1. Introduction

1.1. Statement of the Problem Since the human have place them self in forms of groups, there have

always have been ups and down in there life. Economically all the humans

have never been divided equally. This has its roots from the beginning of

the earth till now.

There are many economic problems in the world such as unemployment

unstable political structure, poor governance and many problems related to

economic growth.

Poverty cannot be described it can only be felt. One knows more about

poverty when he is hungry and cannot purchase food, he and his

children want new clothes but they can’t purchase it because of low

income, he’s sick and doesn’t have money to have medicine, he wants

to send his children to school but can’t bear educational expenditures.

The world Development Reports define poverty as “pronounced

deprivation in well being’. Poverty can be measured by following three

methods, i.e. Head Count Ratio, Basic Needs Approach, and Poverty of

Opportunity.

According to Head Count Ratio, the persons who fall below the poverty

line as determined in the country are regarded as poor. In Pakistan, for

instance, the persons who earn income which cannot meet the daily

intake of about 2350 calories per person are considered to fall below

the poverty line. Basic Need’s Approach suggests the measurement of

‘poverty’ with reference to income distribution. According to this

approach if the persons of a fixed income group cannot purchase basic

needs, i.e. food, clothing, housing, education and basic health facilities,

they are considered to fall below the poverty line. The third approach

which is ‘poverty of opportunity’, if due to fall in income, health or

1

education the human sufferings increase the people are considered to

have fallen below the poverty line.

The major topics of our discussion are causes of poverty in Pakistan.

Poverty has many causes; some of them are very basic. Some experts

suggest, for instance, that the world has too many people, too few jobs,

and not enough food but such basic causes are quite intractable and not

easily demolished.

Poverty has always been a major concern all over the world. 20% of world

population consumes 86% of the world’s goods. While 80% of humanity

gets just the remainder 14%. Besides this, the developed countries are also

trapped in circle of poverty.

Even though Britain is one of the most affluent members of the European

Union, reports show that UK is the worst place in Europe to be growing up if

you are poor as more children are likely to be born in poverty there, as

compared to else where in the EU.

It has been reported by united affair economy that the wealthiest nation on

earth has been the widest gap between the richest and the poor of any

industrialized nation and inequalities continue to grow. In US it has been

reported that for 1998 almost 70% of the wealth was in the hand of top

10%. In another report they mention that “In 1989, the United States had

66 billionaires and 31.5 million people living below the official poverty line.

A decade later, the United States has 268 billionaires and 34.5 million

people living below the poverty line.” The causes of poverty in such

countries are the wide gap between the rich and poor. There is also wide

range of inequality.

“Growth with equity is good for poor”

[ Oxam,

june2000] The common factor that leads to poverty are:

1 – The unemployment

2

2 –Over population

3 – Inability to meet high standards of living

4 –inadequate education employment opportunities

5 –environment degradation

6 –certain economic and demographic trends and

7 –welfare incentives

Besides the developed countries that are trapped in vicious circles of

poverty, the developing countries are so badly trapped as if it were quick

sand. The more they try to come out of it, the more they get into it.

Pakistan is also adversely affected due to the poverty. Though poverty is all

around the world but is seems as if Asian countries especially Pakistan is

mostly targeted by poverty. Now the questions that arise in every

Pakistani’s mind are that:

What are the causes that prevails poverty in Pakistan

What are the factors the bound poverty in Pakistan

Who is responsible for poverty

How should poverty be eradicated

1.2. Source of Data and MethodologyThe major part of the information to formulate the term paper is obtained

from internet surfing. The repots are authentic and are directly or

indirectly related to the organization such as UNO, IMF, World Bank and

ministry of finance and economic affairs of Pakistan.

The time period allocated for the facts and figures, range from 1960 upto

2003. Both absolute and percentage values are used in the data. The

graphs are drawn using the percentage values whereas the tables are

made using either the percentage or the absolute values. The time duration

for analyzing the data is on the year bases, two years bases, five years

bases and ten years bases as well.

1.3. ObjectivesThe main objectives of the term paper are:

3

To find causes for poverty in Pakistan.

Discuss the factors of poverty in Pakistan.

Find the causes responsible for poverty in Pakistan.

1.4. Organization of DataThe following term paper has been organized as follows.

First of all, the term paper stats with the table of contents of the paper and

then comes the introduction.

Introduction includes the problem of the statement, source of data and

methodology followed by the objectives that are to be obtained.

Then it is followed by the review of literature which is further followed by

the conclusion.

After this comes the data analysis followed by the conclusion and policy

implications. Then there are the appendices and the references.

4

2. Review of LiteratureArticle

This article has been written by John Wall, the World Bank’s country’s

director for Pakistan in the year 1998.

In this article, he has discussed about the flaws that lie with the two price

indices available i.e. Consumer price index (CPI) and survey base index

(SBI).

A comparable survey using the same poverty line in 1998-99, 2000-01

and 2004-05, adjusted by both the CPI and SPI revealed the following:

According to both measures poverty headcount had been rising

throughout the 1990s and peaked in 2000-01, a bad drought year. It

then fell sharply in 2004-05, a very good agricultural crop year. Under

the CPI poverty headcount dropped by 10.6 per cent, under the SBI it

dropped 5 per cent.

