1.

Introduction

1.1 Statement of the problem

It is a paradoxical world. On one hand, we have spectacular

advancements in the area of science and technology and on the

other hand, we have millions of people who have no access to

food and basic essentials to survive. Poverty indeed is the most

challenging problem faced by the developing and the

undeveloped country. It is not wrong to say that widespread

poverty in the developing & the under developed countries

distinguishes them from the developed countries, where the

absence of poverty is most conspicuous.

According to the World Bank 2002, almost 11011 million people

are living below the poverty line if the old standard of $1 per day

is considered. If new standard of $2 per day is regarded then the

no. of people living behind the poverty line increases to almost

double that of old standard.

The further sub-divisions reveal that Sub-Saharan Africa & South

Asia have the highest number of people living below the poverty

line i.e. 303 million people in Africa and 437 million in South Asia.

The Europe and Central Asia have 10 million people living below

the poverty line while Latin America and Caribbean have 42

million people living below the poverty line ($1 per day as

standard).

1
As far as Pakistan is concerned, the certain reasons like instable

political system, corruption and unequal income distribution have

resulted in a high percentage of poor in the country.

According to the study, in 1960, about 19 million people lived

below the poverty line in Pakistan. By 1980, the number of people

defined by the government as absolutely poor had grown to 34

million. And in the 1990s - between 1990 and 1995 - the number of

absolute poor rose to 42 million. The current statistics present

the following profile of poverty: 42 million or roughly 30% of the

population are poor; 47 million adults or 62% of the adult

population cannot read or write, 76% of the female adult

population is illiterate. In addition, eight million children are out

of school; 61 million people or 45% of the population have no

access to safe drinking water; 54 million people or 40% of the

population have no access to even basic health services; 72

million people or 53% of the population have no access to

sanitation; nine million children under the age of five or 38% of

the under-five population are malnourished.

The extensive rise in poverty is creating an alarming situation for

the Government and the people. So there is definite need to solve

the problem.

2
1.2 Objectives of the Study
The objectives of the study are as follows

1) To correctly identify the causes of poverty.

2) To assess the poverty and observe the poverty trends.

1.3 Methodology
We have collected the data by reviewing different articles from

different magazines and newspapers. Some important information

is also taken from different reports.

2. Review of

Literature

M.Ziauddin, 1999 in his article “Pakistan:

now, the poverty bomb goes off” describes that in 1960, about 19

million people lived below the poverty line in Pakistan. By 1980,

the number of people defined by the government as absolutely

poor had grown to 34 million. And in the 1990s - between 1990

and 1995 - the number of absolute poor rose to 42 million. The

current statistics present the following profile of poverty: 42

million or roughly 30% of the population are poor; 47 million

adults or 62% of the adult population cannot read or write, 76% of

the female adult population is illiterate. The calorie-based

approach defines the poverty line as the minimum expenditure

3
required to achieve a daily intake of 2,250 calories per person.

This approach indicates that poverty has declined at all levels

between 1986 and 1994 from 27% to 21%. The basic-needs

approach defines the poverty line in terms of the minimum

expenditure required to achieve a basket of needs consisting of

food, clothing, housing, health, education, transportation, etc. As

compared when this approach is based on expenditure pattern a

mixed trend emerges and for Pakistan as a whole poverty

appears to have declined marginally from 29% to 28.7%. For

Pakistan as a whole, poverty has increased from 29% to

36%.Under different regimes, Pakistan has experienced poverty

and stagnation in the 1950s, increasing poverty and growth in the

1960s, stagnation of growth but declining poverty in the 1970s,

increasing growth and declining poverty in the 1980s and finally,

increasing poverty and falling growth in the 1990s. Today, roughly

30% of Pakistan's population is classified as 'income poor',

whereas nearly half suffers from the deprivation of basic

opportunities of life. The majority of Pakistan's human poverty is

to be found among women and in its rural areas. If present trends

continue, it is estimated that Pakistan will take another 170

years before it can stake a claim for a place in the list of

developed nations based on socio-economic indicators.

Pakistan's economic fortunes and planning have largely been

controlled by a narrow group of industrialists, agriculturists,

politicians and civil and military bureaucrats. And regardless of

4
political regimes, Pakistan's economy has traditionally been

fuelled by five pumps: agriculture, manufacture, foreign

remittances, foreign aid, and a large and vibrant black economy.

These five pumps have been responsible for much of our

economic growth.

