Sultan Ahmad
http://epaper.dawn.com/ArticleText.aspx?article=09_07_2007_606_003
A Second Poverty Reduction Strategy paper is under way to confront poverty directly instead of tackling it through the failed ‘trickle-down’ strategy.
In the trickle-down technique which the World Bank advocated earlier, wealth/welfare would have trickled down to the poor slowly. But the process has been found to be too slow and too little to counter the massive poverty or reduce the very large number of poor which now officially stand at 24 per cent of the population.The figure is however disputed by non-officials and many NGOs.
In many countries the failed trickling theory has only widened the gulf between the rich and the teeming millions of the poor.
The poor are too impatient to put up with poverty for too long, while the rich have become richer by earning through avenues like the stock exchanges and real estate’s rollicking transactions. All that has exasperated the poor excessively, particularly when the rich flaunt their wealth.
In Pakistan, 60 per cent of the people above the poverty line are not well off at all. The middle class is evaporating instead of expanding, thanks to excessive inflation and the exacting demands of life.
Poverty is not a matter of calorie consumption alone. The report that Pakistanis on an average consume 2350 calories a day- the highest consumer of calories in South Asia-- does not make them less poor judged by other criteria. About seventyfour per cent of the population is living below two dollars-a-day ..
Even when wages are going up-- as through official action-the living standards don't go up much because of the sustained inflation. Food inflation alone is over 10 per cent and rising all the time as prices of vegetable prices, fruit and other eatables are soaring . Wheat prices have touched the highest level at a time when the country has a bumper crop of 23.5 million tones and has a substantial exportable surplus. Profiteers and hoarders have grabbed the supplies and are manipulating the prices.
A law was to be passed to punish hoarders, profiteers and cartels/monopolies to strengthen the Monopoly Control Authority but was put off reportedly due to the elections so as not to offend the very rich.
Induction of the poor in private schools as opposed to the substandard public schools is too costly. Medical attention is very expensive as drugs are very expensive. Poverty reduction has to take all these factors into account. The larger approach to combating poverty is to provide employment to the unemployed-not necessarily through official institutions-- but through the private sector or the public private partnership, particularly in the areas of building/ rebuilding the infrastructure.
A large scale housing construction programme is what is needed for the middle income group instead of luxury building for the very rich. Steel and cement prices are shooting up along with land prices so the middle class has a real problem.
A great deal more has to be done to promote self-employment including through providing micro credit on a large scale and not with excessive caution when small amounts are involved. The setting up of more call centres has to be encouraged. There is plenty of scope in this area if the local participants are honest and fair.And of course far more has to be done to promote larger investment in farming. Farmers should be encouraged to employ modern methods to develop high yield crops so that our textile industry will have enough cotton and the sugar industry, enough sugar cane. Livestock farming should also encouraged involving a larger number of people in fisheries. Some moves are being made in that direction but they are not enough.
More banks are coming up to offer credit and promote self employment, some of them are the new Gulf banks. And now Tamasek of Singapore which is to op erate in a big way in Pakistan soon, is to come up with a self employment scheme. It wants to try in this area after its success in Indonesia, Malaysia and India. It has taken over the PICIC commercial bank.. Its success would encourage other banks.
But the large number of persons who seek micro or larger credits would also need commercial and technical advice to sell their products. Otherwise there can be a glut of substandard goods waiting desperately for buyers. Such advice should be coming forth officially. A workshop is being arranged on July 17th in Islamabad with international credit agencies and bilateral donors and other interested parties participating to draft the second poverty reduction strategy paper. It should try to avoid the pitfalls of the first paper and profit by the experience of making that paper work More meaningful scales for measuring poverty should be devised, instead of the faulty scale that we have which reduces the number of the poor statistically.
Excessive poverty has resulted in an in crease in hardcore crimes like kidnapping, murder and robbery. Corruption too is on the rise. Hence the reduction in poverty has many beneficial results while an increase in poverty has many harmful results, ultimately even swelling the ranks of the terrorists.
Foreign investment in the last financial year rose to a record $7 billion that should increase the range of economic activities and provide larger employment. Home remittances too have touched a record figure of $5 billion and if a part of that will be used for making investment that will increase the employment opportunities.
In spite of such measures there will be a large number of highly vulnerable people who need safety nets. For them, the Zakat funds should be effectively utilised instead of a part of that being used for political purposes. The Bait ul Maal funds should also be effectively used and help the truly vulnerable.
Despite of all the measures proposed, Pakistan is unlikely to achieve the UN millennium goal of the reducing poverty. Pakistan is committed to achieve that goal and it shows how difficult it is to reduce poverty if it is not confronted directly and sought to be reduced through such ineffective means as trickling down of the wealth to the poor.
Monday, July 9, 2007
Dynamics of High Economic Growth
By Zafar-ul-Hassan Almas
http://epaper.dawn.com/ArticleText.aspx?article=09_07_2007_605_003
ACCORDING to the Pakistan Economic Survey 200607, the economy continued its buoyant pace of growth for the fifth year in a row and the growth averaged seven per cent per annum during the last five years.
