POVERTY IN PAKISTAN

Poverty in Pakistan is a growing concern. Although the middle-class has grown in Pakistan to 35 million, more than one-third of the population is classified poor as of October 2010. As of 2010, about 40% of the total population lives below the poverty line (World Bank). Which is the highest figure in the history of Pakistan.  The declining trend in poverty as seen in the country during the 1970s and 1980s was reversed in the 1990s by poor federal policies and rampant corruption. This phenomenon has been referred to as the poverty bomb.

CAUSES OF POVERTY

1. POOR PERFORMANCE OF AGRICULTURE   SECTOR

2. UNFAIR DISTRIBUTION OF RESOURCES

3. RAPIDLY INCREASING POPULATION.

4. INFLATION.

5. INDUSTRIAL BACKWARDNESS.

6. LOW LEVEL OF EDUCATION.

7. POOR GOVERNANCE

1. POOR PERFORMANANCE OF AGRICULTURE SECOTR

                                                                            

Data from the agriculture census of Pakistan, conducted in 2010, shows that cultivated land in unequally distributed in Pakistan. Poor farmers have no availability of adequate and cheap fertilizers, pesticides, quality seeds, water, latest technology and consultancy services. They have no capital to improve their lands, that’s why their income level is low and poverty especially prevails in the rural areas.

2. UNFAIR DISTRIBUTION OF RESOURCES

The second reason for poverty is the unfair distribution of income among people. The poor are becoming poorer and the rich becoming richer. In Ayub’s era there were 22 families, who had control of the majority of the national income. In the present, the situation is the same with a slight difference. Such unequal distribution of income is creating restlessness among the less income class. They have less money to fulfill their basic needs like food, health, education and housing etc, that’s why the poverty level is growing day by day. In fact, the non-adoption of Islamic economic system and the capitalistic system are responsible for such an unfair division of wealth.

3. RAPIDLY INCREASING POPULATION.

The third reason for poverty is the rapidly growing population of the country. According to the latest figure the population of the Pakistan Is 180 million. Population-wise Pakistan is the 6th largest country in the world and its population growth rate is 1.9%, which is the highest in the region. Pakistan’s GDP growth rate is less than 3%. So, there is a shortage of goods and services like food, clothing, housing facilities, education and health etc all these things are inadequate to meet the necessities of a growing population. One earning hand has to feed a large number of family members. Due to the high level of demand and less production, there is general poverty.

4. INFLATION.

The fourth reason for poverty is inflation, which is a king of regressive tax on the fixed income class. Due to inflation, the salaried and fixed income group is more affected than the business class. The employees’ salaries are not increased by the government in proportion to inflation, but their expenditures are increasing, day-by-day, due to dearness. Less income and the low level of saving are responsible for poverty. Increase in the prices of oil at the international level is also enhancing poverty.

5. INDUSTRIAL BACKWARDNESS.

Fifthly, our industrial sector is very backward the share of this sector in national income is less than 20%, which is very low as compared to the developed economies. Due to industrial backwardness, our exports are less, rather we have to import electrical and industrial items at high rates. A huge portion of foreign exchange reserves in consumed for industrial imports. The low level of living and poverty is related to the backwardness of this sector directly of indirectly.

6. LOW LEVEL OF EDUCATION.

The sixth reason for poverty is the low level of education and the defective education system. In Pakistan, the literacy rate is only 56%, which is very low in the world. Due to the few technical, engineering and research institutions, the productivity of labor is very low and our human resources are outdated, both qualitatively and quantitatively. Women are not given the chance to participate in national, economic, social and educational activities. Due to the scarce access to education, the majority of people have a low level of income, directly of indirectly, resulting in poverty.

7. POOR GOVERNANCE

Seventhly, poor governance is responsible for creating poverty. Good governance is an essential and important pre-condition for growth and development. But in Pakistan, such a scenario is different. People have less access to justice and national decision-making. There is corruption, political instability, a disturbed law and order situation, red tapism, terrorism, bomb blasts and delay in the system etc.

