1.

Intr oduction

1.1. Sta tement of the Pr oblem

Since the human have place them self in forms of groups, there have

always have been ups and down in there life. Economically all the

humans have never been divided equally. This has its roots from the

beginning of the earth till now.

There are many economic problems in the world such as

unemployment unstable political structure, poor governance and

many problems related to economic growth.

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

1
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.

The major topics of our discussion are causes of poverty in Pakistan.

Poverty has many causes; some of them are very basic. Some

experts suggest, for instance, that the world has too many people,

too few jobs, and not enough food but such basic causes are quite

intractable and not easily demolished.

Poverty has always been a major concern all over the world. 20% of

world population consumes 86% of the world’s goods. While 80% of

humanity gets just the remainder 14%. Besides this, the developed

countries are also trapped in circle of poverty.

Even though Britain is one of the most affluent members of the

European Union, reports show that UK is the worst place in Europe to

be growing up if you are poor as more children are likely to be born in

poverty there, as compared to else where in the EU.

It has been reported by united affair economy that the wealthiest

nation on earth has been the widest gap between the richest and the

poor of any industrialized nation and inequalities continue to grow. In

US it has been reported that for 1998 almost 70% of the wealth was

in the hand of top 10%. In another report they mention that “In 1989,

2
the United States had 66 billionaires and 31.5 million people living

below the official poverty line. A decade later, the United States has

268 billionaires and 34.5 million people living below the poverty line.”

The causes of poverty in such countries are the wide gap between

the rich and poor. There is also wide range of inequality.

“Gr owth with equity is good f or poor”

[ Oxa

m, june2000] The common factor that leads to poverty are:

1 – The unemployment

2 –Over population

3 – Inability to meet high standards of living

4 –inadequate education employment opportunities

5 –environment degradation

6 –certain economic and demographic trends and

7 –welfare incentives

Besides the developed countries that are trapped in vicious circles of

poverty, the developing countries are so badly trapped as if it were

quick sand. The more they try to come out of it, the more they get

into it. Pakistan is also adversely affected due to the poverty. Though

poverty is all around the world but is seems as if Asian countries

especially Pakistan is mostly targeted by poverty. Now the questions

that arise in every Pakistani’s mind are that:

• What are the causes that prevails poverty in Pakistan

• What are the factors the bound poverty in Pakistan

3
 • Who is responsible for poverty

• How should poverty be eradicated

1.2. Sour ce of Da ta and Me thodolog y

The major part of the information to formulate the term paper is

obtained from internet surfing. The repots are authentic and are

directly or indirectly related to the organization such as UNO, IMF,

World Bank and ministry of finance and economic affairs of Pakistan.

The time period allocated for the facts and figures, range from 1960

upto 2003. Both absolute and percentage values are used in the data.

The graphs are drawn using the percentage values whereas the

tables are made using either the percentage or the absolute values.

The time duration for analyzing the data is on the year bases, two

years bases, five years bases and ten years bases as well.

1.3. Objectiv es
The main objectives of the term paper are:

• To find causes for poverty in Pakistan.

• Discuss the factors of poverty in Pakistan.

• Find the causes responsible for poverty in Pakistan.

1.4. Or ganiza tion of Da ta

The following term paper has been organized as follows.

First of all, the term paper stats with the table of contents of the

paper and then comes the introduction.

4
Introduction includes the problem of the statement, source of data

and methodology followed by the objectives that are to be obtained.

Then it is followed by the review of literature which is further

followed by the conclusion.

After this comes the data analysis followed by the conclusion and

policy implications. Then there are the appendices and the

references.

5
 2. Review of Liter atur e
Ar tic le

This article has been written by John Wall, the World Bank’s

country’s director for Pakistan in the year 1998.

In this article, he has discussed about the flaws that lie with the two

price indices available i.e. Consumer price index (CPI) and survey

base index (SBI).

A comparable survey using the same poverty line in 1998-99,

2000-01 and 2004-05, adjusted by both the CPI and SPI revealed

the following:

According to both measures poverty headcount had been rising

throughout the 1990s and peaked in 2000-01, a bad drought year.

It then fell sharply in 2004-05, a very good agricultural crop year.

Under the CPI poverty headcount dropped by 10.6 per cent, under

the SBI it dropped 5 per cent.

The reason that both the indices show different result of the

same thing is that incomes of a very large portion of the

population are just above and just below the official poverty line.

Compared to 2000-01, the consumption distribution has improved

substantially in 2004-05, meaning almost all families are better

off. The fact that there is an enormous clustering of population

around the poverty line means that even small changes in

consumption or income can affect poverty headcount ratios

dramatically. This clustering of Pakistan’s population just above

and just below the poverty also implies that families are quite

6
vulnerable to falling into poverty with the slightest run of bad

luck. A drought or bad agricultural year, an illness of a

breadwinner, rises in prices of basic commodities not

compensated by rises in income—all of these can cause families

to fall into poverty.

Ar tic le

This article has been written by Dr Faisal Bari Associate professor

and head of economics (LUMS) in 1998.