Economic growth has been widely shared by industry, agriculture and services on the back of a new investment cycle supported by strong growth in domestic demand and credit expansion.
The State Bank of Pakistan (SBP) had responded to the strong growth and rising inflation by increasing nominal interest rates. Successive hikes in policy rates during the last two years have led to higher interest rates across the spectrum, but higher inflation means that real interest rates remain low and their dampening effect on growth remained minimal.
A distinct feature of this year’s growth is that robust domestic demand underpinned the economic growth, with consumer demand and investment responding to real low interest rates thanks to higher inflation, and rising real incomes as shown by higher real growth in per capita income by 5.5 per cent during the last five years.
Per capita income is a deceptive term in the elite class economy. There is definitely a debate about the nature of this high growth in terms of inclusiveness. There may be different opinions on how the fruits of the growth are distributed but the fact remains that the current year’s growth is driven by investment.
For the most part of its history, Pakistan’s economy has been like a plane flying on one engine — domestic consumption. Analysts had fretted that was detrimental to the economy in the long-run, and the contribution of investment — the other big engine — would have to be increased. Expanding investment has been a major and increasingly important driver of economy’s growth for the last three years. Its share in driving growth this year has surpassed consumption for the first time in economic history of Pakistan.
The relative importance of expanding consumption as a source of overall economic growth has lost substance. Investment-driven growth requires the output of machinery and equipment, and the inputs to produce them, to grow much more rapidly than the output of consumer goods. Rapid growth of output of investment goods increases the demand for energy disproportionately but also generates employment and reduces poverty.
The current energy crisis may have negative implications for investment prospects in medium to long- term. One area where growth prospects have not fully exploited is net exports or export-led growth. It is also critical to bridge saving-investment gap.
The savings-investment gap slipped into negative territory in 2004-05; the difference between the two was 1.6 per cent of GDP at that time. The negative savings-investment gap marked the reversal of a three-year trot when national savings were higher than the investment. This is evident from the change in the current account which has slipped into the red at five per cent of GDP in 2006-07 after three years of surplus (2001-02 to 2003-04). Some inherent weaknesses in the structure of our economy have prevented export-led growth. And economy remained more or less investment-led and consumption-led.
Realigning our economy in a manner consistent with ever changing demand patterns takes time and money. Only by foregoing consumption (increased savings), can we provide entrepreneurs with the funds they need to invest in the production of new goods and services.
Besides a faster growth in exports is needed to make total demand less sensitive to rising domestic real interest rates and indebtedness, secure productivity gains as a result of competition on the international market, and relax the foreign exchange constraints for imports. It means firing another engine of export-led growth..
One disappointing aspect of current higher growth is its job creation capacity. The current growth momentum is driven by less labour intensive sectors like financial businesses, telecommunications, production of durables, mergers and acquisitions, privatisation, and last but not the least technological up-gradation.
All these sectors are not creating enough jobs and in some cases resort to retrenchment..The gulf between haves and have-nots has definitely increased as is reflected in government statistics.
Putting more people in productive and sustainable jobs lies at the heart of inclusive growth. All segments of society should get benefits of higher growth though more active segments get more of it. But inclusiveness, primarily, depend on the success in achieving and maintaining higher growth over a long-term. This requires more discipline and strong political commitment from ruling elite which might not be possible in our social fabric.
The vicious circle of poverty and low growth can be transformed into virtuous circle of demographic dividend by optimising human capital. The formidable challenge is to provide a comprehensive policy framework to harness the dormant talent pool of our work-force and entrepreneurs to position the economy on a sustained highgrowth trajectory.
Infrastructural inadequacies continue to constrain the full potential for economic development, pick up in investment and buoyant exports. Last two Public Sector Development Programme (PSDP) have acknowledged the importance of speedy provision of quality infrastructure as a policy stimulus.
Substantial resources are earmarked for this area but still we are not getting proper value of money because of leakages in the system and weak monitoring. Pakistan’s growth prospects are crucially intertwined with the rapid development of physical infrastructure such as power, roads, ports, and airports, and efficient delivery of services.
The current electricity shortages are manifestation of poor planning on the part of the government and inadequacies of power adversely affecting not only the output of large industries, but also irrigation in agriculture and other economic activities. Such power shortages are also affecting productivity of the labour force. Economic Survey 2006-07 is unable to provide possible GDP losses as a result of these power shortages.
Next year’s prospects for 7.2 per cent growth target crucially depend upon the responsiveness of production sectors to the electricity shortages and the amount of productivity losses. We need to align our macroeconomic framework with demand for energy and resources and plan for them on long-term basis. The current policy is tilted towards shortrun and ad hoc measures for shortterm gains.
