Updating poverty estimates
The Centre for Poverty Reduction and Social Policy Development (CPRSPD), an affiliate of the Planning Commission of Pakistan, is processing the economic and other relevant data for the fiscal 2006 for an estimation of the incidence of poverty during that year.
The Federal Bureau of Statistics (FBS) has provided the CPRSPD the relevant data for estimating poverty incidence. The centre is processing the data and we expect to finalise the poverty estimates for fiscal 2006 in another month or so, a senior Planning Commission of Pakistan official tells Dawn.
The last time the government had estimated incidence of poverty was in 2005, a year when the Gross Domestic Product (GDP) had peaked to above nine per cent and the country had harvested record food and other crops.
The results produced by the centre showed a reduction in overall poverty by 10.6 to 23.94 per cent in 2005 from 34.94 per cent in 2001. In urban areas, the poverty incidence was claimed to have declined to 14.94 per cent during the same period. it dropped to 28.1 per cent to 28.1 in the financial year 2005 from 39.26 per cent in 2001.
The new poverty estimates were however immediately challenged by the World Bank for using Consumer Price Index (CPI) for inflating 2001 poverty line instead of using the survey-based prices index, Tornqvist - TPI. On the basis of that the World Bank said poverty had dropped by 5.2 per cent between the year 2001 and 2005.
The decline in poverty in 2005 afforded the previous government an opportunity to show off the success of its economic and growth policies.
The fiscal 2006 too was not a bad year with regard to overall economic growth and food prices, the Planning Commission official says, implying that the results for the year would not be much different from 2005.
He acknowledges that the poverty incidence needed to be estimated immediately after the end of a fiscal year in order to adjust the governments socio-economic policies and priorities accordingly.
But, he argues, the FBS did not have enough funds to make poverty estimation a regular annual feature. The exercise is carried out only when the FBS has money for this purpose, he says.
Another official admits that the gains made during the period 2001 and 2005 on the front of poverty alleviation have largely been wiped out in the first 10 months of this financial year due to huge increase in food and commodity prices.
Poverty is extremely sensitive to food and energy price fluctuations and general economic conditions. The incidence of poverty changes each year, depending upon the economic conditions prevalent in a given year, he says
Some 35 to 40 per cent people of the total population are estimated to be living slightly below or above the poverty line. This segment immediately gets affected even by the slightest change in the economic conditions, particularly food and energy prices and performance of the agriculture sector.
Poverty is sensitive to year-to-year economic conditions. That is why the incidence of poverty during a given year differs from another year. If and when the prices go up and agriculture underperforms, the number of people below the poverty line rises. Similarly, if and when the prices fall and agriculture performs well, we see a reduction in the number of the poor, says an economist, who also asked not to be named because is working for the Planning Commission as a consultant.
The exorbitant spike in the food and energy prices in the last several months means a hefty increase in the number of people living below the poverty line.
The rule of thumb is that one per cent increase in the food prices means a half per cent rise in poverty, says the federal government consultant.
But, he says, the poverty estimates could not be built upon the rise or fall in the food and energy prices or the performance or lack of it of the agriculture sector alone.
The increase or decrease in poverty is also dependent on several other factors like the overall economic growth or lack of it, quantum of overseas remittances, government expenditure (on development and other projects), etc.
These factors always have a discouraging impact on poverty. If the economy is growing and the size of remittances rising and the government is spending more on development, it means that these factors would offset the impact of higher food and energy prices or drop in crop output. That is why we cannot calculate the net effect of the food and energy price spike on the incidence of poverty without analysing the economic data for the entire year, he says.
Yet, he adds quickly, it is safe to assume that poverty has gone up during the last six to nine months due to the poorer performance of the national economy as compared to the last financial year.
He says the soaring food prices during this fiscal must have affected the urban poor more than the rural poor.
In the rural areas, we have evidence to suggest that a good number of landless farmers - who get affected by the consumer price inflation more than the rest of the rural population, have diversified into livestock and other agriculture sectors in the recent years. Thus, they are economically more stable than they were in the past years. Look at the milk prices, which have risen to Rs48 per litre from Rs44 just 15 days back. This increase in milk prices should have helped transfer some income to this segment of the rural population. The sharp increase in the wheat prices should also have made similar, positive impact on those who have land and (grain) surplus to sell in the market. These developments could be said to have impacted positively on the lives of those living on a subsistence level, he argues.
However, he says, the increase in rural income also brings up the issue of its equitable distribution. The rise in commodity prices does not affect everyone in the rural economy equally.
When the commodity prices soar, only those who have larger landholdings and can produce for the market benefit. Since an overwhelming majority of the rural population - 93 per cent, according to some estimates - comprises landless tenants or small landholders, increase in commodity prices results in skewed, inequitable income distribution in the rural areas in favour of the bigger landholders, the economist says.
The increasing incidence of poverty has also generated a debate as to the effectiveness of huge indirect subsidies allowed to protect the poor from the price shocks.
Most economists argue that the mechanism of giving indirect, cross subsidies to mitigate the impact of the rising food and energy prices on the poor is not effective.
A larger part of these subsidies - such as the one on domestic oil and power prices, is pocketed by those who do not need them or who are not the target group of these subsidies.
The better way, these economic experts insist, would be to withdraw all the indirect subsidies and supplant them with direct cash subsidies to the targeted segments - 15 per cent chronic poor at the bottom.
However, an economist teaching at a private university, maintains that a middle way consisting of a mix of cash and food subsidies needs to be found out.
There is no perfect mechanism to ensure that the subsidies actually reach targeted groups without any leakages. If the present mechanism of indirect, price subsidies is fraught with leakages, who can say that the cash subsidy would have no leakage and reach those for whom it is intended? Every intervention on behalf of the poor has leakages, he says.
He says different kinds of interventions are needed to be implemented for different target groups - urban and rural poor.
All such interventions should be well planned and involve minimum leakages, he says. But that would require authentic poverty surveys showing the near exact depth and severity of the problem. Unless this can be achieved, there is little hope for any pro poor intervention to succeed.
Updating poverty estimates -DAWN - Business; May 19, 2008
