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Pakistan: Poverty Assessment

Pakistan FY96 PA

Full Report (8.3Mb PDF)

Poverty Profile

National accounts and household income distribution data combined indicate that consumption poverty in Pakistan declined from the early 1970s to the early 1990s. The analysis of household surveys in this report also indicates that there was a substantial reduction in the incidence of consumption poverty between 1984/85 and 1990/91 -- from 46 percent in 1984/85 to 34 percent in 1990/91 as per the reference poverty line used in the report, and the decline is robust to a wide range of alternative poverty lines. After 1990/91, the absence of household survey data precludes any definitive conclusions as to the trends in consumption poverty. In terms of human development, Pakistan has also made some progress since the early 1970s. Yet, the country stills lags far behind the averages for comparable low-income economies — with a 65 percent higher fertility rate, a 30 percent higher infant mortality rate, and gross primary and secondary school ratios that are almost 50 percent lower. Moreover, the educational disparities between men and women in Pakistan continue to be quite pronounced. Both the incidence of consumption poverty and human development indicators differ significantly by urban-rural areas and by region. Rural areas have a higher incidence of poverty and worse human development indicators than urban areas. Among regions, rural South Punjab stands out in terms of its high incidence of consumption poverty. In terms of human development indicators, Balochistan appears to be consistently poor relative to the other provinces. The report also found that there is a good correlation between households' human and physical assets on the one hand and poverty status on the other hand. For example, in urban areas, households headed by casual/manual laborers have a high incidence of consumption poverty, as do self-employed workers with less than Rs. 1,000 in assets in 1991 prices (about US$45). In rural areas, households headed by tenants and agricultural laborers have a very high incidence of poverty, as do non-agricultural casual workers and self-employed workers with less than Rs. 1,000 in assets. Differences in human development indicators between the poor and the non-poor are clear for education, with educational achievement being much lower among the poor. Differences in health indicators are less clear-cut, perhaps because poor households typically tend to under-report illness. Fertility is lower, and family planning use higher, in non-poor households as compared with poor households, but the differences are not striking.

Incentive and Regulatory Framework

Economic growth in Pakistan has been generally good in recent decades. However, the government incurred high fiscal deficits from the early 1970s to the early 1990s, which it financed by heavy borrowing from abroad and from the domestic private sector. This policy became increasingly unsustainable during the 1980s as debt to GDP ratios rose, raising the prospect of a financial crisis with disastrous consequences for growth and poverty alleviation. In order to forestall this danger, the government has been implementing an economic stabilization program since 1993/94. While this program has achieved some success, it is critical that efforts to bring the fiscal deficit down further be stepped up. Pakistan's economy has also suffered from excessive government interference with the operation of its markets and a lack of openness to the world economy. Since about 1980, the government has been addressing these problems but progress has been slow. The main broad areas of structural economic reform have been: the deregulation of investment and prices; the privatization of state-owned enterprises; financial sector reform; the rationalization of the trade regime; the liberalization of foreign exchange transactions; taxation reforms; and a more flexible management of the exchange rate. Structural economic reforms will need to be expanded and deepened in order to enable high sustained growth in the coming decades. Concerning the effects of the economic reform and stabilization program on poverty, it is necessary to distinguish between aggregate effects and effects on particular groups. In the period of economic reform after 1980, growth performance has been better than in the 1970s, and this performance has resulted in a substantial decline in consumption poverty in the general population. Moreover, real per capita expenditure on primary education and on health (all levels combined) doubled between 1980/81 and 1990/91, and since 1992/93 there has been a concerted effort to expand the coverage --and to some extent improve the quality-- of basic social services under the Social Action Program. Some aspects of the economic reform and stabilization program, nevertheless, are likely to have had a negative impact on certain groups, at least in the short term. Thus, for example, adjustments towards a more efficient economic structure, such as those embodied in the rationalization of the trade regime, lead to changes in relative prices and in the composition of production and labor demand. And increases in indirect taxes reduce the disposable income of households. Of course, it is not only the poor who are affected by these various adjustments; but the poor are also affected, and some households not previously poor may be rendered poor by the adjustments. These negative effects of economic reforms on certain groups of the population are to a certain extent counteracted by the existing safety net, especially private arrangements.

