Poverty reduction in the Musharraf era
The official estimates claim a decline in the poverty incidence from 34.5 per cent in 2000-01 to 22.7 per cent in 2004-05. This reduction of 11.8 percentage points would suggest that almost one-third of poverty in Pakistan was eliminated within a period of only four years. If accepted at face value, this would probably be the largest poverty reduction over a four-year period in the history of the developing world, and would by far outmatch the poverty reduction performance of the former Soviet Union and China, during their eras of central planning.
Pakistan’s official poverty reduction figures for the period 2000-01 to 2004-05 become even more incredible when the data is disaggregated to the provincial level. Provincial level poverty figures of the official data set show that poverty in rural Sindh declined from 48.3 per cent in 2000-01 to 28.9 per cent over the period. Thus the Musharraf government’s figures would have us believe that over 40 per cent of the poverty problem in Sindh was eliminated within a four year-period of its rule. In terms of this trend, poverty in Sindh ought to have been completely eliminated by the year 2008-09. If this incredible phenomenon occurred, it was certainly not visible to the naked eye in Sindh.
Further doubt is cast over these official poverty figures when we investigate the sources of growth on the basis of national income data for the same period. The results show that 80 per cent of the growth during the period was contributed by the services sector, consisting predominantly of banking, telecommunications and to a lesser extent, trade and transport. In the case of the large-scale manufacturing sector, the predominant driver of growth was automobiles and consumer electronics. Clearly, these sectors neither produce goods for the poor nor employ them. Therefore, the structure of the growth process during the Musharraf period was such that it could not be expected to have a substantial positive impact on poverty.
Furthermore, there was a 70 per cent increase in the food price index in 2007-08; a sharp increase in gas and electricity prices; and a sharp increase in the prices of industrial and agriculture inputs following exchange rate depreciation. The aggregate consequence of the changes in these variables suggests that the positive effect of growth on poverty would be expected to have dampened by the end of the Musharraf regime rather than dramatically increased as the official figures claim.
Finally, given the sharp increase in interpersonal inequality during the period, the trickle down effect of growth would tend to dry up. The mathematical relationship between growth, inequality and poverty is well known: For a given growth rate, the higher the level of inequality, the smaller the trickle-down effect. Indeed, if the inequality at the beginning of a period is high enough and if the growth of inequality is substantially greater than the growth of GDP, than the incidence of poverty may well rise rather than fall. The huge poverty reduction estimates of the Musharraf government are, therefore, not consistent with the magnitude of the growth of inequality estimated from the same data set.
The official poverty data set of the Musharraf regime, which yields a poverty reduction magnitude unmatched in the history of developing countries, is neither internally consistent, nor is it consistent with national income data of Pakistan, nor consistent with the logic of economic science.
Published in The Express Tribune, October 17th, 2011.
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An excellent article on poverty, Dr. Akmal. I agree that the drivers of growth were not the pro-poor sectors. Hence, a substantial reduction in poverty could not be expected.
It is surprising to see a substantial decline to 17.2% in 2007-08 in the wake of declining growth and food and energy price crises that hit the poor in 2007-08. Earlier, the substantial decline by 10 percentage points to 23.9% in 2004-05 was also contradicted by the WB and independent analysts in 2006 (see PDR, 45: 4 (2006) pp.777-793; and ADB (2008), Poverty Assessment update, pp 11-14). The rapid reduction in poverty is due to the use of CPI for updating the poverty line which understates the inflation rate and thus the poverty level. Even in developed countries, poverty level is 10-15%. Have we developed to that level? It is thus important to correct the surprisingly low poverty figure and examine critically to establish how poverty reduction has been overstated. To set the poverty record right, Planning Commission needs to take steps to set up an experts’ committee to review data and the methodology that has been used to derive such dubious estimates. Talat
@RiazHaq Thank you for your interest in the subject. My article exclusively focussed on scrutinizing the magnitude of poverty reduction claimed by the Musharraf regime. I am not questioning at this stage the fact of poverty reduction but its magnitude. I have pointed out: (i) internal inconsistencies within the data set, (ii) inconsistency with National Income Data which shows that economic growth during that period was fueled overwhelmingly by the growth of sectors which neither produce for the poor nor employ them, thereby suggesting that the poverty reduction effect of GDP growth would be dampened. (iii) inconsistency with the sharp increase in inflation particularly food inflation near the end of the Musharraf period which would be expected to further constrict poverty reduction. Thus my humble submission is that these factors cast doubt on the poverty reduction figures which in terms of their magnitude and pace are unprecedented in the history of world development.
