Poverty figures

Controversies of all sorts - the latest one on poverty figures - preoccupy Pakistan. As a nation we refuse to accept realities and love to always remain in the denial mood. We blame others for our own wrongdoings - every trouble is handiwork of self-assumed alliance of Hunud (Hindus), Yahood (Jews) and Nasara (Christians) against us! There is a consensus that we are masters of inventing conspiracy theories having no basis whatsoever. Undoubtedly, in this Land of Pure dishonesty, deceit, fabrication and deception are all pervasive and speaking the truth is a rare virtue.
We do not have scarcity of resources - both natural and human - but certainly have a very few people who can stand and challenge the dogmas, myths and mystifications. Dr Nadeem Ul Haque, Deputy Chairman Planning Commission, did it a few days back and as usual there was a lot of hue and cry from proponents of status quo. Instead of taking it as an honest intellectual disagreement or discourse, there were demands for "apologies" from him for merely speaking out what was shared by many noted economists of the country.
The former economic adviser of Musharraf and Shaukat Aziz, Dr Ashfaque Hassan Khan, wrote in his column that "by terming the poverty estimate of 17.2 percent as total 'fraud', he [Dr Nadeem] has not only insulted two international institutions, namely the World Bank and the UNDP, but also insulted dozens of experts of these institutions as well as the young and bright economists of the Centre for Poverty Reduction and Social Policy Development (CPRSPD)." Dr Nadeem, in his reply after flare-up of this debate stated: "My goal is to develop a fresh narrative of growth departing from the earlier planning and project-based approaches."
The controversy on poverty figures erupted when Dr Nadeem purportedly disowned the poverty figures of 17.2 percent reported for 2007-2008 and promised to undertake fresh poverty analysis on the basis of 2010/11 survey. For outcome of this controversy, we would have to wait till 25 October 2011 when Dr Nadeem is to appear before a Parliamentary Panel to explain his position.
Reportedly, the Senate Standing Committee on Finance and Revenues has also summoned Dr Ashfaque, who defended the poverty figures of 2008 and asked Dr Nadeem "to apologise from all stakeholders including World Bank, United Nations Development Program (UNDP) and all those economists who endorsed poverty figures of 17.2 percent on the basis of survey done in 2007-08".
The Parliamentary Panel, according to Press reports, also instructed Secretaries of Finance and Statistics Division to ascertain reasons as to why the present regime preferred not to release poverty figures of 2008 despite endorsement by the World Bank and UNDP even after a lapse of four years. According to Press reports, Secretary Finance, Dr Waqar Masood, while giving official response, said that the Deputy Chairman's statement aggrieved him but added in the same breath that both parties should have been careful in choice of words. It may be noted that in response to Dr Nadeem's statement, Dr Ashfaque said, "No sensible government official should make such an irresponsible statement".
According to The News (14th October 2011), Dr Nadeem has started scrutinizing the record of last decade and called all the subordinate authorities, including the Centre for Poverty Reduction and Social Policy Development (CPRSPD), for appearing before the Parliamentary Committee on 25th October 2011. The authorities have been asked to bring along the official records, including a validation letter of the renowned poverty expert, Nanak Kakwani, on poverty figures of 2005-06 as well as the endorsement by the World Bank on 17.2 percent rate of poverty on the basis of 2007-08 survey.
In another report published by The News, the Planning Commission in a statement issued on 13th October 2011, claimed that Deputy Chairman was misquoted as he never said that "the poverty figures given by Musharraf regime was total fraud". What he said was that many Pakistani eminent economists continued to question the approach and the figures relating to measuring poverty in Pakistan. Dr Nadeem quoted in The News to clarify: "how can I accept a poverty figure that was not accepted by economists like Dr Akmal Hussain, Dr Ali Cheema and former Governor State Bank of Pakistan Shahid H. Kardar"?
Dr Akmal Hussain in his comments on this controversy noted: "The official poverty data set of the Musharraf regime, which yields a poverty reduction magnitude unmatched in the history of developing countries, is neither internally consistent, nor is it consistent with national income data of Pakistan, nor consistent with the logic of economic science".