The reason that both the indices show different result of the same

thing is that incomes of a very large portion of the population are just

above and just below the official poverty line. Compared to 2000-01,

the consumption distribution has improved substantially in 2004-05,

meaning almost all families are better off. The fact that there is an

enormous clustering of population around the poverty line means that

even small changes in consumption or income can affect poverty

headcount ratios dramatically. This clustering of Pakistan’s population

just above and just below the poverty also implies that families are

quite vulnerable to falling into poverty with the slightest run of bad

luck. A drought or bad agricultural year, an illness of a breadwinner,

rises in prices of basic commodities not compensated by rises in

income—all of these can cause families to fall into poverty.

5

Article

This article has been written by Dr Faisal Bari Associate professor and head

of economics (LUMS) in 1998.

Dr Faisal Bari discussed about the agriculture growth. The average growth

rate for agriculture declared in the 1990s was 4.54% per annum. [see

appendix 1]

House income distribution for rural areas show that over the 1990s the

share of the lowest 20% of the households, in the overall income,

decreased from 8085 TO 6.9%. At the same time the share of top 20% of

households increased from 40% about 47% by in 1998 – 99. The Gini

coefficient a measure of inequality also increased significantly over the

same period. [See appendix 2]

So even though rural incomes were increasing in 1990s there were

increasing distribution asymmetries that were also coming in. The rich in

rural areas, continued to get richer, while the rural poor got poorer.

Article

This article is written by Dr Akmal Hussain in the year 1999. He has

proposed that the prevailing paradigm of poverty may have become

obstacle and it is time to replace it with new one. The essential flaw in the

prevalent poverty paradigm is that the issue of power is systematically

excluded from both the understanding of poverty as well as policies for

overcoming it.

The poor in Pakistan cannot simply be seen as free individuals suffering

from merely adverse ‘resource endowments’, and making choices in more

or less ‘free markets’. It is such a paradigm, which induces the government

to think that all it needs to do to reduce poverty is to allocate more

6

resources to the poor or to the local governments who are supposed to

‘represent’ them. Within such a paradigm it is possible to understand a fact

that eludes the conventional paradigm: The poor face markets, state

institutions and local structures of power that discriminate against the poor

and deprive them of a large proportion of their actual and potential

incomes.

The new survey evidence shows that the poor lose as much as one-third of

their income due to unequal access over input and output markets and

extortions by the local administration. For example, as much as 51 per cent

of the extremely poor tenants borrow money from the landlord. The

leverage of power available to the landlord on the basis of tenants’

dependence for both operation of the land and loans from the landlord,

enables the latter to appropriate the only resource which the poor have,

namely their own labor. The evidence shows that health is a major trigger

that pushes people into poverty and the poor into deeper poverty. As many

as 65 per cent of the poor were ill at the time of the interview and lost as

much as three months of the year to illness. Given the inadequacy of the

government’s health facilities as many as 85 per cent of the poor go to

private allopathic medical practitioners for treatment.

The expenditures on such treatment are so high that poor households are

obliged to borrow mostly from informal sources to finance the medical

expenses of their families

Thus the analysis and evidence within this new poverty paradigm suggest

that the key to overcoming poverty is to empower the poor to get better

access over markets, governance, and the institutions that provide public

services such as health care, education and justice. Empowerment in this

specific sense means establishing autonomous community based

organizations of the poor at the local level. These organizations would be

quite distinct from the ‘village organizations’ set up by large cross-district

NGOs.

7

Article

This journal article has been taken from Wikipedia. In this article the author

has discussed about the various causes of poverty in Pakistan. Poverty is

major economic issue.

One of the causes of poverty describe is the spatial distribution of poverty.

Poverty in Pakistan has historically been higher in rural areas and lower in

urban areas (cities). Out of total 47 million living blow the poverty line, 35

million lines rural areas poverty rose sharply in rural areas in 1990s and the

gap on Income between urban and rural areas of country become more

significant.

Another cause of poverty is gender discrimination. The gender

discriminatory practices in Pakistani society also shape the distribution of

poverty in the country.

Households are considered vulnerable if they do not have the means to

smooth out their expenses in response to changes in income.

Economic vulnerability is a key factor in the rise of poverty in Pakistan;

vulnerability also arises from social powerless.

Environmental problems in Pakistan, such as erosion, use of agro –

chemicals, deforestation etc, contribute to raising poverty on poverty on

Pakistan. Increasing population contributes to increasing risk of toxicity,

and poor industrial standards in the country to rising pollution.

Pakistan has been run by military dictatorships for large period’s of time,

alternating with limited democracy. These rapid changes in governments

led to rapid policy changes and reversals and reduction of transparency

and accountability in government.

Pakistan is home to large feudal landholding system where landholding

families hold thousands of acres and do little work on the agriculture

themselves. The landlord’s position of power allows them to exploit the

only resource the poor can possibly provide; there own labor.

The raise of poverty in the country has been correlated with rise of Islamic

fundamentalism in many parts of country. The Pakistani government

8

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”

Article

This article is published by Asian Development Bank and addresses poverty

issues, causes and institutional responses.

Poverty reduction has always been an important objective for the Asian

Development Bank (ADB), and the Bank's Poverty Reduction Strategy.

The report provides a comprehensive commentary on the causes of

the increase in poverty in the 1990s, and hypothesizes that poor

governance is the key underlying cause of poverty in Pakistan. The

report also analyzes responses to poverty in the country.

Finally, to accelerate social development in Pakistan, ADB will concentrate

on improving provincial resource management capacity for better

allocative efficiency of human development investments. ADB's

development strategy shall target the most vulnerable groups, particularly

women, children and the indigent

Article

This article is written by Anup Shah. In this article he discussed about the

relation of poverty with hunger.