Dr Akhtar Hassan Khan, 2000 in his

article “Poverty in Pakistan” depicts that Pakistan’s experience

shows, growth may be a necessary, but certainly not a sufficient,

condition for reducing poverty. Economic growth reduces poverty

only if it can neutralize/offset the debilitating effects of large

income and asset inequalities. In 1999 the incidence of poverty in

Pakistan was 32.6 per cent of the total population (35 per cent of

rural and 26 per cent of urban) having almost doubled from 17.3

per cent in 1988. Moreover, independent estimates claim that the

proportion of the population below the poverty line has grown to

36 per cent since then, which translates to 50 million people,

more than the population of the country at the time of

independence. However more important than absolute poverty is

the increasing ratio of unequal distribution of income. The share

of household income of the poorest income group has shrunk

from 8.4 per cent in 1970-71 to 6.2 per cent in 1997-98 and that of

the richest increased from 41.5 per cent to 49.7 per cent over the

same period, reflecting the growing polarization. He says that the

poverty forces the poor to minimize risks and as a result they opt

5
for low productivity ventures. The fear of losing limited resources

prevents risk taking. To preserve security of livelihood they opt

for unproductive and low-paying activities which results in

poverty. One of the main reasons for increase in poverty in 1990’s

has been the slowing down of economic growth. Since 1996-97,

national per capita income grew by less than one per cent per

annum; the growth rates of 6.7 per cent per annum from 1997 to

1988 and five per cent between the second half of the 1980s and

the early 1990s fell to 4.1 per cent and to 3.3 per cent thereafter.

Dr. Akmal hussain, 2001 in his article

“Poverty in Pakistan” explains that Overcoming poverty means

shifting the location of the poor in the local power structures

from being victims to active subjects in achieving equitable

access over markets and over institutions. A paradigm, according

to Kuhn the great philosopher of modern science, is a framework

of thought within which questions are posed and answers

pursued. Dr. Akmal Hussain had proposed that the prevailing

paradigm of poverty may have become obsolete and it is time to

replace it with a new one. The essential flaw in the prevalent

poverty paradigm is that the issue of power is systematically

excluded from both the understanding of poverty as well as

policies for overcoming it. Similarly some of the large NGOs

operating in many different districts pursue poverty alleviation by

trying to provide micro credit to the poor. Increased resources by

the government or micro credit by NGOs may be a necessary but

6
is not a sufficient condition for overcoming poverty. The poor

face markets, state institutions and local structures of power

that discriminate against the poor and deprive them of a large

proportion of their actual and potential incomes. Most studies on

poverty in Pakistan have examined the problem simply in terms of

measuring the number of people below certain poverty lines. The

poor lose as much as one-third of their income due to unequal

access over input and output markets and extortions by the local

administration. For example, as much as 51 per cent of the

extremely poor tenants borrow money from the landlord. The

evidence shows for example that of those tenants who borrow

from the landlord as many as 57.4 per cent work on the landlord’s

owner cultivated portion of the land without any wages at all, and

14 per cent work for a daily wage of only Rs 28 which is

substantially below the market wage rate for unskilled labor.

That health is a major trigger that pushes people into poverty and

the poor into deeper poverty. Given the inadequacy of the

government’s health facilities as many as 85 per cent of the poor

go to private allopathic medical practitioners for treatment. The

expenditures on such treatment are so high that poor households

are obliged to borrow mostly from informal sources to finance the

medical expenses of their families. Access over good quality

health services is a question not just of money but also of power

and influence to get hold of a proper doctor or a hospital bed.

Thus the analysis and evidence within this new poverty paradigm

7
suggest that the key to overcoming poverty is to empower the

poor to get better access over markets, governance, and the

institutions that provide public services such as health care,

education and justice. Dr. Hussain’s work on both institution

building for the poor and action research over the last two

decades, shows that overcoming poverty means empowering the

poor to acquire greater control over their use of productive

resources including their own labor, and keeping their incomes

and savings in their own hands. Overcoming poverty means

shifting the location of the poor in the local power structures

from being victims to active subjects in achieving equitable

access over markets, and over institutions providing credit,

health and education services. Attempts at poverty reduction

without empowering the poor in this specific sense, will merely

perpetuate poverty.

Shahzeb Jillani, 2002 in his analytical

article “Pakistan's poor seek share of riches” describes that "IMF

and the military government's economic team may congratulate

each other on doing a fine job, but if you ask an ordinary

Pakistani, poverty and joblessness have only made matters worse

for the majority." In its annual review of Pakistan's economy

released last week, the IMF said the economic outlook was

broadly encouraging, but added that more reforms were needed

to put the nation on a better footing. The report came just days

8
after the international lender approved the latest $114m payment

for the country, under a $1.3bn poverty reduction program.

However, despite the overall praise, the IMF shared concerns of

growing poverty being voiced by the critics. Hence the stresses

in the IMF report on Pakistan Economic Mangers to do more to

reduce poverty. Specifically the IMF has urged Pakistan to boost

tax collection and increase spending on basic health and

education. But, it seems, that realization is already prevailing.

Two weeks ago, the State Bank of Pakistan came out with its

own annual report on the economy with a similar message. The

bank predicted that unless there was a major downturn globally,

Pakistan's economy was likely to achieve a 4.5% growth target in

the current financial year. However, the bank was categorical

that progress would only come through if Pakistan maintained the

momentum of ongoing reforms.