Javed Ahmed Amir posted a comment on Dr Ashfaque's article: "This refers to Dr Ashfaque Hasan Khan's article 'Poverty estimates' (October 10). If the experts of the World Bank, the UNDP and the CPRSPD were so bright then how come several European countries such as Portugal, Greece and Ireland have gone bankrupt? Aren't these countries very closely monitored by the international monetary organisations and their 'experts'? Professor Nanak Kakwani couldn't give final ruling on the economic situation prevailing in our country.
True, in the absence of a computerised system, economic indicators cannot be estimated on a regular basis. We should have realistic, benchmark poverty estimates for further planning keeping in view the possibility that these estimates are mere approximations subject to fluctuations. But, what we need more than anything else is to realise the importance of doing our homework ourselves and get rid of these experts".
Dr Ehtisham Ahmad wrote in his comments on Dr Ashfaque's article that "the problem with the Planning Commission's current absence of focus on the poor is that they do not know the extent of deprivation in the country or the need for public policy to do anything about it".
Dr Meekal Aziz Ahmed observed: "I write in connection with the comment by Dr Ehtisham Ahmad titled 'Poverty estimates' (October 12, 2011). Not only is the 'new growth strategy' devoid of a focus on the poor, it has no quantitative underpinning. There is no macroeconomic framework that anchors its lofty words. This must surely be a first in the history of development plans. Why is this so important?
No matter what your growth strategy is, at the end of the day it must pass the test of cold numbers. The macroeconomic framework must be internally consistent and respect basic accounting identities. It is not enough to state that economic growth will rise over time and reach seven percent per annum. How will this be achieved? What are the assumptions that underlie this indisputably desirable objective? To say, as I believe it has been said, that the macroeconomic framework is 'not important' or 'irrelevant' is to reduce this expensive exercise in self-aggrandisement to a farce".
The Center for Research on Poverty Reduction and Income Distribution (CRPRID) was established in February 2002 as a dedicated research facility in the Planning Commission to influence public policies by contributing to empirical, qualitative and policy-oriented research on the various dimensions of poverty. The website of this body says: "The end of UNDP's technical assistance in June 2007 necessitated an assessment and re-orientation of the Center's scope of work and structure to ensure that its work is conducive to both pro-poor and sustained policy planning and implementation".
The CRPRID-now the Center for Poverty Reduction and Social Policy Development CPRSPD)-being joint initiative of UNDP and Planning Commission seeks to address the problems of persistent and concentrated poverty and is dedicated to understanding how social and economic changes affect low-income communities specially. "By contributing to empirical, qualitative and policy-oriented research on a range of dimensions of poverty and social indicators the Centre expects to influence and enhance the quality of public policy decisions on poverty issues. It also attempts to disseminate an objective assessment of the poverty situation and policy options in Pakistan to a wider audience both nationally and internationally" - www.cprspd.org.
Various studies conducted confirm that Pakistan is facing perpetual and unabated challenge on the poverty front. According to Planning Commission, 35 percent of population lives below the poverty line - while the official survey says it is about 22.3 percent. The unofficial survey conducted by the Centre for Research and Security, claims that "70 percent of the population is living just over, just on or just below the poverty line as defined at an income of $2 per day".
The erstwhile Centre for Research on Poverty and Income Distribution (CRPID) in its much-quoted survey claimed that "63 per cent of the poor in Pakistan fall in the category of transitory poor, 32 percent in the category of chronic poor, while 5 per cent lie in the category of extremely poor".
The standard definition of 'transitory poor' given by the State Bank of Pakistan (SBP) are those people who live below the poverty line for most of the time, but not always during a defined period. Similarly the populations that subsist below the poverty line are known as chronic and extremely poor respectively. These two groups are always below the poverty line, all the time during a defined period. The survey also reported that "the total of the non-poor (those prevailing above the poverty line); 13 per cent are in the category of 'transitory vulnerable,' while the 21 per cent of total non-poor are 'transitory non-poor.'
This portrays an alarming situation as more and more people are moving from transitory category to chronic category, courtesy regressive taxation leading to inequitable distribution of income and wealth, monopoly over assets by a few and wasteful expending by the government. Rulers in Pakistan since inception have shown extreme apathy towards the poor. They are not at all interested to make Pakistan an egalitarian society - providing economic justice to all.