The letter of the PPP government that you have quoted does not at all endorse the claim of the Musharraf regime that the incidence of poverty was reduced by one third between 2001-05 and then was halved by 2007-08. It merely acknowledges that poverty reduction occurred. In fact the Planning Commission during the PPP government officially rejected the magnitude of poverty reduction of the Musharraf period, on grounds that it did not accord with "ground realities".
@Dr. Akmal Hussain:
Dr Sahib,
You are most welcome. One of the few sane voices in Pakistan. You know I have always had a high opinion of your intellectual integrity and analysis.
@Riaz Haq:
If you are really interested you can contact me and I will give you published reports that warned as far back as 2005 of dangerous over-heating pressures and the need for bold and immediate corrective policy action. This advice was ignored and all it took was the shock of the 2008 global financial crisis to send an over-stretched, near-bankrupt economy into the lap of the IMF.
As the saying goes, all that glitters is not gold.
By the way, a 3.8 month import cover is just 0.8 months more than what is considered the MINIMUM reserve cover you need to have to guard against shocks. The present reserve cover is about 5.5 months' of imports and that is about to dwindle pretty quickly.
@Akmal: Ok, let's ignore WB and ADB for the moment, and look at what the current PPP govt (no friend of Musharraf) acknowledged in its letter to the IMF in 2008:
"In the last decade, Pakistan’s economy witnessed a major economic transformation. The country’s real GDP increased from $60 billion in 2000/01 to $170 billion in 2007/08 (fiscal year starts July 1st), with per capita income rising from under $500 to over $1,000. During the same period, the volume of international trade increased from about $20 billion to nearly $60 billion. For most of this period, real GDP grew at more than 7 percent a year with relative price stability. The improved macroeconomic performance enabled Pakistan to re-enter the international capital markets in the mid-2000s. Large capital inflows financed the current account deficit and contributed to an increase in gross official reserves to $14.3 billion (3.8 months of imports) at end-June 2007. Buoyant output growth, low inflation, and the government’s social policies contributed to a reduction in poverty and an improvement in many social indicators."
http://www.imf.org/External/NP/LOI/2008/pak/112008.pdf
@Meekal Ahmed: Thanks Meekal for raising your voice for reasoned analysis rather than personal attacks based on preconceived conspiracy theories. I agree with you that the data set of the Musharraf regime needs to be critically examined from the point of view of internal consistency. At the same time independent and alternative data sources need to be brought into play to judge the veracity of the claims of dramatic poverty reduction. As regards the high GDP growth rates the key question which I had raised at the time that the claims of an economic miracle were being made, is whether that GDP growth is sustainable. I had argued in print at the time, that there were structural constraints to growth sustainability in the Pakistan economy. Subsequent economic performance unfortunately proved this argument.
The World Bank and ADB use government figures the world over. These multilaterals trust governments with whom they work.They have no alternative. Therefore the fact that these multilaterals work on trust, does not constitute evidence that the data set of a government is necessarily valid. The job of a scientist is to critically examine the received truth. The right to question the official truth by independent thinkers was first won by Socrates in 326 BC when he drank the potion of hemlock rather than accept the official truth.
A biased article by the author
Major poverty reduction in Pakistan during Musharraf years was real and it's not at all a mystery how that happened. It was the obvious result of the creation of over 13 million new jobs, the highest in terms of percentage of population in South Asia according to a recent World Bank report on jobs in South Asia, coupled with a dramatic expansion of Pakistan's middle class from 2001-2007 per ADB report on Asia's rising middle class. In addition to a very visible construction boom which is very labor intensive, there were entire new industries like telecom and media that grew rapidly on Musharraf's watch.
