POVERTY

A PROBLEM OF PAKISTAN

Submitted by: NS Awais Ashfaq Date: 17/11/2012 Institution: College of Electrical and Mechanical Engineering, NUST

CONTENTS
Introduction What is poverty A review of poverty situation in Pakistan Poverty Diagnostics
4.1 Trends in poverty after 1990-1991

Causes and Effects of Poverty Problem Present Economic Scenario and Problems Governments Poverty Alleviation Policies
6.1 Four pillared strategy for poverty reduction in Pakistan 6.2 Poverty Reduction Strategy Paper

Conclusion References Bibliography

Introduction
At the time of partition and independence in 1947, Pakistan inherited the most backward parts of South Asia with only one university, one Textile Mill and one Jute Factory. The country has made tremendous progress and its per Capita GNP remains the highest in South Asia. During the last decade poverty elimination programs helped many of the poor to participate and rise up. However the Global financial crisis and other factors like the occupation of Afghanistan have impacted Pakistani growth. Poverty in Pakistan has historically been higher in rural areas and lower in the cities. Out of the total 40 million living below the poverty line, 30 million live in rural areas. Poverty rose sharply in the rural areas in the 1990s [1] and the gap in income between urban and rural areas of the country became more significant. This trend has been attributed to a disproportionate impact of economic events in the rural and urban areas. There are also significant inhomogeneities in the different regions of Pakistan that contribute to the country's rising poverty. In the 1999 Fiscal year, the urban regions of the Sindh province had the lowest levels of poverty, and the rural areas of the North West Frontier Province had the highest. Punjab also has significant gradients in poverty among the different regions of the province. The North West Frontier Province of Pakistan was one of the most backward regions of the South Asian Subcontinent. Despite this, tremendous progress has been made in many areas. The NWFP now boasts several universities including the Ghulam Ishaq Khan University of Science and Technology. Peshawar, a sleep cantonment during British towns is a modern cosmopolitan city. Much more can be done to invest in the social and economic structures. NWFP remains steeped in tribal culture, though the biggest Pathan city is Karachi where the Pakhtuns are one of the richest classes of people. The Pakhtuns of the region are heavily involved in the transportation, lumber, furniture and small arts and crafts business. Some deal in cross border arms and drugs smuggling. This smuggling actively encouraged by the West and by Pakistan during the Soviet invasion of neighboring Afghanistan is intact and according to Western reports supported the Taliban regime. These and other activities have led to a breakdown of law and order in many parts of the region [2].

I have studied poverty in Pakistan very systematically. Second chapter starts with the basic definition of poverty. It can be stated in different ways. I also used relative terms to define poverty. Going ahead in third chapter, I tried to give a brief review of Economic situation of Pakistan in the past so that one can have the idea poverty in our country in different times. In fourth chapter, I collected some statistical data to diagnose poverty in Pakistan. Later in the chapter, I discussed how the trend of decreasing poverty was reversed after 1990/1991. Fifth chapter includes the causes of poverty, also the effects and problems caused by it. In the very next chapter six, I discussed the present Economic conditions of Pakistan and problems we are facing. The data collected is all latest and up-to-date in this chapter. After getting ourselves familiar with the poverty: A problem of Pakistan, I collected data and done some research on the Governments Poverty alleviation strategies in seventh chapter. Governments four pillared poverty reduction strategy is also included. Finally I made a conclusion in chapter eight. Ninth chapter includes all the references used in this whole research and study. The last chapter is Bibliography. All the sources from where the material for all this research is taken are listed in alphabetical order. There were some limitations I faced during all this research work. The topic was quite broad and it was very difficult to cover all its aspects in the given time. Secondly there was different data and statistics present in different sources so it was very difficult to include facts which were authentic. Another limitation was that latest data was not available readily in this topic. I tried my best to gather all the latest and authentic data but some of the information was dropped due to not having proper reference. In the end, I would like to thank my father Lt Col Imtiaz Ahmed who helped me with this project. He provided me all the facilities and useful information regarding the topic. I am also very grateful to Professor Noorul-Islam for his valuable contribution. He is currently teaching Pakistan Studies to Intermediate classes in Cadet College Hasanabdal. I would also like to thank NS Abdul Rafey Aftab and NS Awais Ashfaq who always gave wonderful suggestions to me for improving this research work.

WHAT IS POVERTY
Poverty is a condition in which a person or community is deprived of, or lacks the essentials for a minimum standard of well-being and life. Since poverty is understood in many senses, these essentials may be material resources such as food, safe drinking water, and shelter, or they may be social resources such as access to information, education, health care, social status, political power, or the opportunity to develop meaningful connections with other people in society. Poverty may also be defined in relative terms. In this view income disparities or wealth disparities are seen as an indicator of poverty and the condition of poverty is linked to questions of scarcity and distribution of resources and power. The definition and measurement of poverty have evolved over time. The periodic changes in the definition stem from the variation both across time and space in the description of what constitutes socio-economic wellbeing. The ability of meeting the costs of minimum nutritional requirements is the most important component of the basic needs approach to the measurement of poverty[3]. This definition has been strengthened by including socio-economic indicators of well being such as high rates of morbidity and mortality, prevalence of malnutrition, illiteracy, high infant and maternal mortality rates. Most elements of these aspects of poverty are based mainly on economic considerations. Consequently, many of these indicators are quantifiable. Recently, the definition of poverty has been further broadened. New definitions incorporate problems of self-esteem, vulnerability to internal and external risks, exclusion from the development process and lack of social capital. The new additions to the definition of poverty capture the qualitative aspect of socio-economic well being. These definitions also influence the design of pro-poor policies for economic growth, public expenditures,

safety net programs and tools for assessing the impact of programs and projects on poverty reduction. Generally poverty is a result of many and often mutually reinforcing factors including lack of productive resources to generate material wealth, illiteracy and prevalence of diseases, natural calamities such as floods, drought and manmade calamities such as wars. With increasing urbanization expected in the coming decades, the number of poor in urban areas, mainly the unemployed and those engaged in the informal sector, will grow faster and thus turn poverty into an urban nightmare from the currently observed rural phenomena. At the international level, an unequal economic and political partnership, as reflected in unfavorable terms of trade and other transactions for developing countries is also a major cause of poverty in developing countries. Some causes of poverty are not direct, for example, traditions and norms which hinder effective resource utilization and participation in income generating activities.

