Pakistan Poverty Down to 17% in 2007-2008

Center for Poverty Reduction (CPRSPD), backed by the United Nations Development Program(UNDP), has estimated that Pakistan's poverty at national level declined sharply from 22.3 percent in 2005-06 (versus India's poverty rate of 42%) to 17.2 percent in 2007-08. Prior to this report, the 2009 UN Human and Income Poverty Report said the people living under $1.25 a day in India is 41.6 percent, about twice as much as Pakistan's 22.6 percent. The latest poverty estimate of 17.2% has been validated by the World Bank.

It should not be a big surprise, given the close relationship between poverty reduction and robust economic growth that Pakistan saw from 2005-06 to 2007-08. The economic slowdown has only occurred in 2008-09, which appears to have resulted in some visible poverty increase on the ground since the middle of last year. However, there seems to be a deliberate effort being made by some politically motivated Pakistani economists and politicians to delay the release of CPDSPD data and deny what Dr. Ashfaq Khan of NUST calls "the major economic and social achievements of the last one decade" under President Musharraf. Dr. Khan cites the Letter of Intent that the PPP government signed with the IMF which acknowledged that Pakistan's GDP jumped "from $60 billion in 2000-01 to $170 billion in 2007-08 with per capita income rising from under $500 to over $1000". The LOI with IMF also acknowledged that "Pakistan attracted over $5 billion in foreign direct investment in the 2006-07 fiscal year, ten times the figure of 2000-01. The government's debt fell from 68% of GDP in 2003-04 to less than 55% in 2006-07, and its foreign-exchange reserves reached $16.4 billion as recently as in October (2008)." Here's an interesting OpEd published in the News by Dr Ashfaque H Khan on how poverty statistics in Pakistan are fair game for the various "experts" with an ax to grind:

The present government is facing real embarrassment on poverty estimates for 2007-08. The Panel of Economists, formed by the government in April 2008 under the leadership of Dr Hafiz Pasha, found that 35-40 percent people of Pakistan were living below the poverty line in 2007-08 – up from 22.3 percent in 2005-06. The political leadership, unaware of the technical details of the estimation techniques, took the estimates of the Panel seriously and everybody, including the ministers, the prime minister and the president started mentioning the numbers within and outside the country. The political leadership had no reason to distrust the professional skills of the Panel of Economists. Their only fault was that they could not realize that some members of the Panel of Economists were positioning themselves to get ministerial jobs and some retired "experts" were trying to secure their jobs in the government. These people could have moved their way to the present regime only if they would paint a bleak picture of the state of the economy, including the substantial rise in poverty. I am positive that this Panel of Economists has had no courage to write similar three paragraphs as documented in the Memorandum of Economic and Financial Policies attached with the Letter of Intent, signed by the Government of Pakistan on Nov 20, 2008 with the IMF. These three paragraphs, written by the present regime, very aptly summarize the major economic and social achievements of the last one decade, including the "reduction in poverty and an improvement in many social indicators." It appears that the Panel of Economists was trying to become more Christian than the Pope and as such came up with poverty estimates based on flawed methodology.

On the other hand, the Centre for Poverty Reduction and Social Policy Development (CPRSPD), using the(Pakistan Social and Living Standards Measurement (PSLM) Survey 2007-08, also estimated poverty for the year 2007-08. They found that poverty at national level declined sharply from 22.3 percent in 2005-06 to 17.2 percent in 2007-08. Poverty, both in rural and urban areas also registered sharp declines. The estimates of the CPRSPD were also validated by the experts from the World Bank. The "experts" from the Planning Commission are of the view that a sharp decline in poverty in 2007-08 does not depict the ground reality. Why should it depict the ground reality? Firstly, the period it covers is from July 2007 to June 2008. Secondly, poverty estimates are not like the growth number, money supply or inflation which change yearly. Poverty number reflects the changes in the lives of the people which are affected by the policies pursued for a fairly long period of time. To be fair to the government, how can they say now that the poverty in Pakistan has declined substantially in 2007-08 as opposed to their earlier stance that it had increased to the range of 35-40 percent? In other words, how can they say that at the time of taking charge of the state of affairs only 17.2 percent people were living below the poverty line and that there are indications that poverty is on the rise once again in Pakistan. This is indeed the real embarrassment for the government caused by the Panel of Economists.