Dr Faisal Bari discussed about the agriculture growth. The average

growth rate for agriculture declared in the 1990s was 4.54% per

annum. [see appendix 1]

House income distribution for rural areas show that over the 1990s

the share of the lowest 20% of the households, in the overall income,

decreased from 8085 TO 6.9%. At the same time the share of top 20%

of households increased from 40% about 47% by in 1998 – 99. The

Gini coefficient a measure of inequality also increased significantly

over the same period. [See appendix 2]

So even though rural incomes were increasing in 1990s there were

increasing distribution asymmetries that were also coming in. The

rich in rural areas, continued to get richer, while the rural poor got

poorer.

7
Ar tic le

This article is written by Dr Akmal Hussain in the year 1999. He has

proposed that the prevailing paradigm of poverty may have become

obstacle and it is time to replace it with new one. The essential flaw

in the prevalent poverty paradigm is that the issue of power is

systematically excluded from both the understanding of poverty as

well as policies for overcoming it.

The poor in Pakistan cannot simply be seen as free individuals

suffering from merely adverse ‘resource endowments’, and making

choices in more or less ‘free markets’. It is such a paradigm, which

induces the government to think that all it needs to do to reduce

poverty is to allocate more resources to the poor or to the local

governments who are supposed to ‘represent’ them. Within such a

paradigm it is possible to understand a fact that eludes the

conventional paradigm: The poor face markets, state institutions and

local structures of power that discriminate against the poor and

deprive them of a large proportion of their actual and potential

incomes.

The new survey evidence shows that the poor lose as much as one-

third of their income due to unequal access over input and output

markets and extortions by the local administration. For example, as

much as 51 per cent of the extremely poor tenants borrow money

from the landlord. The leverage of power available to the landlord on

the basis of tenants’ dependence for both operation of the land and

loans from the landlord, enables the latter to appropriate the only

8
resource which the poor have, namely their own labor. The evidence

shows that health is a major trigger that pushes people into poverty

and the poor into deeper poverty. As many as 65 per cent of the poor

were ill at the time of the interview and lost as much as three

months of the year to illness. Given the inadequacy of the

government’s health facilities as many as 85 per cent of the poor go

to private allopathic medical practitioners for treatment.

The expenditures on such treatment are so high that poor households

are obliged to borrow mostly from informal sources to finance the

medical expenses of their families

Thus the analysis and evidence within this new poverty paradigm

suggest that the key to overcoming poverty is to empower the poor to

get better access over markets, governance, and the institutions that

provide public services such as health care, education and justice.

Empowerment in this specific sense means establishing autonomous

community based organizations of the poor at the local level. These

organizations would be quite distinct from the ‘village organizations’

set up by large cross-district NGOs.

Ar tic le

This journal article has been taken from Wikipedia. In this article the

author has discussed about the various causes of poverty in

Pakistan. Poverty is major economic issue.

One of the causes of poverty describe is the spatial distribution of

poverty. Poverty in Pakistan has historically been higher in rural

9
areas and lower in urban areas (cities). Out of total 47 million living

blow the poverty line, 35 million lines rural areas poverty rose

sharply in rural areas in 1990s and the gap on Income between urban

and rural areas of country become more significant.

Another cause of poverty is gender discrimination. The gender

discriminatory practices in Pakistani society also shape the

distribution of poverty in the country.

Households are considered vulnerable if they do not have the means

to smooth out their expenses in response to changes in income.

Economic vulnerability is a key factor in the rise of poverty in

Pakistan; vulnerability also arises from social powerless.

Environmental problems in Pakistan, such as erosion, use of agro –

chemicals, deforestation etc, contribute to raising poverty on poverty

on Pakistan. Increasing population contributes to increasing risk of

toxicity, and poor industrial standards in the country to rising

pollution.

Pakistan has been run by military dictatorships for large period’s of

time, alternating with limited democracy. These rapid changes in

governments led to rapid policy changes and reversals and reduction

of transparency and accountability in government.

Pakistan is home to large feudal landholding system where

landholding families hold thousands of acres and do little work on the

agriculture themselves. The landlord’s position of power allows them

to exploit the only resource the poor can possibly provide; there own

labor.

10
The raise of poverty in the country has been correlated with rise of

Islamic fundamentalism in many parts of country. The Pakistani

government attempts at proposed reforms have been criticized as

weak and have been associated with an “expedient brand of romance

between the establishment and the religious right”

Ar tic le

This article is published by Asian Development Bank and addresses

poverty issues, causes and institutional responses.

Poverty reduction has always been an important objective for the

Asian Development Bank (ADB), and the Bank's Poverty Reduction

Strategy.

The report provides a comprehensive commentary on the causes

of the increase in poverty in the 1990s, and hypothesizes that

poor governance is the key underlying cause of poverty in

Pakistan. The report also analyzes responses to poverty in the

country.

Finally, to accelerate social development in Pakistan, ADB will

concentrate on improving provincial resource management capacity

for better allocative efficiency of human development investments.

ADB's development strategy shall target the most vulnerable groups,

particularly women, children and the indigent

11
Ar tic le

This article is written by Anup Shah. In this article he discussed

about the relation of poverty with hunger.

The direct medical cost of hunger and malnutrition is estimated at

$30 billion each year. One of the major causes of hunger is poverty

itself. The various issues discussed through this site about poverty

lead to people being unable to afford food and hence go hungry

There are other related causes as well, land rights and ownership,

diversion of land use to non – productive use, insufficient emphasis

on export – oriented agriculture, inefficient agriculture practices, war

famine, and drought.

