Assignment #1

DEVELOPMENT ECONOMICS
ADEEN TARIQ, AFI AMIN, & ABDUL REHMAN

SLOT: 4TH

DATE: 7TH OCTOBER 2019

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TABLE OF CONTENTS

introduction................................................................................................2
Situation In 2000........................................................................................2
Proportion Of Population Below $1.9 Per Day.........................................2
Poverty Gap Ratio....................................................................................3
Share Of Poorest Quintile In National Consumption...............................3
Progress Till 2015.......................................................................................4
Proportion Of Population Below $1.9 Per Day.........................................4
Poverty Gap Ratio....................................................................................6
Share Of Poorest Quintile In National Consumption...............................9
Efforts By The Government......................................................................10
Conclusion................................................................................................12
References................................................................................................12
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INTRODUCTION
The proportion of people whose income is less than one
dollar a day

The international poverty line is defined as the monetary threshold under

which an individual is living in poverty. It is calculated by taking the
poverty threshold from each country – given the value of the goods
needed to sustain one adult – and converting it into dollars. The
international poverty line was originally set to roughly $1 a day.
When purchasing power parity and all goods consumed are considered in
the calculation of the line, it allows organizations to determine which
populations are in absolute poverty. [CITATION inv19 \l 1033 ]

The World Bank sets the international poverty line at periodic intervals

as the cost of living for basic food, clothing, and shelter around the world
changes. Presently, The World Bank defines "extreme poverty" as living
on less than $1.90 a day.

SITUATION IN 2000
PROPORTION OF POPULATION BELOW $1.9 PER DAY

It is generally accepted that the declining trend in poverty in Pakistan

during the 1970s and 1980s was reversed in the 1990s. The incidence of
poverty increased from 26.6 percent in FY1993 to 32.2 percent in
FY1999 and the number of people under poverty line increased by over
12 million people during this period. Poverty in Pakistan has historically
been higher in rural than urban areas. Poverty rose more sharply in the
rural areas in the 1990s, and in FY1999 the incidence of rural poverty
(36.3 percent) was significantly higher than urban poverty (22.6
percent). Inequality also increased in Pakistan during the 1990s, in both
urban and rural areas, which enhanced the negative impact on poverty of
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the slowdown in growth during this period. While agriculture is the

predominant activity in rural society, a substantial proportion of the rural
labor force, estimated at more than 40 percent, depends entirely on non-
farm activities. The growth of non-farm activities appears to have been
severely affected by low economic growth, decline in public sector
development spending, and lower worker remittances during the 1990s.
[CITATION Dev10 \l 1033 ]

Poverty in rural and urban areas exhibited similar trends, increasing

from FY1999 to FY2001 and falling thereafter. The head count ratio (at
$1.90 a day) increased from 23.4% in 1998 to 28.6% in 2001, showing an
increase in the proportion of population (31m to 41.4m) living below the
poverty line. The increase was observed to be higher in rural areas
compared to the urban areas. It is pertinent to mention that the country's
economic growth rate during this period had reached an all time low,
with agricultural growth in the negative due to a prolonged drought,
which lasted for 3 years. [CITATION Dev10 \l 1033 ]

POVERTY GAP RATIO

A measure of poverty obtained by multiplying the head count by the average relative distance
at which the poor are from the poverty line.  [ CITATION Pov12 \l 1033 ]

The poverty gap ratio was increasing during the 90s due to various reasons. The mid-1990s,
has seen a serious recession. Some causes of the economic crisis are of a short-term nature, as
the economy, particularly the manufacturing sector, adjusts to the loss of subsidies and
concessions. Crises in the management of public finances and external balances have
dominated the entire policy agenda of the 1990s. Pakistan has been involved with IMF/World
Bank programs for stabilization and restructuring since 1988. To an extent the loss in investor
confidence due to law and order problems, and perceptions of widespread corruption are also
one of the problems. All these issues rose from due to the political instability in the country.
Several other factors that have worsened the situation in the recent years have been sporadic
crop failures due to crop infestation or bad weather.
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SHARE OF POOREST QUINTILE IN NATIONAL