A Review of Poverty Situation in Pakistan

Pakistan's development had a promising start after Independence. Helped by large external resources Pakistan has been one of the worlds largest recipients of official development assistance since 1950. The country was able to grow at slightly over 2 percent per capita, tripling per-capita incomes between 1950 and 1999 and yielding substantial declines in poverty[4]. While this is an achievement compared to many stagnating low income economies, it is much below what other developing countries, such as those in East Asia, were able to achieve, and below Pakistans potential. More seriously perhaps, pervasive and deep problems of governance, growing public spending on defense and other unproductive programs, and insufficient focus on human development eroded the countrys institutions, weakened economic management, and created an increasingly unfavorable investment climate. In the 1990s, these problems were compounded by external shocks and exacerbation of

governance problems. Most of the decade was lost in stop and go stabilization reform programs which deteriorated further an investment climate already weakened by a turbulent and uncertain political environment, ambiguous government commitment to free markets and erosion of accountability and integrity in the major institutions of the state. Of particular concern is the fact that Pakistans social indicators remain below those in countries at similar levels of income. Internal differences in poverty and human development have also persisted over time, or widened among regions, between rural and urban areas, and between women and men. Pakistans social indicators, including infant mortality, life expectancy, female primary and secondary enrollment are today among the lowest in the world. A major effort started in the early 1990s to improve public sector social service provision through an 8-year long effort called the Social Action Program (SAP), in part financed by external development agencies, which has so far been unable to achieve its targets on a number of focus areas. The problem of absolute poverty is obvious. No civilized people can feel satisfied with a state of affairs in which their fellow being live in conditions of such absolute human misery, which is probably why every major religion has emphasized upon the importance of working for poverty alleviation and is at least one of the reasons why international development The fight against poverty represents the greatest challenge of our times. Considerable progress has nevertheless been made in different parts of the world in reducing poverty. The proportion of people living in extreme poverty on global level fell from 28 percent in 1990 to 21 percent in 2001 (on the basis of $1 a day)[5]. In absolute numbers the reduction during the period was 130 million with most of it coming from China. In Sub-Saharan Africa, the absolute number of poor actually increased by 100 million during the period. The Central and Eastern Europe and the CIS also

witnessed a dramatic increase in poverty. While incidence of poverty declined in South Asia; Latin America and the Middle East witnessed no change. In Pakistan, Poverty Reduction Strategy was launched by the government in 2001 in response to the rising trend in poverty during 1990s. It consisted of the following five elements: Accelerating economic growth and maintaining macroeconomic stability, Investing in human capital, Augmenting targeted interventions; Expanding social safety nets; and Improving governance.

The net outcome of interactions among these five elements would be the expected reduction in transitory and chronic poverty on a sustained basis. The reduction in poverty and improvement in social indicators and living conditions of the society are being monitored frequently through largescale household surveys in order to gauge their progress in meeting the targets set by Pakistan for achieving the seven UN Millennium Development Goals by 2015. The revival of strong growth and doubling of real public spending over the last six years, after the stagnation of a decade, has expanded employment, resulted in some increase in real wages and reduced poverty incidence. The extent of reduction in poverty incidence over 2005-09 is a matter of some debate but there is little disagreement that poverty has declined in recent years. This is hardly surprising considering especially the strong agricultural growth in recent years. The more interesting question is why poverty reduction has not shown a clear downward trend since 1990.

Obviously greater progress in poverty alleviation would have been possible but for the inherent inequalities promoted by the existing power and asset structures, a tax system that does not generate sufficient revenue to fund poverty programs adequately and a labor market that has yet to fully exploit opportunities offered by labor intensive exports. Rural poverty and growing differences in income between rural and urban areas are a matter of growing concern. According to government numbers, the rural poverty incidence in 2008 was at 24 percent[6] was almost double the rate of urban poverty. Surely the high incidence of rural poverty in a bumper crop year cannot be the basis of much satisfaction. Reducing poverty incidence and increasing the access of the poor to basic public services in the rural areas is, however, only one dimension of Pakistan's distribution problems which are reflected in growing income inequalities and regional differences. It seems that the current high growth is deepening inequalities more dramatically than was the case in the earlier high growth periods of 1960s and 1980s because the growth of incomes of the relatively well to do is being fuelled greatly by extraordinary booms in the real estate and stock market. As mentioned above, the economic rents in the private sector have not disappeared. Though it is difficult to quantify the impact of this factor, it does exacerbate income disparities.

Containing of income and consumption disparities as well as steady reduction in poverty especially rural poverty needs to be built in more explicitly as an integral part of the future economic strategy because clearly the issue of the distribution of growth benefits has assumed more urgency with economic liberalization and greater role for the private

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sector. The distribution problems have distinct dimensions in rural and urban areas, with poverty being much more of a problem in rural areas and growing income disparities much more of a problem in urban areas. In rural areas the share of consumption of the highest quintile to the lowest quintile was only two only 2.2 in 2004-05 and had changed little since 2000-01[7]. But as mentioned above, rural poverty is widespread and nearly 80 per cent[8] of Pakistan's poor live in rural areas. In contrast urban areas account for little over 20 per cent[9] of the poor. But in urban areas consumption disparities are huge and growing.