Ar tic le

This article has been written by Ishrat Hussain in year 2000.

Social indicators such as literacy rate, infant mortality rate,

population growth rate, access to water, nutritional intake etc.,

all corroborate the above findings that poverty and weak social

and human development are not only at an unacceptable level in

absolute terms but also have worsened over the last decade.

In this article he has discussed the factors responsible for these

outcomes.

First and foremost, economic growth rate has declined from the

historical level of 6 per cent to 4 per cent and with population

growth rate of almost 2.5 per cent and more, the increase in per

capita incomes has been insignificant.

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Second, the poor performance on economic growth is

accompanied by rising income inequality and high open

unemployment rates. Overall unemployment is estimated at well

over 10 per cent and underemployment even higher. The Gini

coefficient has risen.

Third, the high fiscal deficits of public sector inherited from the

1980 have not allowed much space for poverty oriented. On the

other hand, the ratio of development expenditure has

consistently declined from 8 per cent of GDP to the current level

of 3.2 percent. Even considering the leakages, waste and

inefficiency of public expenditures this decrease has led to

severe imbalances in the demand and supply of public goods

which benefit the poor.

Fourth, the poor governance of public sector institutions and

cornering of public goods by the well-to-do segments of the

society in a general environment of congestion and shortages

have led to reduced access to these services by the poor.

Fifth, in an era of growing globalization, financial integration and

technological revolution of the 1990s Pakistan has not benefited

very much. Foreign direct investment flows to Pakistan have

remained modest in relation to the size of its economy and spurt

in information technology has by passed the Shores of Pakistan.

13
Ar tic le

This article has been released by World Bank. In this article the

author tells about the poverty in Pakistan, Poverty rates fell in the

1970s and early 1980s but rose again towards the end of the 1990s.

According to the Government of Pakistan’s poverty reduction

strategy paper, currently about 10 per cent of the population is

chronically poor, but a much larger part of the population (about

33 per cent) is considered vulnerable and likely to sink into poverty.

Most of the land in Pakistan is arid, semi-arid or rugged, and

therefore not easily cultivated. Water resources are scarce

throughout most of the country, and providing more remote rural

communities with a reliable water supply is difficult.

Because of unequal land distribution, large numbers of rural

people live in poverty. A handful of big landholders own a

disproportionate amount of land. Most farms are small,

measuring less than 5 ha, while 25 per cent of all farms are less

than 1 ha in size. About 80 per cent of the farming community is

made up of landless laborers. Sharecroppers who work land

belonging to large-scale farmers are often in debt to their

employers and therefore take a more meager share of the crops.

Ar tic le

This article has been written by Talat Anwar, Sarfraz .K. Qureshi,

Hammad Ali in 2004.The paper examines the landlessness and rural

poverty in Pakistan. The results showed that poverty is strongly

14
correlated with lack of land which is the principle asset in rural

economy of Pakistan. Prevalence of poverty was found to be the

highest among landless at 54.89% across the rural areas in the

country. Not only the poverty gap but also the degree of inequality

among the landless was substantially high. A highly un equal land of

ownership pattern is reflected by the fact that merely 1.07% house

hold own greater then 35 acres and above land in Pakistan. This

result is also supported y the Gini Coefficient of land holding which

was considerably high at 0.6151 in 2001 – 02. It thus appears that

highly unequal land distribution is a main manifestation of poverty in

rural Pakistan.

Distribution of land holding at province level indicates that a very

small portion of all households large firms size in all provinces.

Striking, just 0.1% households own 55 acres and above land in Sindh

and NWFP, Sindh and Balochistan in 2001 – 02.

The finding that Gini coefficient of landownership was substantially

higher than the Gini coefficient of expenditure and income is

suggestive of the fact of high underreporting of expenditure and

income by richest households due to tax evasion. The highly unequal

land distribution seems to have resulted in tenancy arrangements

such as sharecropping which seems to have resulted in high

incidents of poverty particularly in Sindh.

Analysts have shown that land redistribution has been a source of

increased demand for labor and reduced poverty are discussed here.

First, it was found that landlessness and the poor are largely

15
dependent upon non agricultural sources of income. In rural economy

employment is mainly seasonal and determined at low wages,

leaving a large proportion of households in poverty. In this context,

employment programs for rural public works can have significant role

in reducing rural poverty. It is, therefore, suggested to initiate rural

public works programs and scale up the existing programs and scale

up the existing programs.

Second, though agricultural growth is considered, essential for

poverty reduction in rural area, it may not alone be sufficient to

reduce poverty because of the factors that derive the growth in

agricultural sector.

AR TICLE

This article discusses in detail about the causes of poverty.

Poor governance is one of the major causes of poverty. Corruption

and political instability resulted declining business confidence,

deteriorating economic growth, declining public expenditure, low

efficiency in delivery of public services and inadequate access to

justice.

There are many economic determinants as well, which helped

poverty to increase. Such economic determinants are categorized

into structural and other determinants.

Among the structural causes, the increasing debt burden and

declining competitiveness of the Pakistan economy in the

increasingly skills based global economy are the most important.

