifically, the absolute level of income below which a person is deemed to be poor.

The second approach stipulates a more objective approach and can be further divided into two sub-categories. The first one being the Food Energy Intake Method (FEI), which measures the “level of income needed to purchase the basket of food items that would satisfy the minimum nutritional needs/caloric requirements”. The second sub-category is the Basic Needs Approach, which determines the amount of income needed to meet the basic necessities such as clothing, shelter, healthcare and education.

The third and final approach focuses on the minimum standard of living by observing the minimum level of income needed for subsistence consumption. Furthermore, a more recent method used to measure absolute poverty is the Head Count Approach, which measures “the number of people whose consumption/incomes lie below the absolute poverty line”.  Between 2001-15, the Headcount Index indicated a radical fall in the national poverty line from 64.3 percent to 24.3 percent. (see figure 1 and 2).

CAUSES OF POVERTY

While absolute poverty levels have extensively decreased, “more than half of Pakistan’s total population was still living on less than $2 a day in 2011”. There are a number of socio-economic features that contribute to the existence and the extensive increase in poverty levels in the last decade. However one of the main factors is lack of government support. Lack of government support affects our daily lives directly. We face poor infrastructure, high rates of unemployment levels, poor quality roads and highways that cause heavy traffic, poor quality health care systems, high taxation, high costs of living and an unequal distribution of asset ownership. Poor governance in Pakistan has not only heightened vulnerability but it has decreased the projection of business confidence, which means less investment and growth in physical and human capital.

Viewed in this light, we can understand the vicious circle of poverty. The vicious circle of poverty occurs when investment levels in physical and human capital are low which leads to low productivity and low-income causing individuals to get stuck in a poverty trap. The rate of poverty especially in the rural areas of Pakistan is moderately very high. Rural areas in developing countries depend on agriculture as a source of income and welfare. During FY1999, the incidence of rural poverty rose significantly to 36.3 percent compared to urban poverty, which was 22.6 percent. Based on latest estimates (2015) poverty in rural areas was twice as high (30.7 percent) than in urban areas (12.5 percent). Even though the poor are strongly dependant on such resources being used for exploitation, the poor are often characterized by their vulnerability to natural resources being environmentally degraded and deteriorated.

Furthermore, the Gross Domestic Product (GDP) growth rate also plays a vital role in the increasing levels of poverty. During the 1990s, GDP levels and economic growth rate slowly started to deteriorate over time especially in labour-intensive sectors. Annualized GDP per capita growth reports state that it was 1.9 between 2010-15. The slowdown in growth is due to structural causes such as escalating debt burden and declining competitiveness in Pakistan’s economy. Increasing debt burden resulted in a growing fiscal squeeze, which in turn led to declining proportion of GDP being spent on social sectors and development in the 1990s. In addition to the above, Pakistan also faces low levels of human development. The idea of Human development is based on the notion of an individuals wellbeing as measured by three essential elements: health, wealth and education.

Most people in Pakistan are uneducated, especially those who live in the rural areas. In the rural areas, the workers are ill equipped to lead a good life, they do not know the modern techniques of farming which will help them earn a decent income and improve their standard of living. Modern machinery is mostly computerized and since the workers are uneducated, they have trouble maintaining and using the machinery. Most of the children from these poor households do not receive education and thus the cycle of poverty is perpetuated. If the poor lack skills and education, they are unlikely to benefit from the opportunities that the market has to offer. The incidence of poverty is the highest among household heads with occupations such as agriculture, trade, construction and transport sectors.

Gender Discrimination is another key factor that characterizes the poor. The incidence of poverty mostly lies on women compared to men especially in the rural areas of Pakistan. This is because of prevalence of female headed households, low wages and earning capacity of women, limited control over financial resources, inequality in intra-household resource allocation and most of the work done by women is unpaid. Usually land ownership in rural areas such as Balochistan and FATA (Federal Administered Tribal Areas) is unequal.  The tribal chiefs in these areas have considerable power over the decision making process. The local population do not have much of a say when it comes to making decisions about their land and resources. The poor may have productive ideas but they lack opportunities and resources to convert those ideas into productive investments.

The poor also tend to be more vulnerable to the effects of air and water pollution in both rural and urban areas, given their limited access to good health care. A World Bank report titled Sparing Lives, stated that “better reproductive health for poor women in South Asia has revealed that Pakistan’s 34.7 percent children under the age of five are malnourished”. Immediate action needs to be taken by the government such as improved health care systems in the rural areas, vaccination and treatment methods for various widespread diseases and access to clean food and water.

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Another cause of poverty is the scarcity of jobs and opportunities for individuals in the public and government sector. The government has failed to build new dams, a good network of industries and roads in the country. There is a continuous shortage of electricity and gas especially in rural areas, which resulted in the lockdown of many factories. Developing countries like Pakistan do not choose to have a slow growth or to undergo painful crisis. Instead the pattern of growth, changes in the distribution of income and opportunities, the rates of poverty reduction reflect a complex interaction of policies, institutions, history and most importantly the geography of countries.

