Theory of Poverty: 
Poverty cannot be described it can only be felt. One knows more about poverty when he is hungry and cannot purchase food, he and his children want new clothes but they can’t purchase it because of low income, he’s sick and doesn’t have money to have medicine, he wants to send his children to school but can’t bear educational expenditures. The world Development Reports define poverty as “pronounced deprivation in well being’. Poverty can be measured by following three methods, i.e. Head Count Ratio, Basic Needs Approach, and Poverty of Opportunity.
According to Head Count Ratio, the persons who fall below the poverty line as determined in the country are regarded as poor. In Pakistan, for instance, the persons who earn income which cannot meet the daily intake of about 2350 calories per person are considered to fall below the poverty line. Basic Need’s Approach suggests the measurement of ‘poverty’ with reference to income distribution. According to this approach if the persons of a fixed income group cannot purchase basic needs, i.e. food, clothing, housing, education and basic health facilities, they are considered to fall below the poverty line. The third approach which is ‘poverty of opportunity’, if due to fall in income, health or education the human sufferings increase the people are considered to have fallen below the poverty line.
Poverty in Practice: 
Globally considerable progress has nevertheless been made in different parts of the world in reducing poverty. The proportion of people living in extreme poverty on global level fell from 28 percent in 1990 to 21 percent in 2001 (on the basis of $1 a day). In absolute numbers the reduction during the period was 130 million with most of it coming from China. In Sub-Saharan Africa, the absolute number of poor actually increased by 100 million during the period. The Central and Eastern Europe and the CIS also witnessed a dramatic increase in poverty. While incidence of poverty declined in South Asia; Latin America and the Middle East witnessed no change.
Proposal to tackle the problem:
The recent trends in global and regional poverty clearly suggest one thing and that is, that rapid economic growth over a prolonged period is essential for poverty reduction. At the macro level, economic growth implies greater availability of public resources to improve the quantity and quality of education, health and other services. At the micro level, economic growth creates employment opportunities, increases the income of the people and therefore reduces poverty. Many developing countries have succeeded in boosting growth for a short period. But only those that have achieved higher economic growth over a long period have seen a lasting reduction in poverty East Asia and China are classic examples of lasting reduction in poverty. One thing is also clear from the evidence of East Asia and China that growth does not come automatically. It requires policies that will promote growth. Macroeconomic stability is therefore, key to a sustained high economic growth.
Although extreme poverty on global level has declined, the gap between the rich and poor countries is increasing, even when developing countries are growing at a faster pace than developed ones – perhaps due to the large income gaps at the initial level. In a world of six billion people, one billion have 80 percent of the income and five billion have less than 20 percent. This issue of global imbalance is at the core of the challenge to scale up poverty reduction.
Case of Pakistan: 
Poverty has many dimensions in Pakistan. People have not only low incomes but they also are suffering from lack of access over basic needs. The major challenge of today is poverty reduction. In Pakistan, Poverty Reduction Strategy was launched by the government in 2001 in response to the rising trend in poverty during 1990s. It consisted of the following five elements:-
(a) Accelerating economic growth and maintaining macroeconomic stability.
(b) Investing in human capital.
(c) Augmenting targeted interventions.
(d) Expanding social safety nets.
(e) Improving governance.
The net outcome of interactions among these five elements would be the expected reduction in transitory and chronic poverty on a sustained basis. The reduction in poverty and improvement in social indicators and living conditions of the society are being monitored frequently through large- scale household surveys in order to gauge their progress in meeting the targets set by Pakistan for achieving the seven UN Millennium Development Goals by 2015.
Pakistan’s growth performance over the last four years is enviable in many respects. Sound macroeconomic policies and implementation of structural reforms in almost all sectors of the economy have transformed Pakistan into a stable and resurgent economy in recent years. The real GDP has grown at an average rate of over 7.5 percent per annum during the last three years (2003/04 to 2005/06). With population growing at an average rate of 1.9 percent per annum, the real per capita income has grown at an average rate of 5.6 percent per annum. The strong economic growth is bound to create employment opportunities and therefore reduce unemployment. The evidence provided by the Labour Force Survey 2005 (First two quarters) clearly supports the fact that economic growth has created employment opportunities. Since 2003-04 and until the first half of 2005-06, 5.82 million new jobs have been created as against an average job creation of 1.0 – 1.2 million per annum. Consequently, unemployment rate which stood at 8.3 percent in 2001-02 declined to 7.7 percent in 2003-04 and stood at 6.5 percent during July – December 2005. The rising pace of job creation is bound to increase the income levels of the people.