The direct medical cost of hunger and malnutrition is estimated at $30

billion each year. One of the major causes of hunger is poverty itself. The

various issues discussed through this site about poverty lead to people

being unable to afford food and hence go hungry

There are other related causes as well, land rights and ownership,

9

diversion of land use to non – productive use, insufficient emphasis on

export – oriented agriculture, inefficient agriculture practices, war

famine, and drought.

Article

This article has been written by Ishrat Hussain in year 2000. Social

indicators such as literacy rate, infant mortality rate, population growth

rate, access to water, nutritional intake etc., all corroborate the above

findings that poverty and weak social and human development are not

only at an unacceptable level in absolute terms but also have

worsened over the last decade.

In this article he has discussed the factors responsible for these

outcomes.

First and foremost, economic growth rate has declined from the

historical level of 6 per cent to 4 per cent and with population growth

rate of almost 2.5 per cent and more, the increase in per capita

incomes has been insignificant.

Second, the poor performance on economic growth is accompanied by

rising income inequality and high open unemployment rates. Overall

unemployment is estimated at well over 10 per cent and

underemployment even higher. The Gini coefficient has risen.

Third, the high fiscal deficits of public sector inherited from the 1980

have not allowed much space for poverty oriented. On the other hand,

the ratio of development expenditure has consistently declined from 8

per cent of GDP to the current level of 3.2 percent. Even considering

the leakages, waste and inefficiency of public expenditures this

decrease has led to severe imbalances in the demand and supply of

public goods which benefit the poor.

Fourth, the poor governance of public sector institutions and cornering

of public goods by the well-to-do segments of the society in a general

10

environment of congestion and shortages have led to reduced access

to these services by the poor.

Fifth, in an era of growing globalization, financial integration and

technological revolution of the 1990s Pakistan has not benefited very

much. Foreign direct investment flows to Pakistan have remained

modest in relation to the size of its economy and spurt in information

technology has by passed the Shores of Pakistan.

Article

This article has been released by World Bank. In this article the author tells

about the poverty in Pakistan, Poverty rates fell in the 1970s and early

1980s but rose again towards the end of the 1990s. According to the

Government of Pakistan’s poverty reduction strategy paper, currently about

10 per cent of the population is chronically poor, but a much larger part of

the population (about 33 per cent) is considered vulnerable and likely to

sink into poverty. Most of the land in Pakistan is arid, semi-arid or rugged,

and therefore not easily cultivated. Water resources are scarce throughout

most of the country, and providing more remote rural communities with a

reliable water supply is difficult. 

Because of unequal land distribution, large numbers of rural people

live in poverty. A handful of big landholders own a disproportionate

amount of land. Most farms are small, measuring less than 5 ha, while

25 per cent of all farms are less than 1 ha in size. About 80 per cent of

the farming community is made up of landless laborers. Sharecroppers

who work land belonging to large-scale farmers are often in debt to

their employers and therefore take a more meager share of the crops.

Article

11

This article has been written by Talat Anwar, Sarfraz .K. Qureshi, Hammad

Ali in 2004.The paper examines the landlessness and rural poverty in

Pakistan. The results showed that poverty is strongly correlated with lack of

land which is the principle asset in rural economy of Pakistan. Prevalence of

poverty was found to be the highest among landless at 54.89% across the

rural areas in the country. Not only the poverty gap but also the degree of

inequality among the landless was substantially high. A highly un equal

land of ownership pattern is reflected by the fact that merely 1.07% house

hold own greater then 35 acres and above land in Pakistan. This result is

also supported y the Gini Coefficient of land holding which was considerably

high at 0.6151 in 2001 – 02. It thus appears that highly unequal land

distribution is a main manifestation of poverty in rural Pakistan.

Distribution of land holding at province level indicates that a very small

portion of all households large firms size in all provinces. Striking, just

0.1% households own 55 acres and above land in Sindh and NWFP, Sindh

and Balochistan in 2001 – 02.

The finding that Gini coefficient of landownership was substantially higher

than the Gini coefficient of expenditure and income is suggestive of the fact

of high underreporting of expenditure and income by richest households

due to tax evasion. The highly unequal land distribution seems to have

resulted in tenancy arrangements such as sharecropping which seems to

have resulted in high incidents of poverty particularly in Sindh.

Analysts have shown that land redistribution has been a source of

increased demand for labor and reduced poverty are discussed here. First,

it was found that landlessness and the poor are largely dependent upon

non agricultural sources of income. In rural economy employment is mainly

seasonal and determined at low wages, leaving a large proportion of

households in poverty. In this context, employment programs for rural

public works can have significant role in reducing rural poverty. It is,

therefore, suggested to initiate rural public works programs and scale up

the existing programs and scale up the existing programs.

12

Second, though agricultural growth is considered, essential for poverty

reduction in rural area, it may not alone be sufficient to reduce poverty

because of the factors that derive the growth in agricultural sector.

ARTICLE

This article discusses in detail about the causes of poverty.

Poor governance is one of the major causes of poverty. Corruption and

political instability resulted declining business confidence, deteriorating

economic growth, declining public expenditure, low efficiency in delivery of

public services and inadequate access to justice.

There are many economic determinants as well, which helped poverty to

increase. Such economic determinants are categorized into structural and

other determinants.

Among the structural causes, the increasing debt burden and declining

competitiveness of the Pakistan economy in the increasingly skills based

global economy are the most important.