ECONOMY OF PAKISTAN(PROFILE)

The economy of Pakistan is the 27th largest economy in the world in terms of purchasing power, and the 47th largest in absolute dollar terms. Pakistan has a semi-industrialized economy, which mainly encompasses textiles, chemicals, food processing, agriculture and other industries. Growth poles of Pakistan's economy are situated along the Indus River diversified economies of Karachi and Punjab's urban centers, coexist with lesser developed areas in other parts of the country. The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies[citation needed], bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery the last decade. Substantial macroeconomic reforms since 2000, most notably at privatizing the banking sector have helped the economy.
GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06 due to economic reforms in the year 2000 by the Musharraf government. In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally. Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07, a necessary step toward reversing the broad underdevelopment of its social sector. The fiscal deficit - the result of chronically low tax collection and increased spending, including reconstruction costs from the devastating Kashmir earthquake in 2005 was manageable.
Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistan reached as high as 25.0%. The central bank is pursuing tighter monetary policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion - could draw down reserves and dampen GDP growth in the medium term.

ECONOMY OF PAKISTAN(2010)

Pakistan economic growth faced a serious set back in fiscal year 2009 because of the depressed consumer credit market, slow progress of public sector programres, inflation, reduction in subsidies, security threat, instability in the state and energy crisis. Additionally, no attention was given to the agriculture sector. The exports declined by six percent and imports by 10 percent. The only thing that became a silver linning was the increment in remittances by 22%. Apart from ignorance, agriculture sector has shown credible results because of good weather. Major crops, wheat, rice and maize recorded impressive growth i.e 7.7% against the target of 4.5%. Live stock and poultry also add to GDP as there was no viral disease this year.
Shortages of energy and power donot let the boom entered into the industrial sector. In addition the sanction applied by IMF on different sectors creating a hurdle. This resulted in unemployment and services sector decline. Because of security crisis the graph of investment do not take any surge. The beginning of declining in core inflation is a hopeful factor but the domestic inflation is on peak. There is a marginal improvement in health and educational sectors but the poverty in country rise Pakistan have the highest population growth. The largest population represents a large potential market for goods and services yet the condition are deplorable.
Being an agro based economy Pakistan should focus on the development of agriculture department. Financial sector should be developed. Instead in focusing to much on macro financing, micro financing must be given a chance. Trade deficits should be reduced. This can only be done by eradicating the trust deficit, which will boost our exports as well as imports. It will also bring FDI’s (Foreign Direct Investment) at home. There should be short term as well as long term policies. As Pakistan’s economy is dependent economy so it should be made strong enough to reject the foreign aid or loans on their conditions, which can directly or indirectly bring harm to the economy. Still the Government is unable to differentiate and reorganize the developed and non-developed budget. Solid fiscal policies should be made to give advantage to both, demander and supplier. This would also be beneficial for the skilled workers, who fly away from the land. Despite all these, there must be political, economic and social stability in the state. A proper accountability set up must be introduced to eradicate corruption as it leads to massive human deprecation. And the final solution of this problem is good governance.

ECONOMY OF PAKISTAN AND CHALLENGES FACED BY PAKISTAN

ECONOMY OF PAKISTAN AND CHALLENGES FACED BY PAKISTAN 

It is indeed great honour and pleasure for me to be spending this
morning with you. I am quite cognizant of the fact that this is one of the finest institution
Pakistan has and I always keep saying that if we had institutions like C & SC replicated in our
civilian life, the country would be much better off, therefore, I commend you and I am sure that
all of you would be rising stars of Pakistan Armed Forces and would make a contribution which
is badly required for the uplift of the country. Gentlemen! I am going to talk about a subject
which practically affects every single sector of life, which is economy. It underpins every walk
of life and there is great deal of interaction between health of economy and the defence forces.