16
The other economic determinants include investments, fiscal policy

subsidies, inflation, remittances

There are social determinants as well, that play a vital role in

increasing poverty. The social determinants are as follows land

tenure system, the structure of the society, low level development

ethnic and sectarian conflicts. One of the worst casualty that

reinforce poverty and vice versa is environmental degradation. The

environmental determinants are as follows, health, natural

resources.

Ar tic le

This article is written by Qurratulain in September 2, 2006. In this

article she discussed about the poverty reduction strategies that

were launched by government in 2001 in response to raising trend in

poverty during 1990s 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)

but 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

17
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.

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.

2.1. Conc lusion

The following conclusion can be drawn from the review of the above

literature.

The income of the people is just above or below the poverty line due

to which, any disaster to the nation or even a single bread winning

person of the family makes them fall into the poverty line. There is a

lack of good governance. The strategies formulated to remove the

poverty, fails due to improper use of the budget allocated for this

18
project. The gap between the rich and poor is increasing with the

passage of time. There should be a new paradigm put forward to help

the poor. The key to overcome poverty is to empower the poor to get

better access to services such as health care, education, and

justice.

3. AN ALYSIS
From the appendix -3 we can see the trends in poverty.

Poverty is influenced by a number of factors. Some of these may

be general i.e. they would have a bad affect on all the sectors of

the economy and different population groups and others are

those which are specific and may affect the specific sectors of

the economy as well as only the specific population.

Furthermore, causes can be categorized through different ways

they affect poverty level. For example, they may originate from

issues of governance and the structure of institutions or be

economic or social in nature. However, poverty is likely to be the

result of several mutually reinforcing factors that together define its

scope. The prime causes of poverty in Pakistan are as fallows:

3.1. POOR GO VERN ANCE

Governance is defined as the manner in which power is exercised

in the management of a country's social and economic resources

for development. Good governance turns public income into

human development outcomes.

Good governance is an essential pre-condition for pro-poor

growth as it establishes legal framework essential for the sound

19
functioning of land, labor, capital and other factor markets.

Corruption and political instability resulted in declining business

confidence, worsening the economic growth, declining public

expenditure, low efficiency in delivery of public services

The lack of public confidence in state institutions, including the

police and judiciary, directly contributed to worsening conditions

of public security and law and order.

3.1.1. Go ver nance, P olitical I nsta bili ty and P over ty

Political stability is the basics to the creation of an enabling

environment for growth and development.

Economic agents, particularly investors, must be reassured with

regard to the continuation of policies, should have confidence in

the government's credibility in order to operate effectively and

investor should be persuaded to take risk.

The perceived security threat on its eastern border which has

dominated Pakistan's political culture has resulted in the

domination of the military in politics, excessive public spending

on defense at the expense of social sectors. Politically, Pakistan

has alternated with regularity between democratic and military

governments. Between 1947 and 1988, Military governments

were in power for 24 out of the 41 years. During the period of

parliamentary democracy between 1988 and 1999, there were

four national elections and nine changes of government. Three of

the last four civilian governments that were in power in the

20
1990s were dismissed prematurely by successive presidents on

charges of corruption.

Pakistan's involvement in the war during the 1980s and 1990s in

Afghanistan was responsible for the growth of extremist groups,

spread of weapons, and frequent breakdowns of internal

security. The uncertainty created by these frequent changes of

government, the associated economic policies and errors in

internal security has had a negative impact on private

investment and growth.

These and other factors not only discouraged private investment,

but prompted capital flight, as businessmen either migrated in

large numbers (most notably to Canada), or shifted assets to

more favorable locations (such as the United Arab Emirates).

The change of governments in the 1990s was also characterized

by extreme policy reversals as well as one sided and

non-transparent accountability drives that have shattered the

morale of public servants and private entrepreneurs alike.

All these factors have in turn affected growth, and subsequently

poverty levels in the country. In general, political instability and

macroeconomic imbalances have been reflected in poor credit

worthiness ratings.

3.1.2. Non T ranspar enc y in R esour ce Alloca tion

The lack of transparency in public sector planning, budgeting

and allocation of resources in Pakistan has ensured that those

21
who do not constitute the political elite are unable to make

political leaders and the Government responsive to their needs or

accountable to promises. This has brought a result that the

development priorities are determined by the bureaucrats and

the political elites who use the rights for their own sake. Such

people may or may not be in touch with the needs of the citizens.

3.1.3. Inadequa te Acces s to J ustice

Inadequate access to justice is widely perceived in Pakistan to

be a key to governance issue that directly contributes to the

powerlessness of the poor and reinforces social and economic

inequities. With the general deterioration of public sector

institutions in the country, those providing judicial services could

not have been expected to remain insulated from this trend.

In addition, the access to justice of the citizens at large is

severely restricted by an inefficient and corrupt police system

that is often accused of playing in the hands of the influential

and victimizing the poor. In this regard, harassment by the police

and its indiscriminate and unfair means of power has been

repeatedly reported by the poor to be a major source of

insecurity and vulnerability for their lives and livelihoods.

3.2. ECONOMIC DETERMIN ANTS

The slowdown in economic growth in Pakistan during the 1990s

was a key factor in rising poverty during the period. Growth

22
declined in all sectors in the 1990s and there was also much

greater instability in the growth rate, particularly in agriculture.