The other economic determinants include investments, fiscal policy

subsidies, inflation, remittances

There are social determinants as well, that play a vital role in increasing

poverty. The social determinants are as follows land tenure system, the

structure of the society, low level development

ethnic and sectarian conflicts. One of the worst casualty that reinforce

poverty and vice versa is environmental degradation. The environmental

determinants are as follows, health, natural resources.

Article

This article is written by Qurratulain in September 2, 2006. In this article

she discussed about the poverty reduction strategies that were launched

by government in 2001 in response to raising trend in poverty during 1990s

government of Pakistan spent about Rs.1332 billion to reduce the poverty.

13

And as a result poverty reduced from 39.26 to 28.10 percent (rural) and

from 22.69 to 14.9 percent (urban) but government has spent all this

amount only on first strategy of poverty reduction, i.e. Accelerating

economic growth and maintaining macroeconomic stability, while other

four strategies have been left either untouched or neglected. Government

only targeted high macro economic growth; the level of investment in

human capital has not been seen at even a low extent. Augmentation in

targeted interventions has also been misdirected. Employment

opportunities should have been created with in the industrial or agricultural

sector in order to accelerate the production of basic needs so that

consumer goods should have been in the reach of low income group. While

services sector was expanded without any planning, which resulted in a

situation that mobile is kept by every one but they don’t have access over

basic needs.

After that social safety nets have also been neglected, there’s no proper

pronouncement by government in this regard. And finally ‘improvement in

Governance’, which has been left untouched. For a long time, whenever

senior government personnel visits a major city like Karachi, all the traffic

on the roads is diverted in the streets and all the work being done is

stopped in order to ensure the security of the official. By this way those

who earn on daily wages, have to suffer loss in daily wages.

Concisely, in spite of all efforts of government poverty still stands as an

iron wall for Pakistan’s economy. And to break this iron wall we are in need

to apply all five poverty reduction strategies at utmost level.

2.1. Conclusion The following conclusion can be drawn from the review of the above

literature.

The income of the people is just above or below the poverty line due to

which, any disaster to the nation or even a single bread winning person of

the family makes them fall into the poverty line. There is a lack of good

14

governance. The strategies formulated to remove the poverty, fails due to

improper use of the budget allocated for this project. The gap between the

rich and poor is increasing with the passage of time. There should be a new

paradigm put forward to help the poor. The key to overcome poverty is to

empower the poor to get better access to services such as health care,

education, and justice.

3. ANALYSISFrom the appendix -3 we can see the trends in poverty.

Poverty is influenced by a number of factors. Some of these may be

general i.e. they would have a bad affect on all the sectors of the

economy and different population groups and others are those which

are specific and may affect the specific sectors of the economy as well

as only the specific population. Furthermore, causes can be

categorized through different ways they affect poverty level. For

example, they may originate from issues of governance and the

structure of institutions or be economic or social in nature. However,

poverty is likely to be the result of several mutually reinforcing factors that

together define its scope. The prime causes of poverty in Pakistan are as

fallows:

3.1. POOR GOVERNANCEGovernance is defined as the manner in which power is exercised in

the management of a country's social and economic resources for

development. Good governance turns public income into human

development outcomes.

Good governance is an essential pre-condition for pro-poor growth as it

establishes legal framework essential for the sound functioning of land,

labor, capital and other factor markets. Corruption and political

instability resulted in declining business confidence, worsening the

economic growth, declining public expenditure, low efficiency in

delivery of public services

15

The lack of public confidence in state institutions, including the police

and judiciary, directly contributed to worsening conditions of public

security and law and order.

3.1.1. Governance, Political Instability and Poverty

Political stability is the basics to the creation of an enabling

environment for growth and development.

Economic agents, particularly investors, must be reassured with regard

to the continuation of policies, should have confidence in the

government's credibility in order to operate effectively and investor

should be persuaded to take risk.

The perceived security threat on its eastern border which has

dominated Pakistan's political culture has resulted in the domination of

the military in politics, excessive public spending on defense at the

expense of social sectors. Politically, Pakistan has alternated with

regularity between democratic and military governments. Between

1947 and 1988, Military governments were in power for 24 out of the

41 years. During the period of parliamentary democracy between 1988

and 1999, there were four national elections and nine changes of

government. Three of the last four civilian governments that were in

power in the 1990s were dismissed prematurely by successive

presidents on charges of corruption.

Pakistan's involvement in the war during the 1980s and 1990s in

Afghanistan was responsible for the growth of extremist groups,

spread of weapons, and frequent breakdowns of internal security. The

uncertainty created by these frequent changes of government, the

associated economic policies and errors in internal security has had a

negative impact on private investment and growth.

These and other factors not only discouraged private investment,

16

but prompted capital flight, as businessmen either migrated in large

numbers (most notably to Canada), or shifted assets to more favorable

locations (such as the United Arab Emirates).

The change of governments in the 1990s was also characterized by

extreme policy reversals as well as one sided and non-

transparent accountability drives that have shattered the morale of

public servants and private entrepreneurs alike.

All these factors have in turn affected growth, and subsequently

poverty levels in the country. In general, political instability and

macroeconomic imbalances have been reflected in poor credit

worthiness ratings.

3.1.2. Non Transparency in Resource Allocation

The lack of transparency in public sector planning, budgeting and

allocation of resources in Pakistan has ensured that those who do not

constitute the political elite are unable to make political leaders and

the Government responsive to their needs or accountable to promises.