1. We Consume More and Save Less.
2.  We Import More and Export Less.
3. Government Spends More than it Earns as Revenues.
4.  Our Share in the World Trade is Shrinking.
5. We Badly Lag in Social Indicators..
6. We Face Energy and Water Shortages.
7.  Cost of  Doing Business is High.
8. Crisis of Governance and Implementation.
9. Uncertainty and Unpredictability due to Lack of Continuity.
10 Political Stability, Law and Order/Security


1.  We Consume More and Save Less. Out of every hundred rupees of our
national income, we consume 85 rupees and save only 15 rupees, which means
that the amount of money which is available to invest for economic growth and
advancement is too little. Because to grow by 6%, you need at least 24-25%
investment rate - and if you want to rely on domestic savings, your saving rate
should be 25%. India’s saving rate was about the same, but last year they
recorded 34% saving rates. China’s saving rate is 50%, so this is the contrast as
to why we are in serious difficulty because as a nation this is a problem which we
have to recognize. We have to at least double on savings rate otherwise we will
remain dependent on foreign sources.
2.  We Import More and Export Less. Till 2007-2008, 80% of our imports were
financed by our export earnings. This ratio has come down to only 50%, it may
go up to 60% but a gap of 40% of financing needs in order to keep with the
import level still exists. As a nation we prefer to use even the basic commodities
of foreign countries rather than locally manufactured goods. Unless we do not
change this attitude of preferring the imported goods we have to keep on relying
on outsiders to fill in this gap b/w our imports and exports.  Relying on outsiders’
means that there are cycles, ups, and downs i.e. when things are good, one gets
financing, and when things  are bad one starves for financing. No nation which
strives to preserve its honour must go through this particular route. The lower is
this gap between our export earnings and expenditure on imports - and that can
be achieved only by expending our exports; our reliance on external sources
would be reduced.
3.  Government Spends More than it Earns as Revenues.   Fiscal deficit is the
difference between the revenues which are collected  in a year and the total
expenditure incurred by the Government. Pakistan’s government takes away
20% of national income as its own. 80% is left in the private sector and 20% in
the hands of the government is spent on defence, debt servicing, development
on education, health, general administration etc. The revenue generated is only
15% of the GDP at best, and in the worst days it is 12 to 13%. Out of the every
rupee of income received by a Pakistani, on average, tax paid is only 9 paisas
and 91 paisas remain with the individual.  In 2007-2008, Pakistan’s fiscal deficit
was more than 7% which means its income or revenues were only 13% of GDP
whereas, expenditures were 20%. Therefore, fiscal deficits have to be financed
from somewhere, so how do you finance them; you either go again begging the
external donors, or to the State bank of Pakistan. The financing provided by the
State bank of Pakistan is  dangerous because it creates  high inflation in the
economy, which is injurious to the middle class, those earning fixed wages and
salaries, and the poor. Therefore, there is an uproar in the country if the inflation
rate goes up. In 1999, our Debt to GDP ratio was 100%, which means that the
entire national income was pledged as debt. Every single penny was pledged to
the creditors. This ratio was reduced gradually over next six to seven years and
brought down to 50%, an average for all the economies. However, the way the
things are going for the last two years, it has moved from 50% in last two yrs to
58%, and with all the borrowings it may go to 60%, while the Fiscal Responsibility
Law 2005 says, that the government should not exceed the debt GDP ratio more
than 60% and is required to  reduce it by 2.5%;  and that is not happening. The
reason the fiscal deficit is widening is low revenue collection. How can you
expect that only nine paisas out of every rupee of income generated by Pakistani
population suffices to meet the requirements of defence, infrastructure,
development, debt servicing etc. This is just not possible. In India, tax GDP ratio
is 15% and still they have fiscal deficit. So Pakistan is way below the norm for
developing countries. Many people say that defence takes away a lot of
government expenditure. Whereas, the fact is that defence expenditure is only
20% of government expenditure. It is only 4% of GDP, and is not such a large
expenditure as compared to debt servicing which is 7-8% of GDP and almost