Poverty estimates are highly sensitive to changes in different variables. For example, should we use calorie intake or basic need approach or should we use 2550, 2250 or 2350 calorie to draw the poverty line? Should we use CPI, SPI, WPI or prices derived from the Survey itself to adjust the poverty line or should we use consumption or income? The basket of commodities may differ across researchers and even the cleaning protocol of data may give different poverty estimates. Thus, at any given point in time there can be different poverty estimates with same or different data sets. What is required, therefore, is that we continue to use the same methodology irrespective of its strength and weaknesses, lest we should never be able to know as to what is happening on poverty front.

There are views about the methodology used by the Panel of Economists. One, that in the absence of PSLM Survey data for 2007-08 the Panel simply adjusted the poverty line upward to the extent of cumulative inflation (20 percent) for the period 2006-07 and 2007-08. On the other hand, they used household consumption expenditure for the year 2005-06, which was not adjusted upward to match the poverty line. In other words, apple was compared with orange. Naturally, such a flawed methodology was bound to produce erroneous results. Second, that the Panel used an equation to forecast poverty. This equation has many exogenous variables, such as food inflation, remittances, openness of trade, development expenditure as percentage of GDP, etc. Giving the value of each variable for 2007-08 and using the estimated parameters it predicted poverty for 2007-08. Forecasting is a complex exercise and requires transparency in the use of data. The Panel did not release those numbers which went into the model. Thirdly, they used the preliminary version of the model whose parameters changed substantially in subsequent revisions. The Panel never bothered to contact the author of the model. Had they contacted him, he could have saved the Panel from such disgrace.

At the end, let me once again appeal to the Planning Commission to release the poverty numbers for 2007-08. Not releasing the number is not a good idea. The number is already out. Don't embarrass the government any more. Forget the Panel's report and trust your own young economists at the CPRSPD.


The author is dean and professor at NUST Business School, Islamabad. Email: ahkhan@nims.edu.pk

Related Links:

The News OpEd on Poverty in Pakistan

Musharraf's Economic Legacy

Aid, Trade, Investments and Remittances in Pakistan

Pakistanis' Dietary Habits

Pakistan's LOI with IMF 2008

How Poor are We?

Overview of Pakistan's Economy 2008-9

Truth on Poverty Data

Statistical Yearbook for Asia and the Pacific 2008

Poverty in Pakistan

Comments

Riaz Haq said…
Though it’s still early, it appears that Pakistan has begun to reap some of the benefits of the large talent pool created by 5X higher HEC funding, the creation of the high speed Internet and digital library etc. as part of the higher ed reform.

According to oDesk, Pakistan experienced 328% growth in its outsourcing business in 2007-8, second only to the Philippines (789%) on a list of seven top locations that include US (260%), Canada (121%), India (113%), the Ukraine (77%) and Russia (43%).

Pakistan ranks number one in value for money for developers and data entry and number two overall behind the Philippines where the cost of answering calls is about half of the cost in Pakistan. Pakistan is well ahead of India and just behind the number 1 ranked United States in customer satisfaction.

Because of the robust economic growth in the last few years and the creation of millions of jobs, Pakistan’s poverty rate declined significantly (from 22% in 2005-06 to 17% in 2007-8, although poverty seems to be rising again in 2008-09) partly due to the FDI brought in to take advantage of the larger number of college grads.

You can read more at http://www.riazhaq.com/2009/01/pakistan-ranks-amon g-top-outsourcing.html

and http://southasiainvestor.blogspot.com/2009/09/paki stan-poverty-down-to-17-in-2007.html
Riaz Haq said…
One of the ways Pakistani economy manages to stay afloat is by increasing remittances coming from overseas Pakistanis.

According to the Nation newspaper, Pakistan received the highest-ever amount of over $7.811 billion as expatriate’s remittances in the recently concluded 2008-09 fiscal year (FY09), beating the previous record of $6.451 billion received in the preceding 2007-08 fiscal year (FY08).
In FY09 workers’ remittances showed an increase of 21.08 percent, or $1.36 billion, when compared with FY08. The amount of $7.811 billion includes $0.48 million received through encashment and profit earned on Foreign Exchange Bearer Certificates (FEBCs) and Foreign Currency Bearer Certificates (FCBCs).
The monthly average remittances in the period from July 2008 to June 2009 comes out to $650.95 million as compared to $537.60 million during the same corresponding period of the 2007-08 fiscal year, registering an increase of 21.08 percent.
The inflow of remittances in the July 2008 to June 2009 period from USA, UAE, Saudi Arabia, GCC countries (including Bahrain, Kuwait, Qatar and Oman), UK and EU countries amounted to $1,735.87 million, $1,688.59 million, $1,559.56 million, $1,202.65 million, $605.69 million and $247.66 million respectively, as compared to $1,762.03 million, $1,090.30 million, $1,251.32 million, $983.39 million, $458.87 million and $176.64 million respectively, in the July 2007 to June 2008 period. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries during FY09 amounted to $771.03 million as against $726.29 million in FY08.
During the last month (June 2009), Pakistani workers remitted an amount of $735.17 million, up $187.76 million or 34.30 percent when compared with an amount of $547.41 million sent home in June 2008. The amount remitted in June 2009 is the second-highest received in a single month after $739.43 million sent home in March 2009.
The inflow of remittances into Pakistan from most of the countries of the world increased last month as compared to June, 2008. According to the break up, remittances from UAE, USA, Saudi Arabia, GCC countries (including Bahrain, Kuwait, Qatar and Oman), UK and EU countries amounted to $164.70 million, $154.39 million, $152.33 million, $108.11 million, $68.48 million and $22.95m respectively, as compared to corresponding receipts from the respective countries during June, 2008 i.e. $88.29m, $143.57m, $123.67 million, $90.98m, $38.08m and $13.98m. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries during June 2009 amounted to $64.19m compared to $48.80m during June 2008.