In addition, growth was slower than the average in labor

intensive sectors, such as construction and wholesale and retail

trade, and faster than the average in capital intensive sectors,

such as electricity and gas distribution. Thus not only was

growth slow, but was also not pro-poor.

The causes of the slowdown in growth may be divided into two

categories, i.e. structural and others.

Among the structural causes, the increasing debt burden and

declining competitiveness of the Pakistan economy in the

increasingly skill-based global economy are the most important.

While the former occurred due to economic mismanagement, the

latter was because of Pakistan's low level of human capital

development.

Increasing debt service requirements resulted in a growing fiscal

squeeze, which in turn led to a declining proportion of GDP being

spent on development and social sectors in the 1990s. Falling

public investment adversely affected private investment. At the

same time, reduction in tariffs, and elimination of export

subsidies in the 1990s meant that international competitiveness

became an increasingly important determinant of investment

opportunities in Pakistan. Because of the low level of human

development and poor state of physical infrastructure, areas

where Pakistan was competitive were not many. As a result,

23
total fixed investment declined significantly, bringing about a fall

in the economic growth rate.

The bad impact of structural factors was reinforced by other

problems such as racial and sectarian violence, poor state of law

and order, and a high degree of economic and political

uncertainty because of the many changes in government.

Throughout the 1990s, the Government was implementing a

series of medium term structural adjustment programs under

International Monetary Fund (IMF). However, because of frequent

changes in government, adherence to the adjustment program

was unsatisfactory, and as a result, the 1990s can be

characterized as a decade of stop-go stabilization policies, with

the attendant negative impact on growth, but without the desired

improvement of macroeconomic fundamentals.

As shown in Figure 3.1, annual compound growth rates of GDP in

Pakistan have declined from 5 percent for the first period of

adjustment, to 3.6 percent for the most recent period.

Manufacturing growth has been adversely affected by

deficiencies in infrastructure, as well as by slow-moving

domestic demand. In the most recent period of the analysis,

agricultural growth rates have been particularly low at just 1.6

percent. This sharp decline has been mainly due to the

unexpected drought, along with inadequate rainfall that the

country experienced from 1999 to 2001.

24
Fig 3.1

SECTORAL GROWTH RATES IN 1990'S

5
GROWTH RATE(%)

0
1988-93 1993-98 1998-02
YEARS

GDP MANUFACTURE AGRICULTURE SERVICES

SOURCE: Government of Pakistan, economic survey, various issues.

3.2.1. In vestment

Investment is a key driving force for GDP growth, and declining

investment levels results in low GDP growth rates. The early

1990s were characterized by the increase of deregulation and

privatization policies. Private investment during this period

increased from 7.4 percent of GDP in FY1988 to 10 percent by

FY1993 (Table 3.1). Public investment averaged just over 8.4

25
percent of GDP in this period, and total investment increased

from 17.3 to 19.9 percent.

Table 3.1 Trends in Investment – 1988 to 2001

Years Total Fixed Public Private Share of the private sector in
Investment Investment Investment Investment the fixed investment

% of GDP % of GDP % of GDP % of GDP % of GDP

FY1988 17.3 15.8 8.5 7.4 46.5
FY1989 18.3 16.7 8.7 8.0 48.2
FY1990 18.2 16.6 8.0 8.6 51.7
FY1991 18.5 17.0 8.3 8.7 51.3
FY1992 19.9 18.4 8.7 9.7 52.7
FY1993 20.6 19.0 9.0 10.0 52.5
FY1994 19.4 17.8 8.3 9.5 53.6
FY1995 18.3 16.8 8.2 8.6 51.3
FY1996 18.7 17.1 8.1 9.0 52.5
FY1997 17.7 16.2 6.8 9.4 58.0
FY1998 17.1 14.5 4.9 9.6 66.2
FY1999 15.0 13.3 5.3 8.0 60.2
FY2000 15.0 13.4 5.3 8.1 60.4
FY2001 14.7 13.1 5.6 7.5 57.3
Source: Government of Pakistan, Economic Survey, various Issues

The period from FY1993 to FY1998 was characterized by a lack

of continuity in economic policy. Total investment declined from

20.6 percent to 17.1 percent of GDP.

In subsequent years, the investment declined even more

significantly as a result of the imposition of sanctions on the

country after the nuclear tests of 1998. Total investment

declined from 17.1 percent of GDP in FY1998 to just 14.7 percent

in FY2001. This decline was entirely due to a sharp fall in private

26
investment, which declined from 9.6 percent of GDP in FY1998 to

7.5 percent in FY2001. Initial estimates suggest that total

investment further declined in FY2002, to 13.9 percent of GDP,

primarily due to the post 11 September regional conflict, the

military standoff with India and a further disturbance in internal

security. Growth depends not only on the level of investment, but

also the pattern. Growth depends not only on the level of

investment, but also the pattern. Trends in the pattern of

investment, as given in Table3.2, show that investment in

agriculture has consistently declined over the period under

review, from an average of 1.8 percent of GDP in FY1988 to just

0.9 percent in FY2002.Investment in manufacturing has

Table 3.2 Pattern of investment in the 1990s

Sector Investment (% of GDP)
1987-88 1992-93 1997-98 2001-01
Agriculture 1.8 1.5 1.3 0.9
Manufacturing 2.9 4.7 2.1 2.5
Power 2.0 2.5 2.7 1.4
Total fixed investment 16.5 19.1 14.5 13.0
Source: Government of Pakistan, Economic Survey, various Issues

fluctuated, and reached a peak of 4.7 percent of GDP in FY1993

because privatization. However, by FY1998 it had declined to 2.1

percent of GDP. In the last period of the analysis, there was a

improvement in investment in the sector largely as a result of

balancing and modernization in the textile sector, which was

preparing for the removal of restrictions on international trade in

textiles by 2005 under the World Trade Organization.