High rates of inflation can also be considered another reason for increasing poverty levels in developing countries. Inflation forces the poor to spend almost all their income for the very basic necessities of survival like food and clothing. Due to inflation, the amount of money an individual has is not enough for the purchase of goods and services. Inflation decreases the saving and investments of the poor and hence they remain poor for years.

INSTITUTIONAL RESPONSES

In this research paper we have investigated the methodology, trends and causes of poverty in rural and urban areas of Pakistan. In order to understand what factors and variables are associated with poverty we analysed the trends of poverty levels from 1990s till today. A number of initiatives aimed at helping the poor are being taken into consideration by the government of Pakistan in order to eradicate poverty once and for all. By improving governance and functioning of public sector institutions; creating assets, employment, and income opportunities, revamping safety nets and improving access to basic services are being implemented by the Government, NGOs and the private sector.

The Government of Pakistan launched a Poverty Reduction Strategy in 2001 in response to the rising levels in poverty during the 1990s. This Poverty Reduction Strategy consists of five main elements including; investing in human capital, improve economic growth and maintain macroeconomic stability, improving governance, expanding social safety nets and augmenting targeted interventions. In August 2001 the government of Pakistan introduced the Devolution Plan (Decentralization Plan) – a governance related reform revealed in March 2000 under which local governments were elected from the district, tehsil and union levels in all four provinces. It is expected that under this plan, the delivery of services in the social other poverty focused sectors will be decentralized and the elected local governments will be given responsibility to run these services with full transparency.

In order to create assets and employment opportunities for poor people, the government also introduced a program called Khushhal Pakistan Program (KPP). The program finances public work whose cost ranges “from Rs 0.05 million to Rs 5.00 million per scheme in rural areas and Rs 8.00 million to Rs 8.50 billion per scheme in urban areas”.

In 1992, the government also introduced a comprehensive program to improve the social services. It is in the form of the Social Action Program (SAP) and it focuses on four areas – elementary schooling, primary healthcare, drinking water supply and rural sanitation and population welfare. The SAP resulted in improved health indicators but there was no development seen in primary education. Among the safety net systems run by the government, Zakat is a mandatory charitable obligation on all Muslims. The Zakat System was revamped by the government to focus on rehabilitation, the Zakat funds assisted in the establishment of small scale commercial activities. It is imposed on different forms of assets such as saving bank accounts, fixed deposits saving certificates, mutual funds and government securities.

A number of NGOs have been introduced in the past few years. Jinnah Welfare Society (JWS) is one of many NGOs that was established in 1990 and its main goal is to eradicate poverty by educating children from poor households, improve infrastructure in poor communities. In addition, the government introduced the Pakistan Poverty Alleviation Fund (PPAF), which was established in 1997 to help the poor through loans. The PPAF now works alongside the World Bank to increase the access of poor and microenterprises to credit facilities. However, some policymakers and researchers have not been able to measure the effectiveness of PPAF and could not evaluate its benefits to the poor.

Benazir Income Support Program (BISP) was launched in July 2008 as the premier safety net institution in Pakistan. It is a targeted unconditional cash transfer program that focuses on “poor women with an immediate objective of consumption smoothing and cushioning the negative effects of slow economic growth”. Its long-term objectives include meeting the target of Sustainable Development Goals (SDGs) to eradicate extreme and chronic poverty. The World Bank (2015) stated that this program helped reduce the poverty gap by 15% around the world.

Recently an Economic survey (2018) was carried out and it revealed that the percentage of people living below the poverty line has fallen from 50.4 percent in 2005-06 to 24.3 percent in 2015-16. The survey highlighted that “Overall, despite floods of 2010 and chronic energy shortages, aggravated security situation and government’s limited capacity to mobilize and channelize its own resources exclusively for social welfare and poverty eradication programmes, the declining trend in Poverty headcount in Pakistan is both promising and encouraging.”

The World Bank and the United Nations have confirmed a relative success in reducing poverty levels in Pakistan. Regardless of the fact that we have made some progress in terms of poverty alleviation, the policies introduced by the government have shown marginal success to some extent. To address poverty reduction in rural areas growth oriented policies must be accompanied with measures of inequality reduction because growth induces inequality. The government of Pakistan should introduce a long-term economic plan that collaborates with the fast changing demographic and economic trends. Reducing extreme poverty levels to less than 3 percent will continue to be an on going challenge. But with the help of the United Nations, NGOs and numerous policies implemented by the government of Pakistan, together we will eradicate poverty in all its forms by 2030.

Figure 1: Poverty Trend by National Standard, 1998 – 2015

 

Figure 2: Poverty Trend by International Standard, 1990 – 2015

Figure 3: Percentage Contribution to Poverty Reduction (International Poverty Line)

 

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