Eliminating poverty in one generation:
A tough but attainable goal for Pakistan
By: Praful Patel, World Bank Vice President, South Asia Region
Published in: Business Recorder (Pakistan)
Date: Oct 30, 2007
Headline-grabbing news is fast-moving, mostly political, all too often violent. Poverty is a slow grind, far from the front page. But as Pakistanis in all spheres of life are absorbed by daily political developments, it is important to remember the central challenge facing the leadership and citizenry alike: to effectively eliminate poverty in Pakistan within the next generation.
Poverty is usually a number and a trend, not a face and by this measure the most recent household survey data show that roughly a quarter of Pakistanis live below the poverty line. This is down from around a third five years ago with the greatest declines in the rural areas. Put a face to it and at least 40 million Pakistanis live in deprivation today.
An even larger number is vulnerable to falling into poverty or remaining trapped there because of unforeseen events like poor harvests, natural disasters, or illness. Statistics, by their very matter-of-factness, numb the harsh reality of poverty. Poverty is more than just the lack of money; it is about the lack of capability to overcome violence, hunger, illiteracy, illness, physical hardship, injustice, and voicelessness.
So eliminating poverty is not just about lowering the number of people living under a dollar a day or some other arbitrary metric; it is fundamentally about enabling people to have the freedom to pursue the life that they want.
I saw both the daunting difficulty of this challenge and the spark of hope that inspires people to reach beyond their circumstances during a recent visit to Keti Bunder, one of the poorest villages in Pakistan, located in Thatta district, Sindh.
These villagers have suffered several natural calamities in recent years. They have been relocated three times due to encroachment by the sea. But they have grabbed the opportunity offered by a village development programme supported by the Pakistan Poverty Alleviation Fund and the Aga Khan Rural Support Programme.
They are now investing in their community, improving their schools, health facilities, and water supply. With continued help they can provide their children the opportunities that they themselves never had. And therein the hope that I saw.
But how does Pakistan reach millions of citizens who have not yet had this opportunity come their way? Firstly, it must maintain growth rates of 6 to 7 percent; second, it must invest in human capital to realise the potential of the "demographic dividend" provided by its large and young labour force; and third, as in Keti Bunder, it must empower the poor through social mobilisation and protect them from adverse economic shocks through targeted safety net programmes.
There is often talk in Pakistan that economic growth makes little difference to the lives of common people. This is incorrect. The significant reduction in poverty following on strong growth over the past five years confirms one of the most robust findings in development: sustained, broad-based growth is the most powerful way to improve the welfare of the poor if - and it is an important if - government builds a strong policy environment which actively seeks ways to target poor people.
A stable macroeconomic environment with low fiscal deficits, low inflation, and low current account deficits are the prerequisites for economic growth. Pakistan has made impressive progress by this measure. The challenge is to maintain these hard-earned benefits.
We are now seeing an increase in current account deficits and continued high inflation: these are areas that require immediate attention as the State Bank of Pakistan has recognised in its latest Monetary Policy Statement. Over the medium to long term, the challenge will be to increase the tax-to-GDP ratio by at least 5 percentage points to generate the much-needed resources for public investments.
Of course the other very important area which underpins the ability to grow is that of infrastructure. And here Pakistan is not alone in South Asia in facing a tough game of catch up. Public infrastructure improvements will be the critical complement to private sector investments.
And indeed considerable investment is taking place in transport and in the successful telecommunications sector. Yet clearly infrastructure bottlenecks remain one of the key constraints to growth. Think only power and water and the scope of both the infrastructure and institutional reform agenda loom large.
Pakistan has made important strides in deregulating its economy to increase competition and reduce the cost of doing business. Over the past decade, financial sector reforms have transformed the banking sector.
This momentum must continue through the strengthening of institutions in support of a competitive market economy, making the courts more effective and lowering the burden of bureaucracy. All of these elements, from macroeconomic stability, to infrastructure, to the institutions that allow business to flourish are the makings of a positive environment for sustained growth.
Now put the people in that picture, the second part of my proposition. Investing in human capital has to be the second pillar of Pakistan's poverty reduction strategy.
Businessmen in Pakistan commonly complain about the lack of skilled workers and clearly Pakistan will not succeed in an increasingly competitive global environment without a more productive workforce. Healthy, educated children are essential to ensure that the next generation finds gainful employment and escapes poverty.
After years of stagnation, social indicators have started to improve: net enrolment rates are up by ten percent, immunisation coverage has increased eighteen percent, and infant mortality rates are down twelve percent since 2001/02.
The government has also recognised the importance of higher education: funding for universities and research has increased rapidly, although still remains low by international standards. Pakistan has a long way to go to meet the education and health levels of the East and Southeast Asian countries.
Pakistan's Fiscal Responsibility Law commits future governments to significantly increasing expenditures on education and health from the present relatively low levels of 1.9 percent and 0.7 percent of GDP respectively. Greater spending is indeed important for improving social outcomes but equally so is spending well.
Ensuring that teachers and doctors show up to schools and hospitals, and that scarce resources are utilised where most needed, hinges on improved governance and accountability. While Pakistan has taken some bold steps with its devolution initiative, an efficient and accountable government that makes services work for poor people remains a major challenge.
The third element I suggested if Pakistan is to reach the 40 million or so faces of its poverty requires a focused effort to help the poor and vulnerable participate in, and benefit from, growth. Growth alone is not enough and education and health, surely tremendously important, are still not all that it will take.
Empowering the poor through social mobilisation and increased access to finance can tip the balance towards participation and is that third element. Protecting poor people from economic shocks through targeted safety net programs is also critical. The PPAF and other rural support programs have provided access to micro-credit and helped poor communities come together to build infrastructure for their own benefit.
But compared to countries like Bangladesh, poor Pakistanis remain largely under-served by micro-credit institutions. And while Pakistan has a range of social protection schemes, these have been generally under-funded and poorly implemented. Total spending is under 0.5% of GDP, substantially lower than levels found in other developing countries.
International evidence has taught us that safety nets schemes, if targeted to the poor and vulnerable and implemented well can help the poor cope with seasonal shocks and natural disasters, allowing the next generation to escape from poverty by remaining in school and staying healthy. International evidence has also shown the tremendous entrepreneurial potential that access to finance can unleash in poor communities.
The government has recently approved a National Social Protection Strategy with a comprehensive vision of the challenge. The key will be to ensure that this vision is turned into reality by ensuring that programmes such as Zakat and Bait-ul-Maal are targeted to the deserving, that there are no leakages, and that strong institutional and monitoring mechanisms are in place.
The dream of eliminating poverty in Pakistan is indeed achievable with sustained efforts along these three fronts simultaneously. I hope that the people and government of Pakistan will take up this challenge and keep in mind the vision of at least 40 million faces who all have hope, energy and talent way beyond the statistics that mark their status. I met them in Keti Bunder.