Unfortunately, however, nobody in Pakistan has conducted a comprehensive research to determine all the dimensions of rich-poor divide. Different studies (notably that of A. R. Kamal and Talat Anwar) provide estimates of various inequality indices in Pakistan wherein the Lorenz Curve and Gini Coefficients have been most commonly used.
According to A.R. Kamal, studies on income inequality in Pakistan show different estimates arising due to the following five important factors. Firstly, different studies use different data sets, some based on Household Income and Expenditure Surveys, others that make use of income tax data, and some other studies splice the two sets of data. Second, while some studies consider inequalities in income, others consider inequalities in the consumption expenditures.
Third, while some studies are done for Pakistan as a whole, others examine income inequalities in both the rural and urban areas. Fourth, some studies report income inequalities across households; others report inequalities across population or earners. Fifth, some researchers classify data by deciles prior to estimation of Gini-coefficient; others employ the income intervals that are not uniform. All studies, however, confirm that income inequality since 1977 had been increasing.
According to UN reports, from 1987-99 the Gini Coefficient for Pakistan was in the range of 0.33 to 0.43, which deteriorated to 0.68 in 2006, yet Musharraf and his "technocrat team" (sic) kept on claiming wonderful 'economic turnaround". Inequalities in income in Pakistan, as elsewhere, largely reflect inequalities in the distribution of assets and incomes.
Since the poor have virtually no assets and the lower-middle class owns very few assets, income distribution is skewed. Distribution of state land; development of plots and houses for the common man at affordable prices and instalments; the sale of shares of public enterprises in smaller lots; human resource development; and credit to the micro, small and medium enterprises are some of the ways that might help the poor in acquiring assets. However, the role of official bodies set up by federal and provincial governments in this regard (much-publicised 'Benazir Income Support Programme' or 'Khushal Fund') is simply hopeless - due to various weaknesses even the allocated funds have not been distributed or mis-utilised.
Presently, under Planning Commission's 'Poverty Reduction Strategy Paper (PRSP) 2008-2011' various programmes for poverty alleviation have enhanced funding such as Rs 70 billion, Rs 21.60 billion, Rs 32.50 billion and Rs 26 billion have been allocated to the Benazir Income Support Programme, the Punjab Food Support Scheme, Pakistan Baitul Maal, People's Rozgar Programme and the People's Works Programme respectively. None of the programmes has any provision for low cost housing or food support. Additionally, non-budgetary provisions for the year are, Rs 6.523 billion for Zakat, Rs 7.464 billion for the Employees Old Age Benefit Institution, Rs 7.975 billion for the Workers Welfare Fund and Rs 37 billion for micro-credit.
Despite tall claims of all the governments and various programmes for poverty alleviation initiated, the fact remains that poverty is on rise and income inequalities in Pakistan have increased sharply - unfortunately this trend continues unabated. The main factors that govern personal income distribution include: distribution of assets; functional income distribution; transfers from other households, government and rest of the world; and tax and expenditure structure of the government.
The single most devastating factor for increased income and wealth inequalities remains the regressive tax system in Pakistan. Incident of tax on the poor during the last 20 years has increased substantively (35%) while the rich are paying no tax on their colossal income and wealth - in their case tax burden has decreased by 18% for the same period.
Since Zia's take-over in July 1977, regressive taxes have gradually replaced progressive ones - the real brunt came in 1991 when presumptive taxes were introduced and the rich got cover of laws like Protection of Economic Reforms Act (sic). The final nail in the coffin of progressive taxation came during the period of Musharraf-Shaukat when the rich were given exemption from wealth taxation, capital gain taxation and personal income tax rates were slashed for higher income earners. Study of Pakistan from this political economy perspective is very crucial as our society is fast moving towards dehumanising characteristics, unfettered and unchallenged.
We are facing economic disparities, starvation, scarcity of eatables, power shortages and lack of essential services. The Great Rich-Poor Divide in today's Pakistan is assuming alarming proportions and may eventually lead to civil commotion, if curative measures are not taken. This is the time that our economists instead of hurling accusations against each other and fighting over poverty figures should present concrete measures for poverty reduction, rapid industrialisation and employment opportunities in backward areas, higher and sustainable economic growth with social justice and redistribution of wealth through progressive and equitable taxation.
(The writers, tax lawyers, are Adjunct Professors at Lahore University of Management Sciences)