Public Expenditures

The report's analysis of public expenditures was limited to human development-related programs and targeted income transfer programs (the latter topic is discussed in the section below). Poor human development indicators essentially reflect a public-sector failure to address four interrelated deficiencies with services: limited access to education, health and family planning, especially among poor rural women and girls; poor-quality services when they are provided; little accountability to clients; and insufficient government resource allocations to basic social services. In response to these deficiencies, the government launched the Social Action Program in 1992/93 --a broad-based intervention that is the centerpiece of Pakistan's human development strategy. Under the Social Action Program, allocations to basic social services have been substantially increased. Access to services is being improved by increasing the number of facilities, increasing outreach, and making the use of facilities easier among women and girls --e.g., by constructing sanitation facilities and boundary walls and changing the hours of operation of facilities. In order to inmprove the quality of services, provincial governments are stepping up recruitment of female staff in rural areas so as to make the services better suited to women. Other measures being taken to improve quality include increasing funding for non-salary recurrent expenditures and placing emphasis on the use of merit-based criteria to recruit teachers and other social service staff. Several pilot projects are under way to increase community involvement in social service provision, which is expected to improve accountability of services to clients.

Safety Net

Social protection arrangements in Pakistan are both private and public, with private arrangements being by far the more important of the two. Household survey data show that voluntary transfers among households are widespread, and are especially important for the poor: 48 percent of households in the lowest quartile of the distribution of household consumption expenditures were net recipients of transfers in 1991. Moreover, these transfers financed an average of 49 percent of the total consumption expenditures of these poor households. But not all poor households receive these private transfers. To protect households and individuals who fall outside the private safety net, the government has introduced targeted income-transfer programs. The two major ones targeted to the poor are the Zakat & Ushr and the Pakistan Bait-ul-Maal prgrams. These two programs pool resources obtained from the population at large and redistribute them to the neediest throughout the country. The government also operates a range of activities aimed at vulnerable groups through its Social Welfare Departments at the federal and provincial levels, often in association with NGOs. In recent years, it has also launched several directed credit schemes to promote employment and self-employment, and it offers an array of untargeted subsidies (in addition to those implicit in directed credit). These social protection arrangements suffer from several weaknesses. The coverage of the Zakat & Ushr and Pakistan Bait-ul-Maal programs falls short of their intended targets, and benefits sometimes go to unintended beneficiaries. Directed credit schemes have not been a significant source of assistance to the poor and are unsustainable without periodic transfers of government funds (because of widespread non-repayment) The benefits of untargeted subsidies do not accrue to the poor for the most part.

Poverty Strategy

The report stresses the importance of public action to foster human development as a key ingredient of a recommended strategy to address poverty. Without sustained gains in health status and accumulation of skills, sustained improvements in labor productivity and incomes will not be possible. Considerable progress in addressing deficiencies in basic social services has been achieved in recent years, but the achievements are still fragile. Vigorously pursuing the activities and policy reforms embodied in the Social Action Program is a key component of a comprehensive poverty reduction strategy. In addition to efforts to step up human development, the poverty reduction strategy should consist of three other components. The first would be to deepen the process of economic stabilization and adjustment. This would entail renewed efforts to lower the fiscal deficit, as well as a deepening of structural reforms, especially in the trade regime and financial sector areas. The second would be to complement the general economic reforms in the stabilization and adjustment program with a set of sectoral reforms. For rural areas, sectoral reforms would include improving the structure of incentives for agricultural production; reorganizing and decentralizing the surface irrigation system; and reorienting public expenditures by agriculture sector agencies. Land policy is an additional topic for reassessment. In urban areas, high priority should be given to providing basic services in slums. The report also recommends that the government should give an explicit emphasis to helping poor women to earn higher incomes. The final component of the recommended poverty reduction strategy is to strengthen the social safety net. Several steps could be taken to enhance the anti-poverty impact of the targeted income-transfer programs. Government-run directed credit schemes should be restructured. At the same time, NGO involvement in the provision of financial services to the poor and microenterprises, while relatively recent in Pakistan, is expanding. This development holds the promise of a more efficient alternative to providing financial services to the poor than governmental schemes. Other government subsidies that are not targeted at the poor should be re-examined. Phasing out untargeted subsidies would free up scarce fiscal resources that could be allocated to basic services, to worthwhile targeted programs that benefit the poor, and to reducing the fiscal deficit.

Statistical System

Pakistan has been a pioneer in conducting nationally-representative household income and expenditure surveys. The Federal Bureau of Statistics has been conducting such surveys since 1963/64, first at irregular intervals, and since 1990/91 on an annual basis. However, the processing time of household surveys needs to be improved; so far the data have been made available with a lag of several years, which makes close monitoring of poverty trends impossible. In addition, Pakistan does not have an official poverty line. The government may wish to consider defining such a line, which would provide a benchmark for monitoring of poverty trends, as well as an eligibility threshold criterion for various programs targeted at the poor.

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