This has brought a result that the development priorities are

determined by the bureaucrats and the political elites who use the

rights for their own sake. Such people may or may not be in touch with

the needs of the citizens.

3.1.3. Inadequate Access to Justice

Inadequate access to justice is widely perceived in Pakistan to be a key

to governance issue that directly contributes to the powerlessness of

the poor and reinforces social and economic inequities. With the

general deterioration of public sector institutions in the country, those

providing judicial services could not have been expected to remain

insulated from this trend.

In addition, the access to justice of the citizens at large is severely

restricted by an inefficient and corrupt police system that is often

17

accused of playing in the hands of the influential and victimizing the

poor. In this regard, harassment by the police and its indiscriminate

and unfair means of power has been repeatedly reported by the poor

to be a major source of insecurity and vulnerability for their lives and

livelihoods.

3.2. ECONOMIC DETERMINANTSThe slowdown in economic growth in Pakistan during the 1990s was a

key factor in rising poverty during the period. Growth declined in all

sectors in the 1990s and there was also much greater instability in the

growth rate, particularly in agriculture. In addition, growth was slower

than the average in labor intensive sectors, such as construction and

wholesale and retail trade, and faster than the average in capital

intensive sectors, such as electricity and gas distribution. Thus not only

was growth slow, but was also not pro-poor.

The causes of the slowdown in growth may be divided into two

categories, i.e. structural and others.

Among the structural causes, the increasing debt burden and declining

competitiveness of the Pakistan economy in the increasingly skill-

based global economy are the most important. While the former

occurred due to economic mismanagement, the latter was because of

Pakistan's low level of human capital development.

Increasing debt service requirements resulted in a growing fiscal

squeeze, which in turn led to a declining proportion of GDP being spent

on development and social sectors in the 1990s. Falling public

investment adversely affected private investment. At the same time,

reduction in tariffs, and elimination of export subsidies in the 1990s

meant that international competitiveness became an increasingly

important determinant of investment opportunities in Pakistan.

Because of the low level of human development and poor state of

18

physical infrastructure, areas where Pakistan was competitive were not

many. As a result, total fixed investment declined significantly,

bringing about a fall in the economic growth rate.

The bad impact of structural factors was reinforced by other problems

such as racial and sectarian violence, poor state of law and order, and

a high degree of economic and political uncertainty because of the

many changes in government. Throughout the 1990s, the Government

was implementing a series of medium term structural adjustment

programs under International Monetary Fund (IMF). However, because

of frequent changes in government, adherence to the adjustment

program was unsatisfactory, and as a result, the 1990s can be

characterized as a decade of stop-go stabilization policies, with the

attendant negative impact on growth, but without the desired

improvement of macroeconomic fundamentals.

As shown in Figure 3.1, annual compound growth rates of GDP in

Pakistan have declined from 5 percent for the first period of

adjustment, to 3.6 percent for the most recent period. Manufacturing

growth has been adversely affected by deficiencies in infrastructure, as

well as by slow-moving domestic demand. In the most recent period of

the analysis, agricultural growth rates have been particularly low at

just 1.6 percent. This sharp decline has been mainly due to the

unexpected drought, along with inadequate rainfall that the country

experienced from 1999 to 2001.

Fig 3.1

19

SECTORAL GROWTH RATES IN 1990'S

0

1

2

3

4

5

6

1988-93 1993-98 1998-02

YEARS

GR

OW

TH

RA

TE

(%)

GDP MANUFACTURE AGRICULTURE SERVICES

SOURCE: Government of Pakistan, economic survey, various issues.

3.2.1. Investment

Investment is a key driving force for GDP growth, and declining

investment levels results in low GDP growth rates. The early 1990s

were characterized by the increase of deregulation and privatization

policies. Private investment during this period increased from 7.4

percent of GDP in FY1988 to 10 percent by FY1993 (Table 3.1). Public

investment averaged just over 8.4 percent of GDP in this period, and

total investment increased from 17.3 to 19.9 percent.

Table 3.1 Trends in Investment – 1988 to 2001

20

Years Total

Investment

Fixed

Investment

Public

Investment

Private

Investment

Share of the private sector in

the fixed investment

% of GDP % of GDP % of GDP % of GDP % of GDP

FY1988 17.3 15.8 8.5 7.4 46.5

FY1989 18.3 16.7 8.7 8.0 48.2

FY1990 18.2 16.6 8.0 8.6 51.7

FY1991 18.5 17.0 8.3 8.7 51.3

FY1992 19.9 18.4 8.7 9.7 52.7

FY1993 20.6 19.0 9.0 10.0 52.5

FY1994 19.4 17.8 8.3 9.5 53.6

FY1995 18.3 16.8 8.2 8.6 51.3

FY1996 18.7 17.1 8.1 9.0 52.5

FY1997 17.7 16.2 6.8 9.4 58.0

FY1998 17.1 14.5 4.9 9.6 66.2

FY1999 15.0 13.3 5.3 8.0 60.2

FY2000 15.0 13.4 5.3 8.1 60.4

FY2001 14.7 13.1 5.6 7.5 57.3

Source: Government of Pakistan, Economic Survey, various Issues

The period from FY1993 to FY1998 was characterized by a lack of

continuity in economic policy. Total investment declined from 20.6

percent to 17.1 percent of GDP.