27
Investment in the power sector increased from 2 percent of GDP

in FY1988 to 2.7 percent in FY1998, attracted significant

amounts of foreign direct investment.

However, investment in the sector declined to 1.4 percent of GDP

by FY2002.

The patterns of investment indicate that investment in

agriculture, which employs 47% of the labor force, has been low

and falling in the last decade, while investment in industry has

fluctuated sharply. Total investment in the power sector has,

however, been quite high, even surpassing investment in

manufacturing in FY1998. The growth witnessed since the early

90s has not, therefore, been "pro-poor", and has not served to

alleviate poverty to a significant extent.

3.2.2. Emplo yment

Pakistan's labor force is expanding at an annual rate of 2.4

percent, and the average annual GDP growth rate of 4.5 percent

during the 1990s was insufficient to generate the necessary

additional employment. The average employment elasticity in

Pakistan is estimated to be 0.4, which means additional jobs

created in the 1990s would have provided employment to only

about two-thirds of the new entrants into the labor force. It is

estimated that about 0.6 million people are being added to the

ranks of the unemployed every year. In the absence of a formal

social security system, this does not fully translate into an

28
increase in the unemployment rate, but adds to the large number

of under-employed workers in the informal sector, and a growing

number of working poor. The official unemployment rate had

increased to 7.8 percent by 2000 - 6.1 percent for men and 17.3

percent for women. However, unemployment statistics in

Pakistan are generally unreliable because of the relatively high

incidence of disguised unemployment, and the fact that a

significant proportion of total employment even outside

agriculture is generated in the informal sector

3.2.3. Infla tion

High inflation acts as a tax on household incomes by decreasing

purchasing power, and has particularly adverse impacts on

households dependent on fixed salaries, as well as low-income

households in general. Pakistan experienced double digit

inflation from FY1991 to FY1997. As it is clear from Figure 3.2,

however, there has been a declining trend in inflation since

FY1997, which is obviously beneficial to the low-income groups.

Inflation fell significantly, to 7.8 percent in FY1998, and has

continued to decline thereafter, largely because of reduction in

the average rate of increase of money supply to 9 percent

between FY1998 and FY2001. In FY2002, inflation was estimated

at 2.6 percent for the first ten months of the year, with food price

inflation estimated at 1.4 percent. Inflation has also been

controlled because of low average international prices of key

commodities like petroleum and petroleum products, and

29
because of improved supply of food items in markets all over the

country.

FIG 3.2

14
12
INFLATION RATE(%)

10
8
6
4
2
0
FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02

3.3. SOCIAL DETERMIN ANTS

The economic determinants of poverty are key to understanding

the circumstances that can intensify poverty, or increase the

proportion of people falling below the poverty line. The existence

of poverty, wherein a significant proportion of the population

remains poor over an extended period of time, is attributable

more to social than to economic factors. The impacts of

economic causes of poverty tend to be prominent under social

structure, and rigid societal mores can act as hurdles to the

equitable distribution of the benefits of growth. Some of the

social determinants of poverty are discussed as follows

30
 3.3.1. Land T enur e Systems

Access to land, which is the basic factor of production, is crucial

to reduce poverty in rural areas. Data from the Agricultural

Census of Pakistan conducted in 1990 shows that cultivated land

is highly unequally distributed in Pakistan. About 47 percent of

the farms are smaller than 2 hectares, accounting for only 12

percent of the total cultivated area. Approximately 19 percent of

farms are of 5 hectares or more and account for 61 percent of

the total cultivable land. Table 3.3 details the data.

The uncombined data by province shows that NWFP has the most

number of small farms, with almost 70 percent of farms having

an area of less than two hectares. In Balochistan, a province

characterized by vast expanses of land and strong tribal

society, the percentage of small farms is only 23 percent. In

Sindh, a province where the rural society is dominated by feudal

elite, the percentage of the small farms is 34 percent.

Table 3.3 Farm Classification by Size of Farms

PROVINCE Less than 2 hectares Greater than 2 Hectares and 5 hectares and above
less than 5 Hectares
Farms (%) Area (%) Farms (%) Area (%) Farms(% Area (%)
)
Punjab 45 12 34 29 21 61

31
 Sindh 34 9 47 34 19 58
N.W.F.P 69 24 21 29 9 47
Balochistan 23 3 35 12 43 86
Pakistan 47 12 34 27 19 61
Source: Agriculture Census Organization (1994).Census of Agriculture,
1990.Ministry of Food, Agriculture and Livestock.