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POVERTY DIAGNOSTICS
Poverty in Pakistan is a major economic issue. Nearly one-quarter of the population is classified poor as of October 2008. The declining trend on poverty in the country seen during the 1970s and 1980s was reversed in the 1990s by poor Federal policies and rampant corruption
[10]

. This

phenomenon has been referred to as the "Poverty Bomb. The government of Pakistan has prepared an "Interim Poverty reduction Strategy Paper" that suggest guidelines to reduce poverty in the country. According to the world bank, the program has had tangible success, with the World Bank stating that poverty has fallen by 5 percent since 2000[11]. Incidences of poverty in Pakistan rose from 2226% in the Fiscal Year 1991 to 3235% in the Fiscal Year 1999[12]. They have subsequently fallen to 25-28%[13] according to the reports of the World Bank and UN Development Program reports. These reports contradict the claims made by the Government of Pakistan that the poverty rates are only 23.1% . Poverty has remained stagnant in the 1990s. National poverty head-count rate changed from 29.3 percent in 1993- 94 to 32.2 percent in 1998-99 [14] according to calculations based on the calorie-based poverty line used by the Federal Bureau of Statistics (FBS), and from 28.6 percent to 32.6 percent over the same period (head-count in 1990-91 was 34 percent) according to calculations based on the basic need-based poverty line used by the World Bank[15]. While urban poverty has fallen, rural poverty has shown little improvement between 1990-91 and 1998-99 according to either calculation, which implies a widening of the rural-urban gap over the 1990s. This is of particular concern because 71 percent of Pakistanis live in rural areas. The incidence of rural poverty is closely associated with lack of ownership of agricultural land. The poor are also less able to diversify their agricultural production and are thus more susceptible to economic shocks. As in other South Asian countries, large family sizes, low

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level of educational attainment and outcomes in health constrain the poors ability to get out of poverty. Gender differences remain substantial in all measurable outcomes, particularly in education and health.

4.1 TRENDS IN POVERTY AFTER 1990/91

Assessing trends in poverty after 1990/91 is difficult because no data on the distribution of household consumption (or income) are available at this time. In the three-year period from 1990/91 to 1993/94, the annual rate of increase of private per capita consumption in real terms was about 3 percent[16] according to the national accounts. If the household distribution of consumption had remained unchanged after 1990/91, growth of private per capita consumption at this rate would have resulted in a decline in poverty (as per the previous reference poverty line). Poverty incidence could have declined quite a bit, because in 1990/91 there were many households below but in the vicinity of the poverty line. The limited data available on wages of unskilled workers suggest that these wages may have increased somewhat, in real terms but not significantly, after 1990/91; in fact, wages of unskilled construction workers in Karachi appear to have declined (World Bank 1995). However, it is difficult to hypothesize that income distribution since 1990/91 remained unchanged. The geographic disaggregation of consumption poverty estimates is constrained by the relatively small sample size and design of existing household surveys. Disaggregation is possible at the provincial level and for urban and rural areas within each province for 1990/91 and 1991. It is also possible to disaggregate the estimates for rural Punjab, which account for well over half of all rural observations, into "south" and "north". The relevant estimates of poverty incidence based on the reference poverty line are presented in Table 4.2 below from the surveys

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namely, the HIES 1990/91 and the Pakistan Integrated Household Surveys (PIHS) 1991 (World Bank 1995). In another study, estimates of poverty (rural and urban) have been made for Pakistan as a whole and for various provinces. These estimates are based on different poverty lines for the years 1984/85, 1987/88, and 1990/91. Because of a lower poverty line, the percentage of poor people is much lower than in the World Bank estimation. Also, changes in the incidence of poverty over time are different between the two sets of estimates. In the World Bank estimates, there is a consistent decline in the incidence of poverty for Pakistan as a whole between 1984/85 and 1990/91. In the Naseem et al. study, there is a decline in the incidence of poverty between 1984/85 and 1987/88, following a similar trend as in the World Bank study; but between 1987/88 and 1990/91, decline continues until 1990/91 according to the World Bank, whereas in the Naseem et al. study, there is an increase in the incidence of poverty between 1987/88 and 1990/91[17]. As between regions, there are also differences in the movement over time in the incidence of poverty. While it declined consistently in Punjab and Balochistan, there is an increase in the incidence of poverty over time in two other provinces. This is true not only for all overall poverty indexes, but also for the rural and urban areas separately.

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4.2 Poverty in Pakistan 1984-85 to 1990-91

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Causes of Poverty
Pakistan is a poor country. Its economy is facing fluctuations now a day. At the time of independence Pakistan has very low resources and capital, so the processes of progress were very slow. Unfortunately the politicians of Pakistan were all not well aware of modern global system and the progress processes and the needs of country. Due to bad policies today Pakistan is facing a lot of problems. The continuous failure of policies leads the people of country to miserable conditions. The major problem in the country is poverty which is becoming the cause of crime and social disorder. It is difficult to point out all causes of poverty in Pakistan but the major causes of are given below:

Government Policies:
Government is not well aware of present conditions of country. The policies of government are base on the suggestions of officials which do not have awareness about the problems of a common man. After implementation the policies do not get effective result. After the failure of one policy, government does not consider its failure and announces another policy without studying the aftermaths of last one. Heavy taxes and unemployment crushes the people and they are forced to live below poverty line. The suitable medical facilities are not provided to people and they are forced to get treatment for private clinics which are too costly.

Corruption:
Another cause of poverty is corruption. There are two types of corruption. There is not morality and every one is trying to earn more and more by using fair and unfair means. Officials waste their time has low efficiency. Only one relationship that is exists in society is money. One has to pay a heavy cost to get his right. Law and order conditions are out of control and institutions are failed to provide justice to a common man. Justice can be bought by money only. But government is unable to control such type of things. In this whole scenario some corrupt people has been occupying the resources and common man is living in miserable conditions.

Division of Agricultural Land:

Pakistan is an agricultural country. Most of people are farmers by profession. One has land which is fulfilling the needs of his family but he has to divide the land into his children when they got young. After division the land is not sufficient to support a family. Now the families of his children are suffering and spending their lives below poverty line.