40% of government expenditure. Therefore, government has to contain its fiscal
deficit by raising revenues. Agriculture incomes are exempt, professionals,
retailers, wholesales, transport owners and many other service providers evade
taxes by paying a small fraction of what is due. Continuing large fiscal deficits
year after year may plunge the country into debt trap again.      
4.  Our Share in the World Trade is Shrinking.  In 1990, Pakistan’s share was
0.2% of the world trade. After 20 years  it has come down to 0.12% in a very
buoyant world economy. World trade has been  growing faster as compared to
the world output. India in the same period had doubled its share from 0.7% to
1.4%, while Pakistan is going the other way and that is the reason why
exports/imports imbalance is increasing. We are not taking advantage of the
opportunities which a buoyant world economy is providing. Pakistan is stuck with
only a few commodities – textiles, leather, rice, sports, goods and the surgical
goods. We have not entered the markets for more dynamic products. All our
exports are to a few markets – the USA, EU and the Middle East. So this narrow
export base and very limited geographical spread are not allowing us to expand
our share. Unless we improve the quality of our products, go out and do the
marketing abroad, invest in research and development, the prospects do not look
promising. That is why we are lagging behind other countries which from way
back are over taking Pakistan.
5.  We Badly Lag in Social Indicators. One of the most glaring weaknesses is
that a country like Pakistan that should have had best indicators in literacy, infant
mortality, fertility rates, in access to water supply, in primary enrolment ratios has
social indicators which are more comparable to Africa rather than to the countries
of similar per capita income. Even Tajikistan, which is a very poor country, has
better literacy rate and primary enrolment  ratios than Pakistan. What does it
means? It means that if we  had literacy rate of 100% instead of 55%, then in
2009-2010 our per capita income would have been 2000$ rather than 1000$.
Instead of 30 million middle class in Pakistan we would have 60-70 million middle
class people; we would have poverty reduced to 15-20%. We have committed to
achieve the millennium development goals by 2015 i.e. we will be able to reach
80-85% literacy rate, but it is doubtful  that this will happen. Why do we have
regional inequalities?  Why Baluchistan is lagging behind other provinces? It is
because of literacy rates and primary enrolment ratios. There is a direct corelation between regional inequities  and backwardness with the level of
education.
6.  We Face Energy and Water Shortages. Another challenge we face today
is energy and water shortages, and that is not because we are not generating
enough electricity or we are not having enough water. With the losses of KESC
from the point it has generated to the point they realize the billing is 45%, so 55%
people are paying for those who are stealing the electricity. Government of
Pakistan out of its own limited resources is paying 200 billion rupees every year
as subsidies for electricity. Our industry is at a disadvantage that they get the
orders from foreign countries but they cannot execute the orders because there
are electricity outages. In addition to economic losses it also creates
inconvenience for pursuing normal life.  We have silting of our dams, but no
additional dams have been constructed since Tarbela in 1974. We have water
course losses of about 20-25%. Even after these losses, the water is inequitably
distributed. The influential land lords are able to take greater share of water from
the canals as compared to poor farmers.  Therefore, the productivity of poor
farmer is only one ton per acre as compared to 3 tons by large holders. If we
provide the water equitably to the small farmer, he would also be able to increase
the productivity from one to at least two  tons resulting into additional income,
increase in exports of food grains, cotton and fruits and vegetables which will add
to export earnings of Pakistan. With the climate change taking place with all the
glaciers in Himalayas which are going to melt, we are going to have difficulties in
future due to global warming.
7.  Cost of  Doing Business is High.     Pakistan is ranked among the bottom half
of the rankings of the countries where cost of doing business is quite high. It is
not high for any particular reason but because of our bureaucracy totally sitting
on their seats without taking actions or decisions in time. Unless there is some
pressure or incentive for them, the normal businesses particularly the small and