The data in the table 3.4 indicates that in 1990, 73 percent of

farms were owner operated, while the remaining operated under

tenants operated. Ownership of even small landholdings can

significantly increase the owner's capacity to absorb economic

shocks, and ensure food security for the household. Land

ownership is also the key factor determining access to credit

from the formal banking sector, thereby decreasing the

dependence of the poorest sections of society on informal credit

markets, which can be usually unfair. Unequal land tenure

patterns do not just have implications for income distribution, but

can also have adverse impacts on agricultural productivity. The

prevalence of an unequal land distribution system is thus a major

cause of poverty.

Table 3.4 Tenure Classification of Farms

Total Farms Owner Tenant Operated
Operated
Province Area in % of total Area in Sharecropped Leased Other
Million Acres Area Million Acres % % %
N.W.F.P 5.83 80 1.15 77 21 3
Punjab 27.11 72 7.57 69 29 2

32
Sindh 8.60 65 3.00 76 23 2
Balochistan 5.78 86 0.81 89 7 2
Pakistan 47.32 73 12.54 72 26 2
Source: Agriculture Census Organization (1994). Census of Agriculture, 1990.
Ministry of Food, Agriculture and Livestock

3.4. ENVIR ONMENT AL DEGRAD ATION

AND PO VER TY
The environmental degradation and poverty are interrelated with

one and other, and the two states reinforce each other as well.

These linkages are further explored as follows:

3.4.1. Impacts on Health and Linka ges with P over ty

The most commonly cited indicators of environmental

degradation in Pakistan are increasing air pollution and

contamination of ground and surface water. Recent studies

suggest that emissions of matter in the form of separate

particles in Pakistan exceed WHO recommended standards.

Emissions of pollutants like nitrogen oxides, carbon monoxide

and lead, from both stationary and mobile sources are on the

increase, and according to some estimates may be costing Rs.

25 billion in health costs in urban areas.

The poor are more frequently affected by the air and water

pollution, both in rural and urban areas, given their limited

access to quality health care. Extended exposure to such

pollutants is likely to have significant impacts on health in the

form of skin and respiratory diseases, eye infections and in

33
extreme cases, disorders of the central nervous system. The

prevalence of disease intesify poverty firstly by compelling the

poor to devote ever increasing proportions of a limited income to

health costs, and secondly by reducing productivity and working

days.

3.4.2. Ef fects o f De g rada tion of Na tur al R esour ces

The degradation of natural resources can have a overwhelming

impact on the poor, given that they tend to be strongly dependent

on such resources. The rural economy in particular is built

around the sustainable use of natural resources, particularly

water and cultivable land. In Pakistan, the effects of land

degradation have been apparent for the last few decades, and

may have been intensified by the increased use of fertilizers and

pesticides. Similarly, high rates of siltation in uncovered

watersheds and the degraded state of the irrigation system have

led to inefficiencies in water use and wastage of freshwater

resources. Around 25 million acre feet of water is lost every year

due to low water management efficiency. The rural poor are

particularly vulnerable to approval between rent-seeking

Irrigation Department bureaucrats and powerful local feudal

elements. The rural population, particularly small landholders

bear a uneven part of the costs of environmental degradation in

the form of lower crop yields and reduced productivity of

agricultural land. The poor also bear the burden of the

34
degradation of wastelands, which increasingly support smaller

herds, and of forest lands from which they meet their fuel wood

needs. The high rate of deforestation in the country has

endangered biodiversity and may have devastating effects on the

livelihoods of communities in mountain areas, which are

dependent on forests for their energy and fodder needs, in

addition to putting medicinal plants and herbs found in forests to

a variety of uses. The poor are also more vulnerable to the

effects of climate change, which in the short term may manifest

itself in the form of increased incidence of floods, droughts,

cyclones and other natural disasters and in the long term could

have potentially serious effects on water resources and cropping

patterns. The effects of climate change can thus cause

widespread loss of the assets of poor communities in the short

run, which tend to be more vulnerable to natural disasters. In the

longer term, climate change can potentially have negative

effects on the yields of crops such as cotton which are grown in

areas where heat stress is high, and rice which requires the

regular provision of adequate water

4. Conc lusion and Polic y

implica tion
By studying all the facts and figures given in this term paper, the

following conclusions can be drawn,

35
Poverty is high in Pakistan with one-third of the population living

below the poverty line.

From the analysis above, we can see that there are a number of

factors that are responsible for the increasing poverty in

Pakistan, such as:

• Poor Governance

• Environmental degradation

• Economic determinants

4.1. Steps being ta ken by the

Go ver nment for abolishing these

facto r s
Government of Pakistan has been working for many years, trying

to imply different policies in order to abolish poverty from its

roots. ADB (Asian Development Bank) support the Government’s

poverty reduction strategy and ADB’s operational strategy for

Pakistan will balance the Government’s efforts. Improving

governance will be the central focus of ADB’s operational

strategy for Pakistan, in addition to the efforts to encourage

pro-poor growth .The key features of ADB's operational strategy

for Pakistan will be as follows.