Materialism:

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In our society social bonding are gradually becomes thinner and thinner. A race of material object has been started even no one tried to understand the problems of others. Every one is gradually changing from human to a bioman which only know about his needs and have no concept about the limitations of others. People are not ready to help each other. At last every one has lost his trust on others which affect our social and economic system and it is another cause of poverty. Lack of Education: The literacy rate of Pakistan is very low. Most of people do not have any concept about the modern earning sources. Most people are unable to adopt technology for their business needs, thats why business does not meet international standards and results as decrease in revenue which leads the society to poor financial conditions. Large Scale Import: The import of Pakistan is greater than export. Big revenue is consumed in importing good every year, even raw material has to import for industry. If we decrease import and establish own supply chains from our country natural resources the people will have better opportunities to earn. Law and Order: There are lot of problems regarding law and order. Terrorist attacks create uncertainty in stock markets and people earning from stock are getting loss due to which the whole country faces uncertain increase in commodity prices. Fluctuated Foreign investment: Foreign investor comes to local markets. They invest millions of dollars in stock markets and stock market gets rise in index. Then the investor withdraws his money with profit and market suddenly collapses. The after math always is faced by poor people. Privatization: Government is unable to manage the departments and country has low reserve assets. So the meet the requirements some companies run by government are sold to foreign investors. The commodities or services provided by the companies are becoming costly. For example if government sold a gas plant then prices for gas in country rises. Moral Culture: The main reason for poverty is the social dishonesty and irresponsible behavior of people. Every one is trying to get rich by using unfair means. A shop keeper is ready to get whole money from the pocket of customer. People doing jobs are not performing their duties well. In society the man considered brave or respectful who do not pay taxes or continuously violate the laws. This irresponsible behavior continuously increases and produces loss for county.

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EFFECTS OF POVERTY
Poverty is one of the major social problems Pakistan is facing. It is one of the most important and sensitive issue not only for our self but for the whole world. Poverty can cause other social problems like theft, bribe, corruption, adultery, lawlessness, injustice. To eradicate the evils of society we have to fight with poverty. We can't control theft by enrolling thousands of police men. Corruption and injustice can't come to an end through tight legislation but by demolishing poverty. A low level of domestic income for an individual results in lack of access to education, health care, and other communal facilities like lake of sanitation, transportation and communication. The poverty of thought is the major social problem. To eradicate poverty in Pakistan we have to fight with the causes and factors of poverty. Unless the causes and factors of poverty will be settled the poverty will never end.

Poverty cause inflation in the economy

The global growth recession is projected to cause inflation to ease. The rapid rise of food and energy prices over the course of 2007 and the first half of 2008, coupled with tight capacity in many countries (following years of very fast growth fueled by ample liquidity) caused headline and core inflation to pick up throughout the world. Headline inflation increased by 5 percentage points or more in most developing countries and more than half of developing countries had inflation rate in excess of 10 percent by the middle of 2008[18].

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Poverty and the rise of Islamic fundamentalism

Trends in Poverty - Sources

The rise of poverty in the country has been correlated with the rise of Islamic Fundamentalism in many parts of the country. The Pakistani government's 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". Madrassa education is offered on the pretext that they provide better education than the other schools. They study in a religious environment that has been radicalized by the world-sponsored exposure of the "Holy Jihad" in Afghanistan. Poverty and the lack of a modern curriculum have proved destabilizing factors for Pakistani society that have been exploited by religious organizations banned by the government to run schools and produce militant literature. Though many madrassas are benign, there are those that subscribe to the radicalist branches of Sunni Islam. As a result, Islamic political parties have become more powerful in Pakistan and have considerable sympathy among the poor. This phenomenon is also pronounced in the North Western Frontier Province. The clergy have become more powerful in Pakistan and have considerable sympathy among the poor.

Feudalism
Pakistan is home to a large feudal landholding system where landholding families hold thousands of acres and do little work on the agriculture themselves. They enlist the services of their serfs to perform the labor of the land [19]. 51% of poor tenants owe money to the landlords. The 19

landlords' position of power allows them to exploit the only resource the poor can possibly provide: their own labor.

Poverty cause population explosion and illiteracy forcing for economic suicides
40% of Pakistans population lives below poverty line and any rise in inflation effects this group the most. But it is the same group that has been ignoring the fact that small families can help them cope there problems more effectively.

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PRESENT ECONOMIC SCENARIO AND PROBLEMS

There is a general perception in the country that the economy is on the road to recovery. But on the other hand, the ongoing global economic and financial crisis, also, with the deteriorating law and order situation, and furthermore, the continuous energy shortages in the country can be concluded as the real risks to macro-economic situation. The latest report by the ministry of finance stated, that the fiscal deficit target, 4.3 per cent[20] of GDP (Gross Domestic Product), and the current account deficit target of 5.9 per cent[21] of GDP were achievable. This can also be verified from the current studies undertaken by the IMF (International Monetary Fund) and the World Bank. It also stated that the global economic recession was affecting our economy in various ways, such as the volumes of exports and FDIs declined substantially, which can also be verified in the current reports by the State Bank of Pakistan. Despite the financial support from the IMF and other bilateral and multilateral donors, Pakistans external account remains dire. Other reasons for why economic growth remained weak was because of the declining ratios of tax collection, low inflows of foreign direct investments and the delayed and diminishing privatization process. Signs of recovery The report also shows some signs of improvement in economic variables such as the stabilization in the inflation rate, also, a significant increase in the build-up of foreign exchange reserves, which recovered from a low of $3.5 billion on October 31, 2008 to $7.8 billion on April 17, 2009[22]. Furthermore, import compression and net zero government borrowings from the State Bank of Pakistan by the end of April are evident. The IMF, satisfied with the progress made by the government in stabilizing the economy, agreed to release the second tranche of its $7.6 billion[23] assistance programme. There were also some indications that the amount/assistance available to Pakistan could be increased further, if the country continues to proceed on the track it has been following. Other variables in the economy which have also shown various signs, they include the following: (a) GDP growth As stated in the report the GDP will be in range of 2.5 per cent to 3.5 per cent[24]. Agriculture ratio to GDP will be positive which is based upon anticipated high wheat crop and above target growth of minor crops including a reasonably good outturn by the livestock sub-sector. (b) LSM It is projected that large-scale manufacturing (LSM) ratios will be negative due to many local and international reasons. It depicted a negative growth of 5.73 per cent during July-Feb 2008-09 as against 5.27% positive growth