medium businesses have serious problems at the hands of bureaucracy. Even if
we have investors who are welcomed by the federal government, when it comes
down to provincial and local governments there are given a run around – the land
is not available, the water is not available, the gas is not available, electricity is
not available, road is not available. Lack of coordination among various
government agencies, innumerable laws and regulations that are antiquated and
outdated have proved to be serious impediments. Labour laws, inspections by
multiple agencies, the delays in the court system, infringement of intellectual
property rights and evasion of taxes by competing firms in the informal sector
have rendered some of the well established firms unprofitable, or the feasibility of
starting near ventures questionable.
8.  Crisis of Governance and Implementation Weaknesses. If we glance on
policy documents of various governments on education, agriculture, health, trade
policy etc, and look at the same policy forty years ago and the problems, there is
hardly any significant record of implementation of those policies or plans over this
period. We produce five years plans and all kinds of medium term frameworks,
but it is the poor governance and implementation that are the weak links in
getting things done. Unless we strengthen civil services and bring about a merit
based system of recruitment, promotion, performance evaluation, compensation,
disciplinary action, etc, we will not be able to see any difference in the quality of
governance. Orders are given  by the higher ups but they are not carried out;
summaries are approved, but they remain buried in the files and therefore;
whether it is education, health, water supply, revenue or law and order, you can
pin down the problem to the governance issues. Unless we fix the governance
issue, the economy is not going to take off at the speed which is required.
9.  Uncertainty and Unpredictability due to Lack of Continuity.  Every
government whether military or civilian starts with a clean slate, as if nothing
happened before them and nothing will happen after them. This is not the way
the real world works. You take the projects and programmes which were initiated
by the previous governments, evaluate  them as to what the strengths and
weaknesses were, fix those weaknesses and carry them forward. It will take only
few years to bring these inherited projects to completion and the country will
benefit from new motor ways, new ports, highways, educational institutions etc.
But the blame game of successive governments results into abrupt termination of
all such projects and programs. When these are resumed the cost has escalated
three times and it takes several additional years to complete them. In the
meanwhile the people of Pakistan suffer because of this lack of continuity. When
faced with such unpredictability about the  future, the investors are pondering
whether they should invest in this country as they are uncertain whether the new
government when comes in would stop or  alter what the previous government
was doing, or adhere to the commitments made to them. Take the example of
Higher Education Commission, which  was sending 1700 students for PhDs
abroad but the new government comes in and suspends the funding of those
programmes. This solved down the process of faculty development for our
universities at a time when we should have been sending twice as many
scholars.  
10.  Political Stability, Law and Order/Security. The overall arching theme is that
for a robust economy we should have  political stability, law and order and
security. The Armed Forces of Pakistan  deserve gratitude for what they have
done in Malakand Division to bring about stability as far as the law and order
situation is concerned. The sooner the country is gotten rid of this image of
political instability, poor law and order situation and insecurity, whereby investors
from all over the world hesitate in coming to Pakistan and invest, we will not be
able to make any progress in this country. In 2007, Pakistan was one of the most
favourite countries among the international investor community. A thirty year
piece of paper was floated which was a bond for Pakistan to be paid in 2037 and
Pakistan got four times over subscription at a price which was only 300 basis
points above the US treasury. Very few countries can claim to have that kind of
credibility with international fund managers. However, in two years time we have
missed that boat. Therefore, it is imperative that we resume the journey which
has been interrupted by nurturing a stable, secure and peaceful political
environment.