CONSUMPTION

During 90s there was an unusual trend in the consumption of the lowest
quantile. It was mainly due to the political situation in the country. The
consumption is directly related to the income distribution, as income
increase so does consumption. There was a gradual increase in the
consumption of the people in this quantile over time, but when compared
with highest quantile their increase was very minimal. This increase was
mainly due to the favorably policies by the government to enhance the
standard of living of the poorest quantile. Over the time it can be
observed that their consumption of food, medical care and education has
decreased in order to cater other needs due to inflation. [ CITATION Min09 \l
1033 ]

PROGRESS TILL 2015

PROPORTION OF POPULATION BELOW $1.9 PER DAY

Poverty head count ratio (% of population) and Number of poor (millions) at $1.90 a
day (2011 PPP) - Pakistan
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Year 1998 2001 2004 2005 2007 2010 2011 2013 2015
Number of poor
(millions) 31 41.4 27.2 25.9 21.6 14.1 14.1 11.3 7.6
Head count ratio (% of 23.4 28.6 18 16.5 13.2 8.3 7.9 6.1 3.9
pop)

After several years of continuous upsurge, the Head count ratio (HCR) of
Pakistan (at $1.9 per day), finally started to decline from 2001 onwards,
reaching 18% in 2004 from 28.6% in 2001. The proportion of population
living below $1.9 per day further decreased in the subsequent years
reaching 8.3% (14.1m) in 2010 and 3.9% (7.6m) in 2015. Even though the
number of poor living below $1.9 per day remained the same (14.1
million) from 2010 to 2011, the head count ratio reduced from 8.3% to
7.9% due to the increase in the total population.
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The growth rate of the economy of Pakistan picked up while inflation

remained low during the period 2003-06, reducing the population below
the poverty line to 13.2% percent in 2007. However, consumption
inequalities increased during the corresponding period [CITATION Dev10 \l 1033 ].

In general, rural poverty in Pakistan reflects the size and distribution of

land ownership, household composition and social structures. In urban
areas, lack of access to basic services and productive employment
opportunities, as well as inadequate social protection are key
determinants of poverty. Diversification of income sources, including
workers’ remittances, has contributed to poverty reduction in both rural
and urban areas. [CITATION CPS19 \l 1033 ]

One of the main poverty reduction measures in Pakistan during 2002-07,

was the high economic growth recorded by most sectors. With growth of
around 7 percent on average and with population growth around 2
percent per annum, per capita income doubled from around $ 500 in
2000-01, reaching $ 1000 by around 2008. Moreover, another poverty
alleviation measure was created after 9/11, when much of Pakistan's debt
was either written-off or rescheduled, allowing debt repayments to be put
to far better use on development projects. Poverty in Pakistan fell in the
period 2002-06 on account of high growth, greater remittances, donor
assistance, and far greater fiscal space. Once the economy started
slowing down markedly in around 2008, the fall in poverty slowed
because of slow economic growth, lower public sector development
spending, and very high food and fuel prices resulting in high inflation
[ CITATION Dev10 \l 1033 ].

The consequent adverse impact of slower growth on poverty reduction

was offset by increased workers’ remittances, which grew at an average
annual pace of 19.6% during FY2009–FY2012 (compared with 14%
during FY2005–2008), and supported growth in consumption. Pakistan
also implemented its first targeted cash transfer system in FY2009,
which provided a buffer to ease the impact of shocks on the poor. In
addition, a significant increase in agriculture support prices (e.g., wheat
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prices increased from Rs.425 in FY2006 to Rs.1,200 in FY2014)

contributed to higher rural incomes [ CITATION CPS19 \l 1033 ].