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last year[25]. The economic recession and cost of production has deficiently affected the LSM growth. (c) Agriculture sector The agriculture sector is likely to achieve its growth target of 3.3 per cent for the current year. According to the report, all livestock products witnessed an increase in prices and thus the target of 3.2 per cent would be achieved as the demand for livestock products was growing at a phenomenal pace. Moreover, disbursement of credit to the agriculture sector by commercial and specialized banks has increased by Rs13.3 billion (9.6 per cent) on a yearly basis to Rs151.9 billion during nine months of the current fiscal year from Rs138.6 billion from the corresponding period of the last fiscal year which is instrumental to achieve macro-economic goals[26]. (d) Services sector The service sector showed some resilience in the current fiscal year. The banking and financial sectors of the country showed substantial growth which would contribute a positive impact on the economy in the near future. (e) Inflation The ongoing global inflationary pressures continue to affect the economies of Thailand, India and Pakistan. Despite the diversified but integrated efforts of the government and SBP the country still faces a high double-digit inflation rate. The manipulators, weak regulatory bodies, poor execution of laws and the withdrawal of subsidies were the main causes of high inflation ratios in the country. It is expected that the average inflation for the year (2008-09) as measured by the CPI will be close to 20 per cent[27]. (f) Capital market It seems that the stock exchanges of the country are on the road to recovery but their sustainability factor is still questionable. The local bourse remained buoyant throughout the month of March 2009. The recovery phase of the premier stock exchange after floor removal has been hopeful and an outstanding performance has made it one of the best performing markets of the world in 2009, as in the past six weeks Pakistani capital markets value has improved by 20 per cent[28] . (g) Fiscal management Due to many internal adjustments (cut in development spending), integrated financial policies/reforms (reduction of oil subsidies) and other external factors such as loan facilities from the IMF, pledges from the friends of Pakistan forum and record worker remittances. The fiscal health of the country is improving and the government received Rs141.1 billion in gross external inflows against outflow of Rs104.1 billion which means net availability of Rs37 billion[29]. Pakistan is geared up to keep trade

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deficit to 4.3 per cent of GDP and current account deficit within the range of 5.9 per cent. (h) Tax collection Tax revenue collected by the Federal Board of Revenue (FBR) stood at Rs813.6 billion (net) during the first nine months of the current fiscal year (2008-09) compared with Rs679.9 billion in July-March (2007-08) posting a healthy increase of 19.7 per cent. But it is again seemed that the tax revenue target of Rs1250 bn may not be achieved during the current fiscal year, as the federal government has already lowered its targets of tax collection in the ongoing fiscal year[30]. (i) External sector According to the report the external sector has shown some signs of improvement. The current and trade account balance has improved. Worker remittances (according to the SBP in April, the overseas workers sent the highest ever amount of $739.43 million surpassing the December 2008 record of $673.50 million. The remittances were also higher by 22.79 per cent over the previous month) were on the peak despite the substantial decrease in the ratios of FDI and FPI[31].

(j) Current account balance

The CAB decreased by 20.8 per cent during July-March 2008-09. Current account deficit shrank to $7.6 billion during this period as against $9.6 billion during the same period of last year[32]. What Pakistan probably needs is an investment driven current account deficit neutralized to some extent by rising savings level.

(k) External debt

External debt and liabilities (EDL) stood at $49.7 billion or 30.7 per cent of the projected GDP for the 2008-09 at the end of March 2009 which is higher than end-June 2008 stock of $46.3 billion or 27.6 per cent of GDP[33].

(l) Rise in public debt

According to the ministry of Pakistan our public debt is expected to increase by over Rs2 trillion by the end of 2008-09, the highest ever in a single year. Public debt is estimated to cross Rs7,931 billion by end June 30, up by 34 per cent from Rs5,901 billion in 2007-08 because of massive depreciation in the value of the rupee, and external loans obtained for budgeting the balance of payments. Furthermore, foreign currency debt will reach Rs 4,811 billion and domestic currency debt to Rs3,120 billion by the end of June 2009. Public debt share as percentage of GDP will rise to 59 per cent during the year ending June 2009 from 56.3 per cent in the last financial year. It will be in violation of the fiscal responsibility and debt limitation (FRDL) act 2005, which calls for gradual reduction in public 23

debt. The rupee depreciation in the first quarter has an impact of Rs447 billion on the stock of public debt. The significance of this depreciation effect is highlighted by the fact that even though the stock of foreign currency debt has gone down in dollar terms by $400 million, there has been an increase in rupee terms of Rs414 billion in the first quarter. The depreciation of the rupee against the dollar has been responsible for approximately 66 per cent of the total increase in public debt, as stated in a debt policy report submitted to the National Assembly[34]. Concluding remarks The review of economic situation for the first nine months of the current fiscal year released by the ministry of finance can be a wakeup call for the policy makers, as the present review reflects an objective assessment of the macro-economic situation. For a sustainable growth, the government needs to pursue the permanent reform processes and resist in slowing them for short-term political gains.

