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Last
week I raised the very nettlesome issue of poverty and the general
perception that official claims of economic stability and growth are
failing to have any ameliorating effect on it. I had also established
that economic growth and poverty reduction do not always have a symbiotic
relationship. The 'trickle down' effect is not a given in every system.
While past two years have seen a dramatic turn around in economic
performance of the country, average citizen has yet to feel the impact
in tangible ways. On the contrary, inflation that had been declining
since 1999 has begun to rise since late 2003. Marginal sensitive price
index has shot up from 3.3 percent to 9.5 percent, according to State
Bank's second quarterly report for 2003-04. Consumer price index and
wholesale price index have shown similar increase. The price increase
has occurred largely due to food items (mainly wheat), energy costs
and construction material costs (cement and steel). Food and energy
costs affect the living standards of the poor disproportionately more
than middle or upper classes. Hence there is the general concern that
if the economy is doing so well, why isn't life getting harder for
the average person.
To be fair to the government, it had inherited a backlog of rising
poverty trend since early nineties and there are no quick fix solutions
to turn around living standards of 50 million people with a fragile
economy. The incidence of poverty had increased from 26.6 percent
in 1993 to 32.2 percent in 2000. This was partly due to the constraints
imposed by the country's heavy debt burden and unusually high defence
expenditures. Social spending was sacrificed for adjustments to these
other expenditures. The first and foremost task was to stabilise the
economy which the incumbents have achieved commendably. This sets
the platform for attacking the poverty problem in the medium and long
term.
The officially notified national poverty line is Rs. 748.56 per capita
per month at the prices of 2000-01 according to the PIHS survey. In
reality, there are many dimensions to poverty and not all of these
can be consolidated into one empirical measure. The collective impact
of different parameters creates a subjective perception of poverty
or prosperity, beyond the hard currency numbers. Health and education,
for example, directly affect income levels. Broadly, factors that
affect incidence of poverty may be divided into three broad categories.
Viz. 1) Macro-economic policies of the government, 2) Social security
and rehabilitation programs 3) Entrepreneurship promotion and encouragement.
The economic revival plan of General Musharraf's government (what
else can one call the present set-up) had poverty reduction as one
of its main targets. The Interim Poverty Reduction Strategy Paper
(I-PRSP) was formulated in 2000. The full PRSP was delayed until after
the 2002 elections for political transition to ensure full ownership
of the elected government. It includes accelerated human development,
better governance and reduced vulnerability. Contingent upon a sustained
economic growth rate of 6 percent, successful implementation of civil
service reforms, capacity building of local governments and security
from exogenous shocks, PRSP plans to compensate for accumulated neglect
of social sector development of past decades. The problem is that
cross-country benchmarks paint an abysmal picture from where Pakistan
is starting today.
Pakistan's record falls short of countries with similar incomes and
growth patterns, including other countries in the region. School enrolment
is less, adult illiteracy greater and the infant and child mortality
rates higher than in Bangladesh, India and Sri Lanka. According to
World Bank's report on poverty in Pakistan, "Lagging social performance
cannot be completely explained either by the idea that as a poor country,
Pakistan does not have the resources to do better, or that it has
not grown fast enough to make up for its relatively poor initial social
conditions. The lag in health indicators in Pakistan compared to other
countries at its income level is indicated by 36 percent lower births
attended by trained personnel, 11 percent more babies born with low
birth weight, 42 percent lower health spending per capita, 1.6 percent
less of GDP spent on public health, 27 more infant deaths per thousand,
19 more child deaths per thousand, and a 23 percent lower share of
population with access to sanitation.
The country's relatively poor education performance disproportionately
affects girls and women. Relative to what one would expect given the
country's income per capita, it has 20 percent fewer children of elementary
school age enrolled in primary school. This gap is entirely due to
the disparities in the education of girls: 40 percent fewer girls
of elementary school age attend primary school than in countries with
comparable incomes. Similarly, the 14 percent shortfall in secondary
enrolment is explained mainly by the 20 percent shortfall for females.
Tertiary enrolment is also unusually low, although equally so for
both males and females. There are nearly 5 more students per teacher
in Pakistani schools, in part because public spending on education
is 1.4 percent lower than expected. All of these figures are reflected
in high rates of illiteracy, particularly for women: the share of
the population that is illiterate is 24 percent higher than one would
expect based on Pakistan's per capita income; the figure is 32 percent
for women." Shockingly, the difference between female and male
illiteracy in Pakistan actually increased by 30 percent from 1970
as income per capital increased.
Two major features of governance priorities explain social sector
neglect. Historically, Pakistan's fiscal policies do not reflect a
commitment of improving social indicators. For the past five decades
development spending (5 - 7 percent of GDP) in public investment has
been far higher than social spending (below 3 percent of GDP) - the
latter mostly including recurrent expenditure. During the nineties,
fiscal compression forced reductions in development spending but the
gap still remained large. Social spending remained insulated from
downward scaling due to the infusion of $ 2 billion in external assistance
in support of the Social Action Program, which had marginal impact
anyway due to delays, inefficiencies, leakages and bureaucratic mismanagement.
Since budget making relies heavily on historical trends, how easy
is it going to be for incumbents to remove these imbalances in the
future? Sri Lanka, for instance, education spending has been twice
that of public investment. Irrespective of the quantum of resources
available, the relative importance development through public investment
and social sector development does not seem to be undergoing a paradigm
shift in Pakistan. The marginal rise in social spending planned in
PRSP will hardly suffice to help catch up with regional and international
benchmarks.
Political economy has been another serious impediment to rational
allocation of resources. Elected representatives with incentive to
show effectiveness in delivering government benefits, target on those
goods and services that appear as patronage to supporters - such as
infrastructure rather public goods like universal access to education
or rule of law and bureaucratic efficiency (key to successful delivery).
The devolution plan aims to improve the delivery of services at the
grass root levels but the endemic problem of political incentive and
perceived priorities of voters and representatives have not changed
with establishment of greater autonomy to local governments. With
inadequate resources and skewed priorities it is hard to be very optimistic
about a social turn-around in the country under the given circumstances
of government structures.
Next week, we shall look at government priorities in employment generation
through SMEs and the other factors - social security and entrepreneurial
development - that affect poverty levels directly.
To be concluded….
Iqbal Mustafa
1250 words
30 April 2004
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