There was a consistent and significant decline in poverty in Pakistan over

the 14 years from 2001 to 2015. The poverty headcount measured using
the national poverty line fell from 64.3 percent in 2001 to 24.3 percent in
2015. Consumption inequality, as measured by the Gini index, fluctuated
around 33. More recently, between 2011-2015, a 12 percentage points
decline in poverty (from 36.3 to 24.3 percent) was accompanied by a
slight increase in inequality. Rural areas in Pakistan typically have higher
poverty rates, while urban areas show higher inequality. Based on the
latest available estimates (2015), poverty is more than twice as high in
rural areas (30.7 percent) than in urban areas (12.5 percent). According
to the same data, the incidence of poverty is uneven across Pakistan's
provinces. Khyber Pakhtunkhwa is the province with the lowest poverty
headcount (18 percent) in 2015, while Balochistan accounts for the
highest poverty rate (42.2 percent). Poverty reduction in Pakistan was
mainly driven by an increase in average consumption (growth), especially
in urban areas and in Punjab and Khyber Pakhtunkhwa, while little gain
was achieved from distributional changes and shared prosperity,
especially in more recent years. For instance, over the six years between
2010 and 2015, annualized consumption growth of the bottom 40 percent
of the population in Pakistan was 2.7 percent, below the whole
population average (annualized) consumption growth (4.3 percent). The
period between 2005 and 2010 was characterized by the strongest
performance in terms of shared prosperity, leading to a decline in
poverty along with a reduction in inequality [ CITATION Wor19 \l 1033 ].
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POVERTY GAP RATIO

[CITATION pov19 \l 1033 ]

Years 1987 1990 1996 2001 2005 2007 2010 2011 2013
Poverty Gap 20.60 20.00 2.60 5.80 2.70 2.50 1.20 1.10 0..90
Ratio

The above data illustrate that poverty in Pakistan has never remain
constant. There was an elevation in poverty during 1987-88. But it was
followed by a sudden decline of more than 10% in 2004-05. The main
reason for this huge decline was the policies adopted by the government.
The government introduced agricultural friendly policies, and which
helped to reduce the poverty gap ratio. A record harvest of 15 million
cotton bales that year has netted an additional Rs 90 billion into rural
areas. During this time poverty gap ratio in rural areas was
comparatively less when compared with the urban areas. Following years
there has been a great decrease in Pakistan. There has been a great
increase in the poverty gap ratio during the Financial Crisis of 2008. This
crisis had badly hurt majority of the world including Pakistan. Many
companies started to lay off their employees.
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During this recession period investor confidence also decreased so no

major investments took place. So, these were the main reason for a high
poverty gap ratio at that time. Looking at the trends of poverty and
squared poverty gap for 2013-14 and 2015-16, one can see number of
people living farther from the poverty line has declined in 2015-16
compared to those in 2013-14. However, poverty gap in rural areas is
higher than those in the urban areas in Pakistan which is plausible.
Moreover, there is a possibility that some areas particularly in urban
centers have a high poverty incidence but low poverty gap, while other
rural areas have a low poverty incidence but a high poverty gap. [ CITATION
Nat16 \l 1033 ]

There could be multiple policy responses to these trends in poverty gap

and squared poverty gap in Pakistan. Policy makers need to make a
choice between either of the two: first, a policy or program could be
shaped for reducing the number of poor (the incidence of poverty) by
targeting those who are closest to the poverty line and get them out of
poverty (low impact on the poverty gap). Second, some other
interventions could better address the situation of severity and the case
of the very poor but have a low impact and weak influence on the overall
incidence. For example, it might bring the very poor closer to the poverty
line but not above it. The choice in the end will mainly be determined by
the political necessity, economic viability and nature of poverty incidence
and severity in a given region or province of the country.
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SHARE OF POOREST QUINTILE IN NATIONAL

CONSUMPTION

CONSUMPTION SHARE HELD BY POOREST QUINTILE (World

Bank)

Consumption Share Held by Consumption Share Held by

Poorest Quintile Richest Quintile
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In 2015, consumption share held by lowest 20% for Pakistan was 8.9 %.
Though Pakistan consumption share held by lowest 20% fluctuated
substantially in recent years, it tended to decrease through 2000 - 2015
period ending at 8.9 % in 2015. [ CITATION Kno191 \l 1033 ] The maximum share
in the national consumption held by the poorest/lowest quintile was in
2010 at 9.6%, whereas the minimum share was in 2004 at 8.8% during
the period 2000-2015.