GOVERNMENTS POVERTY ALLEVIATION POLICIES

Eradication of poverty and reduction in inequalities of income and nonincome indicators is one of the crucial pillars of Vision 2030. A society that is educated, healthy, and is mostly not-poor and equitable, will be resilient to shocks, and would be the best basis and guarantee of a wellfunctioning knowledge economy. Another important aspect of the poverty reduction strategy is employment generation for the poor. In this regard, expenditures on roads and highways, the most labor-intensive sector, constitute the major share in community services. The strategy going forward as enshrined in the Poverty Reduction Strategy Paper for the medium-term (2007/08 2008/09) aims at forging a broad-based alliance with civil society in the quest to alleviate poverty and accelerate development. The complex and multi-dimensional nature of poverty warrants that strategies for poverty reduction encompass plans for rapid pro-poor economic growth, sound macroeconomic management, structural reforms, and social inclusion. The strategy is being enriched by the on-going process of dialogue with civil society and the poor.

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The strategy places considerable emphasis on taking advantage of the opportunities offered by globalization. Pakistans Poverty Reduction Strategy is underpinned by the following considerations: Continuing to ensure macro-economic stability and sustained high and broad-based economic growth by taking advantage of the opportunities offered by globalization, while at the same time unleashing the potential of domestic commerce, reducing inequalities and maximizing employment generation Directing public policy debate towards the needs of the poor Bringing about an effective transformation of society, by forging partnerships and alliances with civil society and the private sector Understanding the nature of poverty, and using that as a guide for all public actions Empowering the people, especially the women and the most deprived, by increasing access to factors of production, particularly land and credit.

Given the significant resources required to fund the Poverty Reduction Strategy (PRS), the Government has prioritized the PRS through the Medium Term Expenditure Framework (MTEF), which has been used to inform the budget.

6.1 Four pillared strategy for poverty reduction in Pakistan

1. Macroeconomic Stabilization and resumption of growth: The first pillar of this strategy is macroeconomic stabilization and resumption of growth. By 1999, the public debt of Pakistan had become unsustainable, public debt servicing pre-empted more than half of the revenues, and external and domestic debt exceeded the countrys GDP.

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The country had faced a full payments crisis in 1998, investor confidence in the economy was at lowest ebb, links with international financial community were disrupted, and the reserves were so low that the country was at the brink of default. This situation had to be rectified and a credible economic program had to be put in place to get the economy out of the crisis and back on the track. The results of this effort three years later are obvious to every one. Inflation is less than 4 percent, fiscal deficit has been brought down to 5 percent, external debt indicators have improved, public debt servicing has declined, domestic interest rates have reached all time low, exchange rate is stable and appreciating, exports are growing at annual rate of 16 percent, tax revenues have exceeded their targets, and foreign reserves are touching about $12 billion or almost a years imports[35]. This all round and broad based improvement in macroeconomic indicators has led to up-gradation of countrys credit rating. Macroeconomic stabilization is the foundation upon which resumption of economic growth can take place. 2. Improved Governance: The second pillar of the strategy is improved governance. The key ingredient of the governance agenda is the devolution plan whereby administrative, functional and financial responsibilities for delivery of social services are delegated to the district governments. Demand-driven development projects will be planned and executed by the direct beneficiaries rather than thrust upon them by the government agencies working from the Provincial and Federal headquarters in splendid isolation. The other practices which have been adopted are accountability, transparency, and predictability and level playing field for all the players. Discretionary powers have been curtailed and rules and regulations are enforced. Merit-based appointments have become the norm and even Assistant Sub Inspectors of Police are selected through Public Service Commission. No SRO has been issued to favor one single individual or group to the disadvantage of others. Civil Service, Police and Judicial reforms have been initiated but will take a long time to come to fruition. 3. Structural Reforms: Structural reforms form the third pillar of the strategy. Broad based reforms in tax administration, trade liberalization, financial sector and privatization form the core. In tax administration, Central Board of Revenue is being restructured, tax net and tax base are being widened and the direct contact between tax collector and tax payer is being eliminated. Trade liberalization has resulted in tariff rationalization, removal of various restrictions from exports and imports and deregulation. 26

Financial sector reforms have already resulted in a sound and healthy banking system, a buoyant stock market, a growing corporate debt market, a streamlined non banking financial institution structure and strengthening of supervision and regulation. Privatization process has been provided a legal framework under which transactions take place in an open and transparent manner.

4. Poverty Targeted Interventions: The fourth pillar of the strategy is poverty targeted interventions. The prominent among them are Education Sector Reforms, Health for all, Population planning, Zakat, Khushali program for employment generation and works program, Food Support program and Khushali Bank. While Education, health and population planning cover the entire population the other interventions are targeted at the poor. Zakat program has been revamped to provide financial grants to the beneficiaries to start small enterprise or other income generating activities. Food Support program is aimed at subsidized wheat flour to those below a certain threshold of monthly income. Khushali program is allocated to the local governments to create and improve physical infrastructure and also generate employment. Khushali Bank is a micro finance institution which provides small loans to the poor under supervised group guarantee scheme. All these initiatives have begun to take shape in the last four or five years and it will take some time before they start yielding dividends.

6.2 Poverty Reduction Strategy Paper

Poverty Reduction Strategies (PRSs) are country-owned and participatory, taking into account the views of Parliament, line ministries, development partners, civil society and specifically the poor themselves. The PRSPs are comprehensive and recognize the multidimensional nature of the causes of poverty. They highlight strategies to alleviate poverty and acknowledge the need for a coherent macroeconomic framework to support them. The PRSPs also base themselves on both medium and long term perspectives, including appropriate monitoring indicators against which progress could be measured. The PRSP approach, thus, aims to provide the crucial link between national public actions, achievement of socio-economic outcomes, and assistance from development partners for the attainment of the United Nations Millennium Development Goals (MDGs), agreed at the Millennium Summit (September, 2000), which are centered on halving poverty by 2015.