In subsequent years, the investment declined even more significantly

as a result of the imposition of sanctions on the country after the

nuclear tests of 1998. Total investment declined from 17.1 percent of

GDP in FY1998 to just 14.7 percent in FY2001. This decline was entirely

due to a sharp fall in private investment, which declined from 9.6

percent of GDP in FY1998 to 7.5 percent in FY2001. Initial estimates

suggest that total investment further declined in FY2002, to 13.9

percent of GDP, primarily due to the post 11 September regional

21

conflict, the military standoff with India and a further disturbance in

internal security. Growth depends not only on the level of investment,

but also the pattern. Growth depends not only on the level of

investment, but also the pattern. Trends in the pattern of investment,

as given in Table3.2, show that investment in agriculture has

consistently declined over the period under review, from an average of

1.8 percent of GDP in FY1988 to just 0.9 percent in FY2002.Investment

in manufacturing has

Table 3.2 Pattern of investment in the 1990s Sector Investment (% of GDP)

1987-88 1992-93 1997-98 2001-01

Agriculture 1.8 1.5 1.3 0.9

Manufacturing 2.9 4.7 2.1 2.5

Power 2.0 2.5 2.7 1.4

Total fixed investment 16.5 19.1 14.5 13.0

Source: Government of Pakistan, Economic Survey, various Issues

fluctuated, and reached a peak of 4.7 percent of GDP in FY1993

because privatization. However, by FY1998 it had declined to 2.1

percent of GDP. In the last period of the analysis, there was a

improvement in investment in the sector largely as a result of

balancing and modernization in the textile sector, which was preparing

for the removal of restrictions on international trade in textiles by 2005

under the World Trade Organization.

Investment in the power sector increased from 2 percent of GDP in

FY1988 to 2.7 percent in FY1998, attracted significant amounts of

foreign direct investment.

However, investment in the sector declined to 1.4 percent of GDP by

FY2002.

22

The patterns of investment indicate that investment in agriculture,

which employs 47% of the labor force, has been low and falling in the

last decade, while investment in industry has fluctuated sharply. Total

investment in the power sector has, however, been quite high, even

surpassing investment in manufacturing in FY1998. The growth

witnessed since the early 90s has not, therefore, been "pro-poor", and

has not served to alleviate poverty to a significant extent.

3.2.2. Employment

Pakistan's labor force is expanding at an annual rate of 2.4 percent,

and the average annual GDP growth rate of 4.5 percent during the

1990s was insufficient to generate the necessary additional

employment. The average employment elasticity in Pakistan is

estimated to be 0.4, which means additional jobs created in the 1990s

would have provided employment to only about two-thirds of the new

entrants into the labor force. It is estimated that about 0.6 million

people are being added to the ranks of the unemployed every year. In

the absence of a formal social security system, this does not fully

translate into an increase in the unemployment rate, but adds to the

large number of under-employed workers in the informal sector, and a

growing number of working poor. The official unemployment rate had

increased to 7.8 percent by 2000 - 6.1 percent for men and 17.3

percent for women. However, unemployment statistics in Pakistan are

generally unreliable because of the relatively high incidence of

disguised unemployment, and the fact that a significant proportion of

total employment even outside agriculture is generated in the informal

sector

3.2.3. Inflation

High inflation acts as a tax on household incomes by decreasing

purchasing power, and has particularly adverse impacts on households

dependent on fixed salaries, as well as low-income households in

23

general. Pakistan experienced double digit inflation from FY1991 to

FY1997. As it is clear from Figure 3.2, however, there has been a

declining trend in inflation since FY1997, which is obviously beneficial

to the low-income groups.

Inflation fell significantly, to 7.8 percent in FY1998, and has continued

to decline thereafter, largely because of reduction in the average rate

of increase of money supply to 9 percent between FY1998 and FY2001.

In FY2002, inflation was estimated at 2.6 percent for the first ten

months of the year, with food price inflation estimated at 1.4 percent.

Inflation has also been controlled because of low average international

prices of key commodities like petroleum and petroleum products, and

because of improved supply of food items in markets all over the

country.

FIG 3.2

0

2

4

6

8

10

12

14

FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02

INF

LA

TIO

N R

AT

E(%

)

3.3. SOCIAL DETERMINANTSThe economic determinants of poverty are key to understanding the

circumstances that can intensify poverty, or increase the

24

proportion of people falling below the poverty line. The existence of

poverty, wherein a significant proportion of the population remains

poor over an extended period of time, is attributable more to social

than to economic factors. The impacts of economic causes of poverty

tend to be prominent under social structure, and rigid societal mores

can act as hurdles to the equitable distribution of the benefits of

growth. Some of the social determinants of poverty are discussed as

follows

3.3.1. Land Tenure Systems

Access to land, which is the basic factor of production, is crucial to

reduce poverty in rural areas. Data from the Agricultural

Census of Pakistan conducted in 1990 shows that cultivated land is

highly unequally distributed in Pakistan. About 47 percent of the farms

are smaller than 2 hectares, accounting for only 12 percent of the total

cultivated area. Approximately 19 percent of farms are of 5 hectares or

more and account for 61 percent of the total cultivable land. Table 3.3

details the data.

The uncombined data by province shows that NWFP has the most

number of small farms, with almost 70 percent of farms having an area

of less than two hectares. In Balochistan, a province characterized by

vast expanses of land and strong tribal

society, the percentage of small farms is only 23 percent. In Sindh, a

province where the rural society is dominated by feudal elite, the

percentage of the small farms is 34 percent.