On the other hand, in 2015, consumption share held by highest 20% for
Pakistan was 42.8 %. Though Pakistan consumption share held by
highest 20% fluctuated substantially in recent years, it tended to increase
through 1996 - 2015 period ending at 42.8 % in 2015. [ CITATION Kno19 \l 1033 ]
The maximum share in the national consumption held by the richest
quintile was in 2015 at 42.8%, whereas the minimum share was in 2010
at 39.7% during the period 2000-2015.

This comparison shows that the income inequality in Pakistan has

increased during the period 2000-2015. The fundamental reasons of
consumption inequality of the people are the difference in the mental
abilities; power and health of people also become responsible for
inequality in wages, salaries and wealth of people. The political
instability is also responsible for unfair consumption inequality. Market
imperfection along with monopolistic tendencies, low agricultural and
industrial outputs, illiteracy, rising population, low level of skill,
corruption, inflation and uneven infrastructural facilities are the factors
responsible for increasing the inequality between the rich and the poor.
[CITATION GRO05 \l 1033 ]

EFFORTS BY THE GOVERNMENT

The government took multiple steps during this time to improve the
economic condition of the country as they saw it as the only way to
reduce poverty. According to the case study report by Development
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Progress the government increased allocation for social programs under

Benazir Income Support Programme (BISP) and the Pakistan Poverty
Alleviation Fund (PPAF), increased support prices for agricultural
products to raise rural household income, provided better crop variety to
improve agricultural yield, increases remittance and increased female
employment in rural area (Government of Pakistan, 2014).

After the drought in 1998, the country’s poverty increased by 13 million

to 53 million in 2001 [ CITATION Ami15 \l 2057 ] . The world bank and IMF
considering this situation placed a condition for Pakistan to put together
Poverty reduction Strategy Paper in turn for debt relief. This had details
about how the country plans to increase growth and reduce poverty
levels, mainly based on four goals namely;
1) Increase economic growth
2) Improve governance
3) Invest in human capital
4) Targeting the poor and the vulnerable.
The reforms helped Pakistan improve its regulation and make its
economy more market-oriented with the private sector expanding its role
in finances, power, social sectors, and countries macroeconomics. This
stable form of the economy continued well after 9/11 troubles and war
against terror. In addition to this the government introduced reforms and
policies to help with PRSP plans, some of these included financing and
banking systems reforms, capital market reforms, and tax reforms to cut
tax exemption to increase government revenue to overcome the twin
deficiency.[ CITATION Gov13 \l 2057 ]

In addition, the government provided a safety net for the unemployed by

introducing a nationwide program called the Benazir Income Support
Program (BISP) which aimed to fight the adverse impacts of financial
volatility on the population under the poverty line. One of the goals of
this program was to provide regular cash assistant t and other
beneficiaries like health insurance skill training and so on. This safety net
spending increases from 0.3% of the GDP to 0.9% from 2004-2011 and
around to around 5 million benefited from this by 2015. [ CITATION Nat16 \l 2057 ]
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Pakistan Bait-ul-Mal (PBM) which entirely focuses on assisting the

poorest class of the country also initiated different programs during this
decade to help with the MDGs. Some of their measures included housing
schemes, food provision, child support and training programs, financial
assistance and so on. Similar efforts were also taken by the Punjab
government in the province of Punjab alone line Punjab Sasti roti and
Punjab food support scheme, however; these were just focused on one
single province which is not as deprived as the province of Balochistan
and Khyber Pakhtunkhwa.