http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/11-Jul-2009/Pakistan-received-record-7811b-remittances--in-FY09
Riaz Haq said…
According to the News, here is the PPP government's spin on not including the 17.2% poverty estimate for 2007-08 in the survey:

He (Shaukat Tarin) was also asked why the government has not included the 17.2 per cent poverty figure of 2007-08 worked out by the Centre for the Poverty Reduction and Social Policy Development (CPRSPD) and validated by the World Bank. In response, Tarin said that while the WB has validated the 17.2 per cent poverty figure there are indications that in the last quarter of 2007-08, poverty surged and we have initiated the rapid survey to this effect which would come up with a final poverty figure after a three-month period.

However, he said that estimates are that the poverty figure would stand at over 30 per cent during the last fiscal year. He also argued that people are committing suicide and selling their kids because of poverty, so obviously the poverty figure of 17.2 per cent needed to be closer to reality.


Here is more of the News story on 2008-09 economic survey:

The government has missed virtually every main macro-economic target set in the budget 2008-09 for the outgoing fiscal. This includes the projected 5.5 per cent GDP growth, 12 per cent inflation, Rs1,250 billion revenue and per capita income of 1,085 dollars, reveals the Economic Survey for 2008-09 released here by Adviser to Prime Minister on Finance Shaukat Tarin.

The survey states that Pakistan’s GDP growth has been estimated at 2 per cent for the current fiscal as against the original 5.5 per cent target, which was then revised to 3.5 per cent and further clipped to 2.5 per cent as agreed with the IMF. Likewise, the inflation target was fixed at 12 per cent by the government in the budget for the current fiscal, which in reality stood at 22.3 per cent in the first 10 months of 2008-09. “Per capita income in dollar terms rose from the finalised figure of $1,042 last year to $1,046 in 2008-09, showing a marginal increase of 0.3 per cent.” However, in last year’s Economic Survey the target of per capita income was $1,085, which has come down to $1,042.

The revenue target was fixed in the budget at Rs1,250 billion and was irrationally revised upward by the government to Rs1,360 billion, then revised downwards to Rs1,300 billion and yet again reduced to Rs1,180 billion, which also seems impossible to achieve.

However, Adviser to Prime Minister on Finance Shaukat Tarin said during a press conference here on Thursday that the country’s real GDP grew by 2 per cent in 2008-09 against a target of 4.1 per cent.

He said that the 2 per cent economic growth was a result of four shocks, which include macro-economic imbalances, external trade shocks, the global economic crisis and domestic security issues. He mentioned that when the present government took charge, Pakistan’s balance of payments, current account deficit and trade deficit were in the danger zone, but have now improved after joining the IMF programme. He said that the government had consolidated the economy in the current fiscal and was now ready for a growth-oriented budget to be announced on June 13.
Riaz Haq said…
Here's an ET story on poverty decline in Pakistan:

Their biggest challenge at the moment is to explain how nearly seven million Pakistanis have come out of the vicious cycle of poverty.

According to the survey, the incidence of poverty has declined from 17.2 per cent in 2008 to slightly over 12 per cent in 2011. It was conducted by a committee constituted to calculate the incidence of poverty on the basis of Pakistan Social and Living Standards Measurement Survey 2010-11.

“The biggest challenge in front of us is how to explain this figure to the masses and economists when the economy grew at an average rate of 2.6 per cent and average inflation remained above 15 per cent during the last four years,” a member of the committee told The Express Tribune requesting anonymity due to political sensitivity attached to the figure.