Table 3.3 Farm Classification by Size of Farms

25

PROVINCE Less than 2 hectares Greater than 2 Hectares and

less than 5 Hectares

5 hectares and above

Farms (%) Area (%) Farms (%) Area (%) Farms(%) Area (%)

Punjab 45 12 34 29 21 61

Sindh 34 9 47 34 19 58

N.W.F.P 69 24 21 29 9 47

Balochistan 23 3 35 12 43 86

Pakistan 47 12 34 27 19 61

Source: Agriculture Census Organization (1994).Census of Agriculture,

1990.Ministry of Food, Agriculture and Livestock.

The data in the table 3.4 indicates that in 1990, 73 percent of farms

were owner operated, while the remaining operated under tenants

operated. Ownership of even small landholdings can significantly

increase the owner's capacity to absorb economic shocks, and ensure

food security for the household. Land ownership is also the key factor

determining access to credit from the formal banking sector, thereby

decreasing the dependence of the poorest sections of society on

informal credit markets, which can be usually unfair. Unequal

land tenure patterns do not just have implications for income

distribution, but can also have adverse impacts on agricultural

productivity. The prevalence of an unequal land distribution system is

thus a major cause of poverty.

Table 3.4 Tenure Classification of Farms

Total Farms Owner

Operated

Tenant Operated

Province Area in % of total Area in Sharecropped Leased Other

26

Million Acres Area Million Acres % % %

N.W.F.P 5.83 80 1.15 77 21 3

Punjab 27.11 72 7.57 69 29 2

Sindh 8.60 65 3.00 76 23 2

Balochistan 5.78 86 0.81 89 7 2

Pakistan 47.32 73 12.54 72 26 2

Source: Agriculture Census Organization (1994). Census of Agriculture, 1990.

Ministry of Food, Agriculture and Livestock

3.4. ENVIRONMENTAL DEGRADATION AND

POVERTYThe environmental degradation and poverty are interrelated with one

and other, and the two states reinforce each other as well. These

linkages are further explored as follows:

3.4.1. Impacts on Health and Linkages with Poverty

The most commonly cited indicators of environmental degradation in

Pakistan are increasing air pollution and contamination of ground and

surface water. Recent studies suggest that emissions of matter in the

form of separate particles in Pakistan exceed WHO recommended

standards. Emissions of pollutants like nitrogen oxides, carbon

monoxide and lead, from both stationary and mobile sources are on

the increase, and according to some estimates may be costing Rs. 25

billion in health costs in urban areas.

The poor are more frequently affected by the air and water pollution,

both in rural and urban areas, given their limited access to quality

health care. Extended exposure to such pollutants is likely to have

significant impacts on health in the form of skin and respiratory

diseases, eye infections and in extreme cases, disorders of the central

nervous system. The prevalence of disease intesify poverty firstly by

compelling the poor to devote ever increasing proportions of a limited

27

income to health costs, and secondly by reducing productivity and

working days.

3.4.2. Effects of Degradation of Natural Resources

The degradation of natural resources can have a overwhelming impact

on the poor, given that they tend to be strongly dependent on such

resources. The rural economy in particular is built around the

sustainable use of natural resources, particularly water and cultivable

land. In Pakistan, the effects of land degradation have been apparent

for the last few decades, and may have been intensified by the

increased use of fertilizers and pesticides. Similarly, high rates of

siltation in uncovered watersheds and the degraded state of the

irrigation system have led to inefficiencies in water use and wastage of

freshwater resources. Around 25 million acre feet of water is lost every

year due to low water management efficiency. The rural poor are

particularly vulnerable to approval between rent-seeking Irrigation

Department bureaucrats and powerful local feudal elements. The rural

population, particularly small landholders bear a uneven part of the

costs of environmental degradation in the form of lower crop yields

and reduced productivity of agricultural land. The poor also bear the

burden of the degradation of wastelands, which increasingly support

smaller herds, and of forest lands from which they meet their fuel

wood needs. The high rate of deforestation in the country has

endangered biodiversity and may have devastating effects on the

livelihoods of communities in mountain areas, which are dependent on

forests for their energy and fodder needs, in addition to putting

medicinal plants and herbs found in forests to a variety of uses. The

poor are also more vulnerable to the effects of climate change, which

in the short term may manifest itself in the form of increased incidence

of floods, droughts, cyclones and other natural disasters and in the

long term could have potentially serious effects on water resources

28

and cropping patterns. The effects of climate change can thus cause

widespread loss of the assets of poor communities in the short run,

which tend to be more vulnerable to natural disasters. In the longer

term, climate change can potentially have negative effects on the

yields of crops such as cotton which are grown in areas where heat

stress is high, and rice which requires the regular provision of

adequate water

4. Conclusion and Policy implicationBy studying all the facts and figures given in this term paper, the

following conclusions can be drawn,

Poverty is high in Pakistan with one-third of the population living

below the poverty line.

From the analysis above, we can see that there are a number of

factors that are responsible for the increasing poverty in Pakistan, such

as:

Poor Governance

Environmental degradation

Economic determinants

4.1. Steps being taken by the Government

for abolishing these factorsGovernment of Pakistan has been working for many years, trying to

imply different policies in order to abolish poverty from its roots. ADB

(Asian Development Bank) support the Government’s poverty

reduction strategy and ADB’s operational strategy for Pakistan will

balance the Government’s efforts. Improving governance will be the

central focus of ADB’s operational strategy for Pakistan, in addition to

29

the efforts to encourage pro-poor growth .The key features of ADB's

operational strategy for Pakistan will be as follows.