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The PRSP formulation process took off in Pakistan with the finalization of the Interim Poverty Reduction Strategy Paper (I-PRSP) in November 2001, which after further refinement was evolved into the Poverty Reduction Strategy Paper (PRSP) in December 2003 for the period up till 2006. The PRSP since then has been the key strategy document of the government for social development of the country. With the PRSP-I having successfully completed its three years of implementation in 2006, the next step in the ongoing process inevitably was the compilation of its successor the PRSP-II. The PRSP-II draws upon lessons learnt from the implementation of the PRSP-I and takes into account recent political, economic and social events, both domestic and international, which have considerable development impacts for Pakistan. The National PRSP Implementation Committee oversees PRSP policy reforms, evaluation of their impact, and appropriate adjustments (as required) in the policy regime. To assist this Committee, the government in 2000 established a PRSP Secretariat. Their main objectives are:

1. Maximizing the Gains from Globalization

Globalization is a multi-dimensional process which impacts all aspects of life, be it economic, social, cultural, or political. For globalization to lead to poverty reduction, domestic enterprises need to be increasingly competitive in the international market. This requires increased efficiency and upgrading skills of the labour force to improve its level of human capital. It requires the enforcement of quality control and standards. For domestic enterprises to be competitive in the global economy, good investment climate is essential, in which firms can start up, grow and prosper. 2. Trade Liberalization and Export Promotion The Government has implemented a comprehensive program of trade reforms gradually moving the economy away from protectionism towards greater trade openness and global economic integration. The Government has been taking a number of defensive trade measures in the context of WTO to protect the domestic industry against the dumping of cheap and illegal imports. Sustained export performance is a key priority. Towards this end, the Government is making efforts in the areas of trade facilitation, WTO related issues, export promotion and diversification, and extension of export promotion zones and industrial clusters. The Governments policy

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will focus on measures to sustain textile exports and promote other sectors that are not yet capable of exporting. The Government is committed to liberalize and deregulate Pakistans trade and widen the export base through further strengthening of industrial activity and strong institutional supply side measures. The trade policy continues to focus on value addition for sustainable growth in export earnings. 3. Employment Generation and Poverty Reduction Economic growth has been quite robust during the tenure of PRSP-I (200306). The growth momentum is likely to continue in the medium-term. In order to maximize the poverty reduction impact of growth it needs to be aligned with an employment strategy that can ensure that growth is broad-based. Certain sectors of the economy are critical for sustained employment generation and growth leading to poverty reduction and improved income distribution. These sectors include, in particular: Agriculture (agroindustry, agri-business and livestock) and water sector development, Small and Medium Enterprises (SMEs), and Housing and construction sector. Nearly 67 percent of the people live in the rural areas and majority of them are dependent on agriculture for their livelihood. Therefore, agriculture will continue to receive highest attention. The rural sector also comprises a large and expanding non-farm sector where employment generation is crucial. This also has the beneficial impact of strengthening the farm and non farm linkages and enhancing growth through the multiplier effect. New jobs can be created by accelerating growth in agriculture and by increasing the area under cultivation, raising crop yields, diversification of cropping patterns, production of high value crops such as fruits, vegetables, flowers, etc. Livestock has high potential for job creation and income generation as well. The SME sector has an enormous employment generation potential. This extends to SMEs in both the urban and rural areas. In order for SMEs to play their due role a comprehensive package of venture capital, credit, liberalization of controls, technology and skill up-gradation, marketing and management advisory services is needed. The SMEs in the rural areas are best placed to create new job opportunities and for income generation. SMEs can easily be involved in a number of profitable ventures such as fruit and vegetable processing, dairy and livestock, floriculture, fisheries, transportation of agriculture products and their marketing. The growth

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strategy in the MTDF provides for incentives to promote the whole host of crucial requirements identified above for the promotion of the SMEs. The housing and construction sector has received greater attention for employment creation in both the PRSP-I as well as the MTDF. It has been identified that this sector has linkages with about 40 building material industries. Moreover, this sector helps to further support the investment climate through its overall impact on the economy. Given its strong background and forward linkages and large employment potential effects, this sector is crucial for reducing poverty by generating job opportunities for the poor. Equitable growth requires development and implementation of policies which will positively impact all segments of the society in proportion to their requirements. Employment opportunities need to be created in rural and urban areas, farm as well as non-farm, and for men, women and youth. 4. Micro-Finance Microfinance plays a critical role in improving the lives of the poor people. The poor use financial services not only for business investment in their micro-enterprises but also to invest in health and education, to manage household emergencies, and to meet the wide variety of other liquidity needs that they encounter occasionally. Evidence from the millions of microfinance clients around the world demonstrate that access to financial services enables poor people to increase their household income, build assets and reduce their vulnerability to the crises that are so much a part of their daily lives. In the context of Pakistan, the use of micro-credit holds importance for both the agricultural and non agricultural sector. The need for credit is particularly important for poor farmers. Their requirement for agricultural inputs, seeds, fertilizer, pesticide etc. tends to be cyclical as does their income. However the two cycles do not always coincide. Rural loans for non agricultural purposes include such things as micro enterprises in unorganized sectors of rural economy. Realizing the importance of microfinance as a tool of poverty reduction and social mobilization, the government has accelerated its efforts to establish strong foundations of microfinance in formal sector along with extending support to the informal sector (NGOs) as well. Khushali Bank (KB) was established as the first specialized microfinance institution in

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2000 and the Microfinance Institutions (MFI) Ordinance was promulgated in 2001 to provide a separate regulatory framework for microfinance institutions. As a result, during the last five years, four specialized microfinance banks (excluding KB) have started operation, which includes the First Microfinance Bank Limited (FMFBL) and Tameer Microfinance Banks working at the national level, the Rozgar Microfinance Bank Limited (RMFBL) and Network Microfinance Banks Limited (NMFBL) which are operating at the district level. In addition, the Pakistan Poverty Alleviation Fund (PPAF) has been working since 1999 as a distributor/ wholesaler of credit to the NGOs.

