In the last three years, the Government of Pakistan has brought about macroeconomic stability and has implemented wide-ranging structural reform to spur economic growth. Perhaps the most important example of restructuring is the devolution initiative which, when successfully implemented, holds promise for improved access to critical public services for the poor. In addition the poverty reduction strategy prepared by the country highlights needed improvements in education, health and water sectors. Further the Government took two major initiatives - Khushal Pakistan (a comprehensive poverty intervention) and Khushali Bank (a microcredit bank) - as nationwide efforts to address poverty and vulnerability.
This report is a detailed examination of poverty trends and their underlying causes. The analysis covers the 1990s, documenting the underlying causes of the deficiencies in the social agenda. In doing so, it highlights the critical priorities for poverty reduction that the ongoing reform program will need to incorporate.
The Government of Pakistan faces challenges and opportunities unprecedented in its history. The level of poverty in the country has not appreciably changed in the ten years preceding 1999, despite having fallen in the previous ten. The educated and well off urban population lives not so very differently from their counterparts in other countries of similar income range, or even of their counterparts in Western countries. However, the poor and rural inhabitants of Pakistan are being left behind. This is shown by many social indicators in ways that, unless sharply improved will leave Pakistan falling further below other countries' performance in the future.
Largely based on data collected by Pakistani agencies and institutes', the report analyzes the social gaps and fissures that are becoming ever more pronounced. It identifies constraints that impede economic and social progress and suggests policies for the future.
One third of the population can be classified as poor in 1999, and somewhat more in rural areas. The country's education and health indicators are depressed when compared to other countries of similar per capita income or rate of growth, and reveal large regional, urban/rural, and gender disparities.
The differences between urban and rural education and health indicators are closely associated with the high incidence of poverty in the 1990s. The raising and narrowing of health and education differences, this report argues, is the way the government can move towards its goal of poverty reduction and macroeconomic growth.
For example, Pakistan, in comparison to other countries of similar income, had a 23 percent lower share of the population with access to sanitation. The gender gap in literacy has not decreased since 1970, as it has in comparator countries. School enrollment is lower in Pakistan, adult illiteracy is greater, and child mortality is higher.
The most significant feature of the social gap is the variance of social indicators between the rich and the poor. Lagging national social indicators are in large part a direct result of very low health and educational outcomes among the poorer segments of its population in comparison to its richer segments, whose indicators are almost on a par with those of developed countries. For example, primary gross enrollment rates among the top three deciles, by per capita consumption, are around 90 percent, whereas that among the bottom three deciles is around 50 percent. As argued in this report, these outcomes reflect a failure of public service delivery. The poor cannot afford to substitute private for public services, so they are disproportionately affected. Also, to the extent the rich no longer use public services, they exert little pressure on the public service to be responsive in terms of quality or amount of spending.
The problems in public service delivery can be linked to the fact that in the competition for the allocation of public spending, social spending has been squeezed. For the past two decades a rising debt service burden along with continued substantial defense expenditure in the face of stagnant revenues has left little fiscal capacity to meet the rising needs of basic social services. During the 1990s, overall government revenue fell from 17 percent of GDP in 1991 to around 16 percent in 1998 and 1999. Even though defense spending fell from 6 percent of GDP in 1991 to below 5 percent in 1999, interest expense rose from 5 percent to 7.3 percent over the same period. As a consequence, compared to other countries at its income level, Pakistan allocates 42 percent lower health spending per capita. Furthermore, the failure of public services can also be traced to a record of poor implementation of public programs, which has eroded their quality. This report introduces an interesting hypothesis that these patterns of spending are the result of political choices that reflect the voting blocks prevalent in Pakistani elections.
Much research has shown that there is a correlation between educational attainment and economic growth in developing countries. The low level of education must therefore be understood as slowing economic growth. Similarly, the chronic child malnutrition in rural areas, which appears to have not changed in severity in 15 years, impedes the economic prospects of affected adults in their later lives. The report thus argues that low education and health indicators have themselves been part of the reason that Pakistan's economic growth rate has not been sustained through the 1990s.
Growing debt has also contributed to the slowing down of economic growth. External borrowing financed short term and unsustainable spurts in growth in the 1980s. With increased debt servicing, fiscal space shrank, which contributed to stagnation in the latter half of the 1990s, further increasing the burden imposed by the debt.
Therefore debt management inescapably has become a major priority of recent governments. This report argues that cutting spending on the social sector is not the solution, as it will only ensure that poverty remains well entrenched. What is needed is a sustained and coordinated effort to address the obstacles that have hitherto prevented Pakistan from making better use of its limited resources. This report argues that obstacles to the implementation of public policies need to be removed, and the underlying issues of governance addressed. Furthermore, particular attention should be paid to Pakistan's rural sector, which is home to most of the country's poor, and also exposes a number of
specific challenges to poverty reduction.
The chapters of this report discuss a number of specific ways in which govemment spending and policy decisions contribute to the social gap. These range from allocation and quality of spending in health and education to the range of barriers to market access confronting the rural poor. Chapter one introduces the main themes of the report, placing them in a cross-country context. Chapter two provides an anatomy of poverty, exploring its evolution through the 1 990s, outlining problems related to its measurement, and discussing dynamic factors that influence how people identified as poor either fall into or escape from their circumstances. It also explores the broader dimensions and possible social determinants of poverty; exploring the social characteristics associated with lack of consumption and pointing to the influence of human capital on poverty. Chapters three and four then more deeply examine the dynamics of the most important social sectors - education and health, and of the most neglected target areas -the rural sector. Chapter five places the findings of this report in the context of Pakistan's own Interim Poverty Reduction Strategy, summing up priorities for poverty alleviation, highlighting areas for further research, and identifying relevant challenges and lessons for stakeholders, including governments and NGOs.
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