In recent years the role of remittances in reducing poverty has been widely acknowledged. Remittances allow families to maintain or increase expenditure on basic consumption, housing, education, and small-business formation. Total remittances inflows since 2001-02 and until 2005-06 have amounted over $ 19 billion or Rs.1129 billion. Such a massive inflow of remittances particularly towards the rural or semi-urban areas of Pakistan must have helped loosen the budget constraints of their recipients, allowing them to increase consumption of both durables and non-durables, on human capital accumulation (through both education and health care), and on real estate. To the extent that the poorer sections of society depend on remittances for their basic consumption needs, increased flow of remittances would be associated with reduction in poverty.
Although, growth is necessary but it is not sufficient to make any significant dent to poverty. Realizing this fact the government had launched a directed program under the title of Poverty Related and Social Sector Program some five years ago. Over the last five years the government has spent Rs.1332 billion on poverty-related and social sector program to cater to the needs of poor and vulnerable sections of the society. Such a huge spending on targeted program is bound to make a significant dent to poverty. The Household Integrated Economic Survey (HIES) – a component of Pakistan Social and Living Standards Measurement (PSLM) Survey provides important data on household income, consumption expenditure and consumption patterns at national and provincial level with rural-urban breakdown. The information pertaining to income and expenditure of the households are used to estimate poverty. The HIES is specifically designed to monitor poverty status of population by collecting information on consumption expenditure at the household level. With a representative sample size of 14706 households, it covered 5808 and 8898 households in the urban and rural areas of the country, respectively. The Survey was started in July 2004 and the entire field operations were completed in June 2005. The poverty line is based on 2350 calories per adult equivalent per day. It is also comparable with poverty line of 2000-01 as it was also based on 2350 calories and calculated from Pakistan Integrated Household Survey (PIHS). The poverty line of 2004-05 is adjusted by the inflation rate during the period 2001-2005.
The latest estimate of inflation – adjusted poverty Line is Rs.878.64 per adult equivalent per month ─ up from Rs.723.40 in 2001. Headcount ratio, i.e., percentage of population living below the poverty line has fallen from 34.46 percent in 2001 to 23.9 percent in 2004-05, a decline of 10.6 percentage points. In absolute numbers the count of poor persons has fallen from 49.23 million in 2001 to 36.45 million in 2004-05. The percentage of population living below the poverty line in rural areas has declined from 39.26 percent to 28.10 percent while those in urban areas, has declined from 22.69 percent 14.9 percent. In other words, rural poverty has declined by 11.16 percentage points and urban poverty is reduced by 7.79 percentage points.
Consumption inequality increased marginally during the period. These findings are consistent with the developments on economic scene that have taken place in Pakistan since 2000-01. A strong growth in economy, rise in per capita income, a large inflow of remittances and massive spending on poverty-related and social sector programs were expected to reduce poverty in Pakistan. It is important to note that the methodology and the estimates of poverty have been endorsed by the development partners such as the World Bank, the Asian Development Bank, the United Nations Development Program (UNDP) and the Department for International Development (DFID), UK. The service of world renowned poverty expert, Professor Nanak Kakwani was hired by the UNDP to independently look into the methodology as well as poverty estimates. He also authenticated both the methodology and estimates. In order to maintain consistency across years, it is essential that we apply the same agreed upon methodology over the years, irrespective of its weaknesses and strengths.
Pakistan has emerged as ‘Asian Tiger’ with reference to the Economic growth during last couple of years. And government of Pakistan spent about Rs.1332 billion to reduce the poverty. And as a result poverty reduced from 39.26 to 28.10 percent (rural) and from 22.69 to 14.9 percent (urban). By having a close look at the facts it is revealed that although a heavy amount has been spent on poverty reduction but the attained results are not up to the mark as poverty percentage stands quite high. Actually government has spent all this amount only on first strategy of poverty reduction, i.e. Accelerating economic growth and maintaining macroeconomic stability, while other four strategies have been left either untouched or neglected.
Government only targeted high macro economic growth; the level of investment in human capital has not been seen at even a low extent. Augmentation in targeted interventions has also been misdirected. Employment opportunities should have been created with in the industrial or agricultural sector in order to accelerate the production of basic needs so that consumer goods should have been in the reach of low income group. While services sector was expanded without any planning, which resulted in a situation that mobile is kept by every one but they don’t have access over basic needs.
After that social safety nets have also been neglected, there’s no proper pronouncement by government in this regard. And finally ‘improvement in Governance’, which has been left untouched. For a long time, whenever senior government personnel visits a major city like Karachi, all the traffic on the roads is diverted in the streets and all the work being done is stopped in order to ensure the security of the official. By this way those who earn on daily wages, have to suffer loss in daily wages. I quoted this example because when rulers are so ‘insecure’ in their own homeland how can they improve the governance or develop their country or how can they ensure the safety of the whole country?
Concisely, in spite of all efforts of government poverty still stands as an iron wall for Pakistan’s economy. And to break this iron wall we are in need to apply all five poverty reduction strategies at utmost level.
1- Economics of Pakistan, M.Saeed Nasir
2- Reports of World Bank
3- Economic Survey 2005—06
Filed under: Pakistan Economy |