CONCLUSION
To conclude, Pakistan has built its poverty reduction strategy on the basis of its own historical experience and incorporated the lessons of global experience also. The strategy has the inputs of all stakeholders but it needs strong political commitment, real devolution of powers to grass roots level, a vibrant private public-community partnership for delivery of services, change in the bureaucratic values and norms and a focus on gender disparities. Pakistans poverty reduction strategy has yielded handsome result in the shape of sharp reduction in poverty. Although, poverty has declined but the fact remains that many people of Pakistan still live below the poverty line. Further reduction in poverty is a major challenge for the government. A clear lesson from the past four years of Pakistan and from other countries experience is that sustained growth on a consistent basis is needed to reduce poverty. Macroeconomic stability is, of course, a prerequisite for the sustained economic growth that brings the poverty reduction and rising living standards that we all want to see. But macroeconomic stability is not sufficient. Rather, it is the foundation on which to build a thriving economy. Successfully targeted social programs, fair and broad based fiscal regimes, labor markets that promote job creation, and high quality education opportunities for the neediest, are also key to poverty reduction. If these issues are resolved sooner than later we can embark on a path of sustainable poverty reduction. The broad based estimation of poverty suggested that the problem of poverty should not be tackled at national level or even provincial level by launching some uniform policies as it has been done in the past rather 31

some area specific policy matrix should be designed and resources be mobilized accordingly. One lesson is clear-cut that poverty is more a rural Phenomenon and until rural poverty is not mitigated, the dream of reducing overall poverty can not be materialized. It was further realized that drastic changes in the proportion of people below the poverty line has been occurring which was a clear indication of the fact that vulnerability of poverty was a common feature of Pakistans economy. It suggested that a small internal or external shock at monetary and fiscal level can abruptly change the status of poverty in the country. In this way, a two pronged policy initiative is required. First, opportunity box should be expanded by creating employment, water management, health, sanitation and education facilities for those who are already poor. Secondly, effort must be made to save the vulnerable poor by sustaining their livelihood pattern under shock scenarios resulted by yield and seasonal price fluctuations.

REFERENCES
1. Asian Development Bank report - online edition. 2. Pakistan is active in the Fight against Fundamentalism buzzle.com 3. Rein, M. Problems in the definition and measurement of poverty, The Concept of Poverty Heinemann, London. 4. Ahmed, E. and Ludlow, S. (1990), Poverty, Inequality and Growth in Pakistan, paper PSDE, Islamabad. 5.Asian Development Bank report on Poverty in Pakistan: Issues, Causes, and Institutional Responses Online Edition. 6. 2008 Global Poverty Project, 7. State and Pakistan economy: Where have we come from? Where do we go? - III PARVEZ HASAN (http://www.businessrecorder.com.pk) presented in sixth Annual General Meeting of

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8. Economic Survey of Pakistan 2008 Ministry of Finance, Pakistan 9. Ibid 10. http://southasia.oneworld.net/article/view/135153/1/1893. 11. https://www.cia.gov/library/publications/the-worldfactbook/geos/pk.html#People. 12. Poverty in Pakistan, 2006 By Qurat-ul-ain, http://qurratulain.wordpress.com 13. 14. Ibid. Population Census 1998 FBS, GOP Islamabad.

15. econ.worldbank.org 16. Zaidi M. A. (1992) Relative Poverty in Pakistan. The Pakistan Development Review. 17. Naseem, S. M. Rural Poverty and Landlessness in Pakistan. Poverty and Landlessness 18. https://www.cia.gov/library 19. PAKISTAN: Feudalism: root cause of Pakistans malaise - News Weekly www.unmc.edu/Community/ruralmeded/underserved/poverty_in_ pakistan.htm 20. www.finance.gov.pk/finance_economic_situation.aspx 21 34: Ibid 35. Economic Survey of Pakistan 2008.

BIBLIOGRAPHY
1. Ahmed, E. and Ludlow, S. (1990), Poverty, Inequality and Growth in Pakistan, paper presented in sixth Annual General Meeting of PSDE, Islamabad. 2. Asian development Bank Reports - Online Edition. 3. Arif, G.M. (2000). Recent Rise in Poverty and Its Implications for Poor Households in Pakistan. The Pakistan Development Review 4. Buzzle.com 5. CIA World Fact book (https://www.cia.gov)

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6. Ercelawn, A.A. (1990), (Absolute poverty in Pakistan: Poverty Lines, Incidence and Intensity) Draft paper University of Karachi Pakistan. 7. Government of Pakistan Economic Survey of Pakistan 2008. 8. Guardian (www.guardian .co.uk) 9. Jamal, Haroon (2004) Does Inequality Matter for Poverty Reduction? Evidence from Pakistans Poverty Trends Social Policy and Development Centre Research Report Number 58. Social Policy and Development Centre, Karachi. 10. Kemal, A.R., and Rashid Amjad (1997). Macroeconomic Policies and Their Impact on Poverty Alleviation in Pakistan. The Pakistan Development Review, 31(1), 39-68. 11. Naseem, S. M. Rural Poverty and Landlessness in Pakistan. Poverty and Landlessness 12. Pakistan- Ministry of Finance Official Website (www.finance.gov.pk) 13. Population Census 1998 FBS, GOP Islamabad. 14. Poverty in Muslim Countries and the New International Economic Order by Rami Mahmoud Elsawah 15. Wikipedia -The Free encyclopedia (www.wikipedia.com)

16. World Bank, 2002. Pakistan Poverty AssessmentPoverty in Pakistan: Vulnerabilities, Social Gaps Rural Dynamics. Washington, D.C. 17. 18. www.businessrecorder.com.pk www.southasia.oneworld.net

19. Zaidi M. A. (1992) Relative Poverty in Pakistan. The Pakistan Development Review.

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