The threat within

Graver than external threats, population growth is the most alarming threat facing Pakistan

We have been so preoccupied with external threats, which admittedly are quite a few, that we have lost sight of the most fundamental threat that lurks within: the rate at which we are multiplying ourselves. Other transitional influences aside, this rapid multiplication is the main reason that we have been overtaken by Bangladesh in terms of per-capita income (calculated at official exchange rate). Unless our population growth slows down, Nepal will overtake us in five years, and in some not-too-distant future, Liberia and South Sudan as well.

So how does population growth become a threat? While it certainly implies a growth in the labour force, without a similar increase in other factors of production like — capital, land, knowledge, technology — the result will be unemployment, underemployment, and low productivity. Statistical evidence shows both the vicious (higher population growth — higher poverty — higher population growth) and virtuous (lower population growth — lower poverty — lower population growth) cycles at work in different countries.

There is a multi-dimensional, non-linear, and also two-way relationship between poverty and population growth. The key economic transition that defines the relationship is economic growth. Economists broadly agree that economic growth is a main driving force behind poverty reduction over the long run, and that labour markets provide the main transmission channel for this process because the poor depend overwhelmingly on labour income. Through its sustained high economic growth and rapid reduction in population growth rates, poverty in China declined from 88 per cent in 1981 to 6.5 per cent in 2012, taking 500 million out of extreme poverty within a span of only three decades.

The impact of population growth on economic growth (and consequently on poverty) is channelled through three modes:

1) Age-dependency effect: Rapid population growth leads to a high ratio of children to working adults and diverts household income from saving towards consumption. High fertility implies a relatively younger population, and thus higher age dependency. As fertility declines, age dependency declines and the relative proportion of the working-age population increases, leading to rising per-capita income (as compared to per-capita consumption), thus increasing the level of savings and investment in the economy. This time-barred window of opportunity, known as the demographic dividend, can be sensibly utilised to achieve higher and sustained economic growth, and is upon us now.

Pakistan’s low national saving rate could at least be partly attributed to its high rate of population growth, despite large inflow of remittances. Presently, our saving rate is about half of Bangladesh’s, one-third of that in India and one-fifth of the saving rate in China. Heavy reliance on foreign savings (ie, running high external current account deficits) leads to a rapid build-up of external debt.

2) Capital-shallowing effect: Rapid population growth lowers the ratio of capital to labour leading to a decline in labour productivity, which adversely impacts economic growth, which in turn impedes poverty reduction. If we trace the long-term trend of economic growth in Pakistan, we discover that over time the contribution of employment growth has increased while that of growth in labour productivity has declined. High rate of population growth implies a rapid increase in labour force — a rate which exceeds the capacity of the economy to educate and adequately train in required skills, implying lower productivity of labour. To employ this ill-educated and unskilled labour force, real wages fall to match labour’s lower productivity.

3) Investment-diversion effect: Both at the national and household level, rapid population growth leads to diversion of income from saving and investment to consumption. Our fast-growing nation is presently consuming 93 per cent of its income — implying a domestic saving rate (excluding remittances) of merely 7 per cent which is grossly insufficient to finance the growth rate of 7 per cent or more that we need to provide jobs to the fast-growing labour force.

At the national level, this implies lack of resources for maintaining and improving infrastructure and services, which are critical for accelerating economic growth. Rapidly-increasing population requires increased budgetary resources to just maintain the quantity and quality of education and health services and their present low levels. With tax collection chronically low, our government has not even managed to maintain the quality of these public services. Enrollment rates in Pakistan have increased much slower than in comparator countries, and the quality of education has declined, reducing returns to education and reinforcing the perception of its “uselessness” among poorer households.

At household level, there is clear evidence that in poor families the cost of high fertility especially unwanted pregnancies falls disproportionately on children, as family resources are shifted from children’s education and health to basic necessities (food, clothing and shelter). And this lower investment in children’s human capital transmits poverty across generations.

Notwithstanding the above arguments, Pakistan has made substantial progress in lowering poverty despite decelerating economic growth and continued high population growth. This is mainly because: first, despite the economic slowdown, real per-capita income has continued to grow, which had a dampening effect on poverty. Second, income distribution has remained fairly stable, thereby avoiding the influence of worsening income disparities on poverty. Finally, perhaps the biggest contributor to poverty reduction in Pakistan has been rapid growth in worker remittances. But the key point is that had the population growth been slower and economic growth faster, the reduction in poverty would have been much more pronounced.

Despite this significant reduction, poverty has remained high in Pakistan. World Bank estimates show that there were 74 million persons living below the poverty line in 2013. High levels of poverty attack the very root of the country’s social fabric. With proven links to increase in crime, social discord and inter-class and inter-regional frictions, our high level of population growth and poverty poses as much, if not a bigger, threat to the country as any external threat. The decent growth that the economy was able to generate despite mounting problems may have led us to ignore this internal threat for too long. Some of the problems that the country is facing today are clearly linked to high rates of population growth and poverty and any further neglect of this issue will compound these problems rapidly. The time to act and dismantle the population growth-poverty nexus is now, beginning with the obvious target of lowering the population growth.

Published in The Express Tribune, July 21^st, 2018.

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