Please read more at: http://www.riazhaq.com/2011/10/twelve-years-since-musharrafs-coup.html
@Zafar: if you believe the booming economy numbers of Musharraf, do you also believe the booming economy numbers of former president Bush that lead to the US recession?
Booming economy during Musharraf era created throusands of job, most of the industry was running at full capacity, rupee remained stable, debt stayed at $37 billion (which is now $57 billion), people has money to spend, food prices remained more less stable. Are'nt these indicators enough to believe that we were much better of during that time than today. The actual reason is that Musharraf pluged leakage of foriegn currency which was used to be due to massive corruption during PPP and PML-N governments.
Mirza sahib! Your discussion, if I say it, is much like; "If Meera makes three movies this year, Obama will win the next US elections."
It is so shocking that Dr. Akmal is providing distorted information to the readers. All readers and experts before opining kindly read the Word Bank report 2008 and Asian Development Bank report on South Asia 2008? Everything will become crystal clear to them. These reports were not prepared by GOP. Both reports say that during Musharraf era poverty reduced from 34% to 17%. Unfortunately I am right now travelling and cannot produce the references here. But I have read parts of both reports that cover Pakistan. I read ADB report just last week. Both of the reports were prepared by the international organizations and after Musharraf had left the office.
If you want please discredit Musharraf, but with logic and sense.
Statistics notwithstanding, there is no doubt that Musharraf's rule was infinitely better than the current 'democratic' charade. Here's hoping Musharraf returns to office soon.
"poverty in rural Sindh declined from 48.3 per cent in 2000-01 to 28.9 per cent over the period. Thus the Musharraf government’s figures would have us believe that over 40 per cent ...., poverty in Sindh ought to have been completely eliminated by the year 2008-09" Can anyone explain it ? As per my knowledge poverty reduction during 2001-04 has shown average 15% decline annulaly(from 48% to 28%)... on the same pace it would have taken atleast a decade to bring down poverty to bare minimal no i.e 1%. But musharaf didnt last longer (in terms of growth, funding etc ) and Zardari govt. make it more worse (worst) particularly for lower middlee class and poor people, and one more thing if any survey would be conduted now poverty would definately be around 40-45%.
Thank you Dr Akmal Sir Indeed That was a great success by Pervez Musharraf But thing is that Why these people were sleeping when these so called democratic leader was out there to kick Musharraf out of Presidency Why why were we all sleeping we are a thankless nation
Musharraf Teri Yaad ayi tere Jany ke baad
i dont get it. u jsut say since no one has achieved this rate of reduction it must be false..... there is always a first time.. and we never had a leader like musharraf before who ruled pakistan..... ask common man of pakistan whether he was bettter off in musharrafs era or this era..... whetehr he is poorer or during nawz era and whether his income increaed during musharrafs era.. ull get yr answer...
Liked the way you put it down so that an ordinary person could easily understand. I feel you have displayed a gentlemanly guarded attitude in your criticisms.
Do assume and presume get solid numbers and please go to the court and ask them to verify the figures and discredit or credit him afterwards.
Please do that even if you are working on Nawaz Agenda
Thanks
most of the musharraf era figures are cooked up stories aimed at justifying his coup and make his comeback as a civilian president again. Pakistan needs to correct its figures before they become laughing dtock of the world.
An increase in the spending patterns of the middle class cannot be labeled as a token in reduction of poverty. Lofty claims have been made by successive administrations and are generally based on questionable data as the author indicates. The fact is that with the rising expectations of the middle class and their spending spree on big ticket consumable items like automobiles, increase in the price of the utilities, food-items, and petroleum have actually pushed the lower-middle class into poverty. I am also not surprised by data manipulation. First, how, when, and who collected the data and then who were the people who ran the statistical analysis? Most of the data in Pakistan is collected while sitting in Islamabad or Lahore. I don’t and cannot think of any mechanism of data collection that exists at the grassroots level.
You refer to inequalities increasig during that period. That hypothesis is consistent with teh structure of growth you described. However it is not consistent with the change in Gini index which measures inequality. Apparently the Gini index went from around 41 in 1998 to around 30 during Musharraf years i.e. significant reduction in inequality. So either the Gini numbers were also cooked or perhaps the increased equality may have been the explanation for poverty reduction.