ECONOMY OF PAKISTAN AND SOLUTIONS

ECONOMY OF PAKISTAN AND SOLUTIONS

How can we overcome these challenges and problems and improve our economy? A lot
has been written and talked about, but I will focus on only a few action points

1. Change in National Psyche and Mindset.
2.  Building up of Human Capital.
3.  Use of Technology.
4.  Young Labour Force
5.  Governance, Devolution and Decentralization.

1. Change in National Psyche and Mindset. We as a nation are too much
negative oriented and too much  cynical where we find everything wrong in this
country. Unless we change our mindset and unless everybody who is doing what
he is supposed to do, carries out his or her task with sincerity and honesty, we
are not going to go anywhere. We should not expect any Messiah to come and
fix our problems we have to do it ourselves individually and collectively. There
are no short cuts available.  Media is  muddying the water by their sensational
stories and inviting so called experts who contribute in projecting negative
thinking and negative national psyche. Unless we have a positive “can do”
mentality, it will be difficult to progress. Unless each one of us changes our
mindset rather than blame the government and the system, we are not going to
go anywhere in this race for global economic survival. This is easier said than
done. But I expect our younger generation to be more responsive and
responsible.
2.  Building up of Human Capital. There is no substitute to building up human
capital. Private sector, public sector,  NGOs, local communities, philanthropists
etc, all here to put their hands on deck and participate in making sure that every
child goes to school. Every high school graduate has some technical and
vocational skill or goes for higher education. Unless we build up human capital,
we are just going to be left behind because the world economy is going to be a
knowledge based economy. It is not an economy where you memorize material
or reproduce that in the exam and forget about it - that is no longer the case. One
has to acquire the knowledge and use it in order to apply to problem solving. This
is a new paradigm where human capital is as important as machinery and
equipment. Pakistan lags behind other countries in the institutions, infrastructure
and incentives for human capital formation. We have no choice but to accelerate
the pace to catch up with others.
3.  Use of Technology.  The technology is spreading like a wild fire. How many
people five years ago could have thought that even in a small towns and villages
of Pakistan, one would access to mobile telephones. 95 million Pakistanis have
mobile phones today. You  can use this technology in order to provide them
banking services, information on climate/weather, agriculture extension, health,
education etc. It is a powerful tool which can leapfrog a lot of time which we have
wasted. Using technology particularly the information/communication technology
for the betterment of social and economic problems of Pakistan is something
which needs to be done but it cannot be done the way we have
compartmentalized this into different ministries. A more holistic and
comprehensive approach that deploys technology for poverty reduction has to be
put in place.
4.  Young Labour Force.     Pakistan is one of the few countries which has a young
labour force which can be harnessed for its own and global economy. Japan,
Europe, USA and after 2050 China are going to have aging population where the
ratio of old to young people is going to  increase. India and Pakistan are two
countries where the ratio of younger people to the older ones is going to
increase. If we tool these young men  and women properly, we increase the
female labour force participation, give them skills and knowledge, they can
become the labour force for the rest of the world. This will give a big boost to
Pakistan’s own economy. In 2001, worker  remittances were less than a billion
dollars; today we have almost 7-8 billion  dollars. Now this can be multiplied by
three or four times if we have educated labour force i.e. skilled labour force going
for overseas employment. This is also a way to create employment opportunities
because if you have large number of younger people coming to labour force and
you don’t have job opportunities for them you can have social upheaval.
Therefore, it is imperative to create employment opportunities for them and one
of the avenues is to train them in the kind of the skills which are needed not only
by the national economy but also by the international economy.
5.  Governance, Devolution and Decentralization. As the population is
increasing, one cannot govern Pakistan sitting in Islamabad, Karachi, Lahore,
Peshawar or Quetta. One has to devolve powers, decentralize and delegate
authority, provide resources  to the local/district governments so that they can
take decisions at their own. Those decisions would be very much in accordance
with the requirements and the needs of those communities. Sitting in Islamabad
one cannot visualize what is needed in  Chaghi or Loralai, but the people in
Loralai and Chaghi know exactly whether  they need water, fertilizers or fruit
processing industry. Let us devolve powers to the people at the grassroots level
and there would be much better allocation and utilization of resources. There
must, however, be accountability of the  local governments by the provincial
governments and of provincial governments by the federal government but not
interference or usurpation of powers. If we do that, then a lot more can happen
with same amount of resources which are being wasted today, and the economic
growth rate can be raised from 6-7 percent average to 8-9 percent annually.