4.1.1. Go ver nance

36
Improving governance will be the central theme and the major

focus of ADB's poverty reduction strategy for Pakistan. To this

end, ADB's support will be channeled through a two-pronged

approach: firstly, ADB will bring about reforms in the various

sectors, such as supporting capacity building in public policy,

enforcing women's and child rights, promoting public private

partnerships in provision of social services and motivating

instruments for social protection, will be developed and

implemented in a manner consistent with the overall governance

reforms in the country. Secondly, direct assistance would also be

provided to support the Government's governance reform

agenda. A major focus of ADB's governance support will be in the

area of provincial and district judicial and police reforms. These

governance interference will support a range of reforms that

have important implications for relations between the State and

civil society institutions.

4.1.2. Emplo yment gener ation

Employment generation is very important for poverty reduction

and it will be an important area of support in ADB's operational

strategy.

4.1.3. SOCIAL DEVEL OPMEN T

The poverty assessment also shows that a key factor in

Pakistan's poor growth performance in the 1990s was its low

level of human development. Although it is true that Pakistan has

37
historically under-invested in the social sectors. ADB strategy

will assist the Government in making decentralization a success.

In addition, ADB will concentrate on improving provincial

resource management capacity for better allocative efficiency of

human development investments; establishing decentralized

financing, planning, and delivery of selected social services

(health and population, and education); financing incremental

services (new teachers, textbooks, medicines, etc.) small scale

civil works (building or repairing boundary walls or toilet

facilities in girls schools for example) targeted at making

existing social sector facilities operational, or improving their

utilization; improving quality of primary education by supporting

changes in governance structures, institutions and incentives;

promoting public-private/civil society partnerships in the context

of devolving service responsibilities to local governments; and

improving municipal services in the context of devolving of

municipal functions to local governments, with particular focus

on services for the poor.

4.1.4. Sustaina ble E nvir onmental Mana gement

ADB’s environmental program is also going to expand in the

medium term, with increased emphasis on environmental

management on the part of industry and promotion of

38
renewables. Building capacity within the Government to

effectively monitor the violations of environmental regulations is

crucial, and supporting initiatives such as the development of the

self-monitoring and reporting tool for reporting industrial

emissions to the environmental protection agencies. Finally, ADB

will explore the possibility of using special funds to support

nature conservation and biodiversity in national parks and other

protected areas.

4.2. P er sonal sug gestion:

This term paper was a group effort. While bringing up this term

paper, there were many ideas that were storming in the minds of

every group member.

Following are the refined suggestions that were put forward by

each:

Poverty has brought many problems along with it’s self. To over-

come these problems, an increase in GDP growth rates will,

however, only lead to appreciable reduction in poverty levels if

growth is broad based. To generate employment opportunities on

a scale needed for long-term poverty alleviation, it is necessary

to create an environment favorable for private economic activity,

and encourage domestic and foreign investment. That requires

significant improvements in management of public resources,

establishment of law, and a move to a less disturbing system of

economic regulation. For the longer term, it is very important to

39
not only bring about a significant decrease in the incidence of

poverty, but also to reduce vulnerability to economic variations,

and remove the feeling of powerlessness that is the most

important thing that shapes the lives of the poor. Poverty

alleviation thus has to be effected not only through

macroeconomic policies, but also by bringing about significant

improvements in the structure. Seventy-five percent of Pakistan's

poor live in rural areas, a large proportion of who are pushed into

poverty because of the instability of income. There must be

higher growth and greater stability of income and employment in

rural areas by focusing on (i) getting the policy of the

government to be right (ii) increasing agriculture productivity (iii)

increasing employment (iv) promoting rural-urban linkages by

improving communications, particularly rural roads (v) expanding

rural economic infrastructure, especially for irrigation, drainage,

and water resource conservation and management (vi) investing

in infrastructure in areas where poverty is high, and where the

lack of infrastructure is a barrier to development.

For social development, it must provide protection to the most

vulnerable groups, particularly women, children and the poverty-

stricken. There should be organizations besides ADB that should

target projects for women, and encourage gender mainstreaming

across all projects, in addition to promoting policy and

institutional reforms for awareness and enforcement of women's

40
right's and representation in all aspects of economic and social

development.

A ppendix- 1

41
 Years Agricultural (growth rate)
1960’s 5.10
1970’s 2.40
1980’s 5.40
1991 5.00
1992 9.50
1993 -5.30
1994 5.20
1995 6.60
1996 11.70
1997 0.15
1998 4.50
1999 1.90
2000 6.10
2001 -2.70
2002 -0.10
2003 4.10

A ppendix- 2

Years Gini-Coefficient Lowest 20% Highest 20%

1979 0.32 8.3 41.3
1984-85 0.34 7.9 42.8
1985-86 0.33 7.9 40.0
1986-87 0.32 8.0 39.0
1987-88 0.31 8.8 40.0

42
1990-91 0.41 6.0 47.4
1992-93 0.37 7.0 44.8
1993-94 0.40 7.4 43.1
1996-97 0.41 7.3 49.3
1998-99 0.40 6.9 46.8

A ppendix- 3

Years Total Rural Urban

1963-64 40.24 38.94 44.53
1966-67 44.50 45.62 40.96
1969-70 46.56 49.11 38.76
1979 30.62 32.51 25.94
1984-85 24.47 25.87 21.17
1987-88 17.32 18.32 14.99
1990-91 22.11 23.59 18.64
1992-93 22.40 23.35 15.50
1993-94 27.40 29.90 23.10
1996-97 29.60 31.60 27.40
1998-99 35.20 39.80 31.70

43
44