4.1.1. Governance

Improving governance will be the central theme and the major focus of

ADB's poverty reduction strategy for Pakistan. To this end, ADB's

support will be channeled through a two-pronged approach: firstly,

ADB will bring about reforms in the various sectors, such as supporting

capacity building in public policy, enforcing women's and child rights,

promoting public private partnerships in provision of social services

and motivating instruments for social protection, will be developed and

implemented in a manner consistent with the overall governance

reforms in the country. Secondly, direct assistance would also be

provided to support the Government's governance reform agenda. A

major focus of ADB's governance support will be in the area of

provincial and district judicial and police reforms. These governance

interference will support a range of reforms that have important

implications for relations between the State and civil society

institutions.

4.1.2. Employment generation

Employment generation is very important for poverty reduction and it

will be an important area of support in ADB's operational strategy.

4.1.3. SOCIAL DEVELOPMENT

The poverty assessment also shows that a key factor in Pakistan's poor

growth performance in the 1990s was its low level of human

development. Although it is true that Pakistan has historically under-

invested in the social sectors. ADB strategy will assist the Government

in making decentralization a success. In addition, ADB will concentrate

on improving provincial resource management capacity for better

allocative efficiency of human development investments; establishing

30

decentralized financing, planning, and delivery of selected social

services (health and population, and education); financing incremental

services (new teachers, textbooks, medicines, etc.) small scale civil

works (building or repairing boundary walls or toilet facilities in girls

schools for example) targeted at making existing social sector facilities

operational, or improving their utilization; improving quality of primary

education by supporting changes in governance structures, institutions

and incentives; promoting public-private/civil society partnerships in

the context of devolving service responsibilities to local governments;

and improving municipal services in the context of devolving of

municipal functions to local governments, with particular focus on

services for the poor.

4.1.4. Sustainable Environmental Management

ADB’s environmental program is also going to expand in the medium

term, with increased emphasis on environmental management on the

part of industry and promotion of renewables. Building capacity within

the Government to effectively monitor the violations of environmental

regulations is crucial, and supporting initiatives such as the

development of the self-monitoring and reporting tool for reporting

industrial emissions to the environmental protection agencies. Finally,

ADB will explore the possibility of using special funds to support nature

conservation and biodiversity in national parks and other protected

areas.

4.2. Personal suggestion:

31

This term paper was a group effort. While bringing up this term paper,

there were many ideas that were storming in the minds of every group

member.

Following are the refined suggestions that were put forward by each:

Poverty has brought many problems along with it’s self. To over- come

these problems, an increase in GDP growth rates will, however, only

lead to appreciable reduction in poverty levels if growth is broad

based. To generate employment opportunities on a scale needed for

long-term poverty alleviation, it is necessary to create an environment

favorable for private economic activity, and encourage domestic and

foreign investment. That requires significant improvements in

management of public resources, establishment of law, and a move to

a less disturbing system of economic regulation. For the longer term, it

is very important to not only bring about a significant decrease in the

incidence of poverty, but also to reduce vulnerability to economic

variations, and remove the feeling of powerlessness that is the most

important thing that shapes the lives of the poor. Poverty alleviation

thus has to be effected not only through macroeconomic policies, but

also by bringing about significant improvements in the structure.

Seventy-five percent of Pakistan's poor live in rural areas, a large

proportion of who are pushed into poverty because of the instability of

income. There must be higher growth and greater stability of income

and employment in rural areas by focusing on (i) getting the policy of

the government to be right (ii) increasing agriculture productivity (iii)

increasing employment (iv) promoting rural-urban linkages by

improving communications, particularly rural roads (v) expanding rural

economic infrastructure, especially for irrigation, drainage, and water

resource conservation and management (vi) investing in infrastructure

in areas where poverty is high, and where the lack of infrastructure is

a barrier to development.

32

For social development, it must provide protection to the most

vulnerable groups, particularly women, children and the poverty-

stricken. There should be organizations besides ADB that should target

projects for women, and encourage gender mainstreaming across all

projects, in addition to promoting policy and institutional reforms for

awareness and enforcement of women's right's and representation in

all aspects of economic and social development.

Appendix-1

Years Agricultural (growth rate)

33

1960’s 5.10

1970’s 2.40

1980’s 5.40

1991 5.00

1992 9.50

1993 -5.30

1994 5.20

1995 6.60

1996 11.70

1997 0.15

1998 4.50

1999 1.90

2000 6.10

2001 -2.70

2002 -0.10

2003 4.10

Appendix-2

Years Gini-Coefficient Lowest 20% Highest 20%

1979 0.32 8.3 41.3

1984-85 0.34 7.9 42.8

1985-86 0.33 7.9 40.0

34

1986-87 0.32 8.0 39.0

1987-88 0.31 8.8 40.0

1990-91 0.41 6.0 47.4

1992-93 0.37 7.0 44.8

1993-94 0.40 7.4 43.1

1996-97 0.41 7.3 49.3

1998-99 0.40 6.9 46.8

Appendix-3

Years Total Rural Urban

1963-64 40.24 38.94 44.53

1966-67 44.50 45.62 40.96

1969-70 46.56 49.11 38.76

1979 30.62 32.51 25.94

1984-85 24.47 25.87 21.17

1987-88 17.32 18.32 14.99

1990-91 22.11 23.59 18.64

1992-93 22.40 23.35 15.50

1993-94 27.40 29.90 23.10

35

1996-97 29.60 31.60 27.40

1998-99 35.20 39.80 31.70

36