Poverty reduction in the Musharraf era

Poverty reduction estimates of the Musharraf era are not consistent with the magnitude of the growth of inequality.

Dr Akmal Hussain October 16, 2011

A fiery debate erupted last week, on the official poverty estimates made during the previous regime of Pervez Musharraf. Dr Nadeemul Haq, Deputy Chairman of the Planning Commission has faced a verbal attack from a concerned former official of the Musharraf government, for expressing scepticism at the latter’s poverty estimates. Even though there was more heat than light in the verbal war, Dr Haq has been “summoned” by a Parliamentary Committee, according to newspaper reports. Under these circumstances, perhaps a reasoned examination of the poverty estimates of the Musharraf government, however brief, may be helpful.

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.


Dr. Talat Anwar | 10 years ago | Reply

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

Ishrat Salim | 10 years ago | Reply Poverty level is at 48.6 % & food rights campaigners hv warned the govt that this year " due to high food inflation " 30 million more people will reach below poverty line...so , what do you say...Mr Akmal...?? is this also due to M`s govt policy...?? If this trend is not arrested soon...these poor people will hv no choice but to come out on the street sooner than expected....& they will snatch food etc; from rich people houses, PM & President house, MNAs & MPAs houses & wedding halls etc;...including mine & your house too....& nobody can STOP this....because we ALL are responsible & an accomplice to the present mess....because we are a nation who are in the " state of denial "....& always dwells in the past... Let us not dwell in the past....that has become a culture in our country.....suggest , what has to be done now.... The present mess is all due to our culture of going into the mistakes of the past - instead of learning from it & yet electing the same batch of politicians to run the country....??
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