He said poverty declined to slightly over 12 per cent with sharp declines in both rural and urban poverty. He said rural poverty declined more than urban poverty but, “the behaviour was the same and consistent with previous years’ results.”

In 2007-08 when the Pakistan Peoples Party-led coalition government took over, poverty had been assessed at 17.2 per cent. But the government decided not to release the figure saying poverty was at 35-40 per cent. It shared 40 per cent figure with Friends of Democratic Pakistan in its maiden meeting held in Tokyo.

It is facing the same dilemma exactly after four years, as its own people are now telling that poverty has declined to 12 per cent.

According to the United Nations Multi Dimensional Poverty Index, half of the country’s population lives below the poverty line.
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In 2007-08 the country’s estimated population was 164.7 million. By that account in 2008 as many as 28.3 million people lived below the poverty line. In 2010-11, the estimated population was 175.3 million and around 21.5 million people were in abject poverty.

The committee member said that poverty has been worked out on the basis of consumption method. According to this method, if a person takes 2,350 calories per day that costs him slightly over Rs1,700 per month that person is taken as above the poverty line.

The official said that the committee has not formally submitted the poverty report to the Planning Commission, but it is expected to submit the report over the next couple of weeks. However, the committee has already shared its findings with the commission.

A senior government official, who also wished to remain anonymous, said that the concerned authorities were considering the poverty figure and framing their mind whether to release it or not. It is not yet clear whether the government would publish the poverty estimates in the Economic Survey of Pakistan 2011-12.

The committee member, while giving justifications for the decline in poverty despite harsh ground realities, said that poverty declined because of higher support price of major crops, especially wheat, healthy trend in inflows of remittances and impact of assistance provided by both the government and private sectors in the flood affected areas of the country.


http://tribune.com.pk/story/374384/solace-among-confusion-5-decline-in-poverty-surprises-govt/
Riaz Haq said…
Here's a Dawn story on a World Bank study of poverty reduction in Pakistan:

A new World Bank study says Pakistan has demonstrated that it can reduce poverty even at relatively low rates of growth of 3.2 to 4.5 per cent but not at growth of GDP per capita of 1pc, noting that it is struggling to sustain that growth.

“International comparisons suggest that Pakistan has been a good performer in turning growth into poverty reduction. Countries that are more successful in reducing poverty tend to be better at generating sustained growth, however the issue for Pakistan will thus be sustaining growth,” according to World Bank policy note on poverty in Pakistan.

The observation that Pakistan is successful in reducing poverty when GDP grows but cannot sustain that growth has two important policy implications. With more growth interruptions, an adequate social protection system becomes more important.

The second implication is that a renewed effort to address the problem that work against sustained growth would be well justified for faster poverty reduction.

This effort should lead to policy priorities for poverty reduction different from those in countries better able to sustain growth but unable to convert that growth into rapid poverty reduction, it says.

The poor are vulnerable to shocks — be they of natural disasters, health or macro policy. An adequate system would ensure that when shocks hit, the poor and vulnerable can still maintain the investments they need to increase their incomes and their children’s welfare.

Describing safety net programme like Benazir Income Support Programme as no substitute for sustained growth, the study says due to stop-go growth and too many natural disasters, Pakistan has to ensure a strong safety net programme as part of an overall poverty reduction strategy.

The study estimates that in Punjab, the largest province, where it says data appears more reliable, poverty has fallen considerably from 33.5pc in 2001-02 to 16.4pc in 2007-08, after adjusting for higher food prices.

This improvement was driven largely by increasing returns in the non-farm sector, in both urban and rural areas.

Over the period, the growth of per capita consumption of the bottom 40pc of Punjab’s population exceeded GDP per capita growth. Subsequently, over 2007-08, 2010-11, per capita real consumption growth in Punjab was stagnant, and the equality of opportunity for primary education completion rates seemed to improve but alongside a slowdown in the rate of improvement in indicators for water and sanitation and for primary enrolment.

The report says that the last three years have seen sizeable differences in the improving social indicators. Sindh has been lagging in its primary completion rates, and Khyber-Pakhtunkhwa has been lagging in coverage of improved sanitation.

According to the report, opportunity is growing in both urban and rural areas for education and sanitation, which is a very positive sign. Urban children have more absolute opportunity than rural children, but the rate of growth in rural areas is growing faster.


http://dawn.com/news/1030803/wb-hopeful-pakistan-can-reduce-poverty

http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/07/17/000356161_20130717144219/Rendered/PDF/795720BRI0SASE0ox0377381B00PUBLIC00.pdf

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