Pro-poor spending to reach 6.4% by 2010-11: draft

[Neo]

Thursday, April 26, 2007

Pro-poor spending to reach 6.4% by 2010-11: draft

*Ministry of Finance finalises 5-yr Poverty Reduction plan

By Sajid Chaudhry

ISLAMABAD: The government has finalised the Poverty Reduction Strategy Paper II draft by which the pro-poor expenditures will be enhanced from 5.2 percent of the GDP to 6.4 percent by 2010-2011.

The Ministry of Finance disclosed this in a draft paper released on Wednesday.

This second generation poverty reduction strategy is built around a set of seven pillars, which are drivers of economic growth and macroeconomic stability, crafting a competitive advantage, harnessing potential of the people, financial sector deepening and economic development, provision of world class infrastructure, effective governance and management and targeting the poor and the vulnerable.

According to the draft paper it would try to ensure that the country makes this inevitable demographic transition, clear cuts the priorities and sectoral strategies are in place that could provide the government strategic framework for PRSP II.

Pro-poor budgetary expenditures on the 17 pro-poor sectors identified in the PRSP are projected to grow from the current Rs 434.6 billion or 5.63 percent of GDP to 6.2 percent of GDP by 2008-09.

Pillar 1: Drivers of economic growth and macroeconomic stability: Pakistan has more mouths to feed, more families to house, more children to educate, and more people looking for gainful employment with millions migrating from the countryside to major cities in search of jobs and raising pressure on urban infrastructure, this large population on the other hand also represents a big opportunity for Pakistan to benefit from demographic dividend which can fuel Pakistan’s economic growth for the next fifty years.

Pillar II: Crafting a competitive advantage: The private sector will play an increasing role in driving growth and creating job opportunities. A strong Private Sector Development (PSD) strategy will therefore be a key element in enhancing the competitiveness of the private sector.

Pillar III: Harnessing potential of people: Putting People at the Centre of National Development and Human. The endeavor to move towards a ‘knowledge based economy’ encompasses progress in all areas including high value-added agricultural produce, information technology, biotechnology, engineering sciences, pharmaceuticals, material sciences, basic sciences, social sciences, economics, finance and other disciplines.

Pillar IV: Financial Deepening and Economic Development:

The government is planning to launch a second generation of capital market reforms to facilitate the mobilisation of financial resources for productive investment and employment generation. These reforms also aim to ensure balanced development of the Pakistani financial sector, which will reduce systemic vulnerabilities in a bank-dominated financial system.

Pillar V: World Class Infrastructure: The government’s vision for economic growth and poverty reduction sets ambitious targets, which will require massive investment in quality and affordable infrastructure, to sustain high rates of private sector led growth, enhance the competitiveness of its economy and to optimise its locational advantage.

Pillar VI: Effective governance and management: As part of institutional strengthening, major ongoing and planned government initiatives include reforms in judiciary, police, civil service, pension, the restructuring of the Central Directorate of National Savings (CDNS), restructuring of Federal Bureau of Statistics (FBS) into an autonomous institution, transforming the existing MCA into a Competition Authority Organisation, and introduction and adoption of E-Government Strategy.

Pillar VII: Targeting poverty and social safety nets: The main short term objective of reaching the poorest would be achieved by: 1) keeping the current benefits working and effecting a transition to better and more comprehensive systems; 2) introducing new means of testing and development of databases through some pilots across chosen rural and urban areas.

http://www.dailytimes.com.pk/default.asp?page=2007\04\26\story_26-4-2007_pg5_1

 

[Neo]

Gap between rich and poor widens

By Mehtab Haider

ISLAMABAD: The gap between rich and poor has witnessed a sharp increase in Pakistan during the period of the incumbent regime.

“Even though the gini coefficients and the shares of various quintiles have not yet been released the fact that the data shows almost twice the growth of incomes and consumption of the richest 20 percent compared with the poorest 20 percent (at nominal prices) does suggest a sharp increase in the income inequalities,” said a report on income inequalities in Pakistan and a strategy to reduce them.

According to an analysis done by renowned economist Dr A.R Kamal, the gini coefficient in 2000-01 shows a marginal decline only because of a decline in the rural areas. In the urban areas, however, income inequality increased rapidly. The urban income distribution in 2001-02 turned out to be the most unequal. On the basis of 2004-05 PLSM data, government has recently announced a sharp reduction in the proportion of poor below the poverty line.

In the rural areas the gini coefficient declined but there has been mixed trend in urban areas up to 1996-97. However, to a smaller extent in the rural areas and to a large extent in the urban areas income inequalities have increased since then.

Gini coefficient increased in rural areas from 0.3517 to 0.3762 and in urban areas from 0.3691 to 0.4615 over the 1997-2002 period. The overall gini coefficient over the period increased from 0.3598 to 0.4129.

Whereas the income inequality in 1996-97 had been low the inequalities have been the maximum in the 1990s compared to any time period in the history of Pakistan, Dr A.R Kamal stated in his analysis.

The poorest 20% lost share while the richest 20% gained in both the urban and rural areas between 1987-88 and 2001-02. While decline in income share of the poorest 20% was marginal because it was already meagre, the erosion of income share of middle 60% was substantial resulting in considerable gain of the richest 20% indicating erosion of the middle class.

The erosion of income share of middle 60% was more pronounced in urban than in rural areas. “We may note that this has been the period when Pakistan followed Structural Adjustment and Stabilization Programs. All over the world such programs have led to increase in the income inequality,” the economist wrote.

The four main factors that govern personal income distribution include distribution of assets, functional income distribution, transfers from other households, government and rest of the world; and tax and expenditure structure of the government.

Assets of a household are determined by inheritance; cumulative savings and return on investments; and changes in the valuation of assets.

Pakistan inherited very uneven land distribution and the gini index of the land is around 0.60. Whereas in the urban areas the asset distribution at the time of independence may not be as uneven as in the rural areas, they have become even more skewed with the passage of time due to a number of factors.

Firstly, large scale manufacturing and other enterprises have been provided with various incentives resulting in abnormal profits and rapid multiplication of assets. Second, rent seeking class has been promoted through land grants, import, investment and other licenses all of which carried premium and resulted in accumulation of assets by the privileged sections of society. Third, access to credit has been rather skewed. For example 68.8 percent of the total bank advances are accounted for by just 0.4 percent of the account holders.

Pakistan has all along relied on indirect taxes which are generally regressive. However both because the indirect tax rates on the products consumed by the rich were higher as well as progressive, the incidence of taxes up to 1988 was higher on richer sections of the society. However, under the Structural Adjustment and Stabilization Program, decline in corporate income tax rates and tariff rationalization has benefited the producers, while with the broadening of sales tax base, the tax burden on the poor has increased, he concluded.

http://www.thenews.com.pk/daily_detail.asp?id=54308