Source: Dawn Newspaper
http://epaper.dawn.com/ArticleText.aspx?article=09_07_2007_605_003
ACCORDING to the Pakistan Economic Survey 200607, the economy continued its buoyant pace of growth for the fifth year in a row and the growth averaged seven per cent per annum during the last five years.
Economic growth has been widely shared by industry, agriculture and services on the back of a new investment cycle supported by strong growth in domestic demand and credit expansion.
The State Bank of Pakistan (SBP) had responded to the strong growth and rising inflation by increasing nominal interest rates. Successive hikes in policy rates during the last two years have led to higher interest rates across the spectrum, but higher inflation means that real interest rates remain low and their dampening effect on growth remained minimal.
A distinct feature of this year’s growth is that robust domestic demand underpinned the economic growth, with consumer demand and investment responding to real low interest rates thanks to higher inflation, and rising real incomes as shown by higher real growth in per capita income by 5.5 per cent during the last five years.
Per capita income is a deceptive term in the elite class economy. There is definitely a debate about the nature of this high growth in terms of inclusiveness. There may be different opinions on how the fruits of the growth are distributed but the fact remains that the current year’s growth is driven by investment.
For the most part of its history, Pakistan’s economy has been like a plane flying on one engine — domestic consumption. Analysts had fretted that was detrimental to the economy in the long-run, and the contribution of investment — the other big engine — would have to be increased. Expanding investment has been a major and increasingly important driver of economy’s growth for the last three years. Its share in driving growth this year has surpassed consumption for the first time in economic history of Pakistan.
The relative importance of expanding consumption as a source of overall economic growth has lost substance. Investment-driven growth requires the output of machinery and equipment, and the inputs to produce them, to grow much more rapidly than the output of consumer goods. Rapid growth of output of investment goods increases the demand for energy disproportionately but also generates employment and reduces poverty.
The current energy crisis may have negative implications for investment prospects in medium to long- term. One area where growth prospects have not fully exploited is net exports or export-led growth. It is also critical to bridge saving-investment gap.
The savings-investment gap slipped into negative territory in 2004-05; the difference between the two was 1.6 per cent of GDP at that time. The negative savings-investment gap marked the reversal of a three-year trot when national savings were higher than the investment. This is evident from the change in the current account which has slipped into the red at five per cent of GDP in 2006-07 after three years of surplus (2001-02 to 2003-04). Some inherent weaknesses in the structure of our economy have prevented export-led growth. And economy remained more or less investment-led and consumption-led.
Realigning our economy in a manner consistent with ever changing demand patterns takes time and money. Only by foregoing consumption (increased savings), can we provide entrepreneurs with the funds they need to invest in the production of new goods and services.
Besides a faster growth in exports is needed to make total demand less sensitive to rising domestic real interest rates and indebtedness, secure productivity gains as a result of competition on the international market, and relax the foreign exchange constraints for imports. It means firing another engine of export-led growth..
One disappointing aspect of current higher growth is its job creation capacity. The current growth momentum is driven by less labour intensive sectors like financial businesses, telecommunications, production of durables, mergers and acquisitions, privatisation, and last but not the least technological up-gradation.
All these sectors are not creating enough jobs and in some cases resort to retrenchment..The gulf between haves and have-nots has definitely increased as is reflected in government statistics.
Putting more people in productive and sustainable jobs lies at the heart of inclusive growth. All segments of society should get benefits of higher growth though more active segments get more of it. But inclusiveness, primarily, depend on the success in achieving and maintaining higher growth over a long-term. This requires more discipline and strong political commitment from ruling elite which might not be possible in our social fabric.
The vicious circle of poverty and low growth can be transformed into virtuous circle of demographic dividend by optimising human capital. The formidable challenge is to provide a comprehensive policy framework to harness the dormant talent pool of our work-force and entrepreneurs to position the economy on a sustained highgrowth trajectory.
Infrastructural inadequacies continue to constrain the full potential for economic development, pick up in investment and buoyant exports. Last two Public Sector Development Programme (PSDP) have acknowledged the importance of speedy provision of quality infrastructure as a policy stimulus.
Substantial resources are earmarked for this area but still we are not getting proper value of money because of leakages in the system and weak monitoring. Pakistan’s growth prospects are crucially intertwined with the rapid development of physical infrastructure such as power, roads, ports, and airports, and efficient delivery of services.
The current electricity shortages are manifestation of poor planning on the part of the government and inadequacies of power adversely affecting not only the output of large industries, but also irrigation in agriculture and other economic activities. Such power shortages are also affecting productivity of the labour force. Economic Survey 2006-07 is unable to provide possible GDP losses as a result of these power shortages.
Next year’s prospects for 7.2 per cent growth target crucially depend upon the responsiveness of production sectors to the electricity shortages and the amount of productivity losses. We need to align our macroeconomic framework with demand for energy and resources and plan for them on long-term basis. The current policy is tilted towards shortrun and ad hoc measures for shortterm gains.
Source: Dawn Newspaper
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