All of these efforts did not do much for poverty by the end of 2015,
although the government was positive that there has been growing but
the decline in real GDP per capita, increases in malnutrition and the
wasting of children under the age of five and massive food insecurity said
otherwise. So, much cannot be said about the success of Pakistan in
improving poverty as the evidence which comes from these stakeholders
cannot be fully trusted and much independent research has not been
done. [CITATION Gov13 \l 2057 ]

CONCLUSION
Pakistan has been working to improve poverty conditions way before
signing the Millilumen development goals in September 2000, but it
remains a challenge for the country. Poverty largely is considered a rural
phenomenon, but urban poverty is also a big problem for Pakistan. The
strategies that Pakistan used before the 2000s were related to land
reforms and agricultural growth. The reason for these strategies was to
boost the economy and GDP, which would, in turn, improve poverty
levels. Not only did these reforms had limited success as Pakistan
government failed to keep a follow-up system in place but also the
distributed land was too small as compared to the population in rural
areas. During the decade of the 2000s the country was affected by
political instability, natural calamities and economic imbalances [ CITATION
Ami15 \l 2057 ]. The environmental factors like severe drought, flood, and
earthquake resulted in weak performance of agriculture sector which
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reserves any improvement the country made during the last two decades
[ CITATION GMA12 \l 2057 ].

In addition, when the government did plan to implement the MDGs goals
with strategies, like Poverty Reduction Strategies Paper (PRSP), the
institution responsible for them did not take ownership of these
programs. There was further tension between each federating unit came
up with their own policies without a proper benchmark in mind and no
proper system of operations after the implementation of the policies. The
lack interprovincial coordination created a real problem, and it was
further worsening when only a few provinces were given attention while
overseeing the states that needed this attention.

It can be concluded that even though poverty fell between 2002-2006

that was a short-term impact of higher growth at that period and it was
back by American aid that Pakistan enjoyed during that period. However,
after the start of by 2008 this reduction slowed down with economic
growth and inflation increased. Poverty reduction has been fluctuating
and is very sensitive to political and economic which makes it clear that
growth is essential for poverty to reduce. Based on the above analysis it
is clear that the MDG target related to poverty reduction was not met as
the economy suffered especially after 2008 and the growth was very slow
till 2015.

REFERENCES

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https://knoema.com/atlas/Pakistan/topics/Poverty/Income-
Inequality/Income-share-held-by-lowest-20percent

(2013). Accelerating Economic Growth and Reducing Poeverty: The Road

Ahead. Secretariat Ministry of Finance Government of Pakistan.
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ADP. (2019). Retrieved from

https://www.adb.org/sites/default/files/linked-documents/cps-pak-
2015-2019-pa.pdf

Amina Khan, A. N. (2015 ). Progress under Scrutiny Poverty Reduction in

Pakistan. . Development Progress .

Farooq, G. M. (2012). Poverty Reduction in Pakistan: Learning from the

experience of China. PAKISTAN INSTITUTE OF DEVELOPMENT
ECONOMICS ISLAMABAD, 23-28.

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Ministry of Finance. (2009). Retrieved from Pakistan Economic Survey:

http://www.finance.gov.pk/survey/chapters/13-Poverty08.pdf

(2015-16). National Poverty Report. Islamabad: Ministry of Planning

development and Reforms.

Pakistan Economic and Social Review. (2005). Retrieved from GROWTH

AND CONSUMPTION INEQUALITY:
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Pakistan millennium development goals. (2010). Retrieved from

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Poverty Survey. (2012). Retrieved from Ministry of Finance Of Pakistan:

http://www.finance.gov.pk/survey/chapter_10/09_Poverty.pdf

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9722-4AE2-ABC7-AA2972D68AFE/Global_POVEQ_PAK.pdf