A Poverty Assessment by the Asian

Development Bank, 2002 in its report “Poverty in Pakistan:

Issues, Causes and Institutional Responses” shows that more

than 12 million people were added to the ranks of the poor in

Pakistan between 1993 and 1999. During this period, the level of

poverty worsened from 26% of the population falling below the

poverty line in 1993 to 32% below the line in 1999.Thus it would

not be an exaggeration to say that more than a third of the

country's population is currently living in poverty. In 1997, the

9
income share of the bottom 20 percent of households had

declined to 6.9 percent from 7.9 percent in 1987, and the income

share of the bottom 40 percent of households declined from 20

percent to 18 percent. During the same period, the ratio of the

share of the top quintile to that of the bottom quintile increased

to 6.5 from 5.2 for all areas. While poverty has intensified in the

last decade, (HDI) shows that Pakistan's level of human

development is low for its level of income. Pakistan's education

indicators are the worst in South Asia. The report explains that

Corruption and political instability, which are both manifestations

of governance problems, have resulted in waning business

confidence, deteriorating economic growth, declining public

expenditure on basic entitlements, low efficiency in delivery of

public services, and a serious undermining of state institutions

and rule of law, which in turn translates into lower investment

levels and growth. The report also analyzes responses to poverty

in the country. Poverty alleviation has to be effected not only

through macroeconomic policies, but also by bringing about

significant improvements in the structure and functioning of

systems of governance. In some areas, such as devolution, public

expenditure management, anti-corruption initiatives, and the

independence of the State Bank of Pakistan, appreciable

progress has been made. According to the Country Director, ADB,

M. Ali Shah, improving governance will be the central theme and

the major focus of ADB's poverty reduction strategy for Pakistan.

10
 K J M Varma, 2003 in his article “Pak

economy steady; poverty up 33% “says that Ringing alarm bells

over increasing numbers of poor and unemployed in Pakistan, the

country's state bank said the level of poverty rose to 33 per cent

from 20 per cent in the last 15 years, even though the economy

looked up with a growth rate of 5.1 per cent. The report

explained, however refrained from blaming the Pervez Musharraf

regime for the increase in poverty, stating that the increase

happened over 15 years and not because of the policies pursued

in the last four years. The economy appeared to be steady with

the GDP growth remaining at 5.1 per cent in the fiscal year 2002-

03, mainly due to the improvement of harvests of key crops and

increase in exports to a record $11.1 billion. The country's forex

reserves shot up to a record over $11 billion and the current

account surplus jumped to an all time high of $4 billion, the

foreign remittances also accelerated to a new high of $4.2

billions. A study of socio-economic dimensions of poverty

suggests that Pakistan's economic performance has been dismal

during the 1990s. Not only the income poverty but also the

income inequality increased during the period. About the status

of Pakistan's external debt, it said the Paris Club debt

restructuring and a $1 billion debt write-off by the United States

also catalysed significant improvement in the country's debt

profile. Now the amount of foreign debts stands almost $7 Billion.

11
 Anjum Altaf, 2003 in his article “Op-ed:

Causes of poverty” says that A closer look at the evidence might

lead us to conclude that the causes of poverty have less to do

with literacy, democracy or religion and much more to do with

economic and political policies. It is not the ‘ignorance’ of the

populations, however, but the ‘ignorance’ of the ruling groups

who are all highly educated. It is hard to deny that ignorance is

the biggest and most basic reason for poverty. East Asia is a well

documented example where the number of people living on less

than one dollar a day has fallen almost two-thirds, from 720

million in 1975 to 210 million in 2002 almost entirely because of

the rapidity of economic growth. On the other side are countries

where ruling groups allocate the bulk of their resources to

defense, foreign policy adventures, fomenting domestic strife to

promote power or in stifling business to protect vested interests.

The political and economic choices of such ruling groups are not

directly influenced or constrained by the illiteracy of their

populations. When people understand what lies at the bottom of

their poverty, when political parties mobilize them on the basis of

this understanding, and when analysts focus on the

consequences of specific political and economic policies,

perhaps then there will be hope for change in such countries.

12
 Mohsin Babbar, 2003 in his article

“Enigma of the Poverty Line” says that the Planning and

Development Division vide a letter number 1(41) poverty/PC/2002,

dated 16th August 2002 suggested that Rs. 673.54/person/month

be the official poverty line. The letter implied that the poverty line

is being built on a comprehensive household survey conducted in

1998-99. All the economic markers, like inflation and cost of

living, have risen since 1998, rendering, sustainable living an

unbearable burden for the common man. It seems quite illogical

to assume that a man with a family can live on a monthly income

of Rs. 673.54. Generally speaking though, poverty varies from

place to place, and every country marks its line with reference to

its stage of economic development and social values. In

Pakistan’s case, none of the foreign monetary institutes, other

than the UNDP, formulate to the concept of US$ 2/day as the

poverty line. They remain silent on this issue and follow the

government figures on poverty. The BBC reported that the World

Bank deems a person as living below the poverty line if he/she is

unable to meet the basic and minimum needs and demands of

life. Following this definition another set of question arise. What

are those basic needs that one has to have in order to live a

modest living? What are the minimal needs? Do they vary for

different countries? If so, then surely the poverty line becomes

even more dynamic and more difficult to define. When the

question was put to The Asian Development Bank, their reply was

13
vague, quoting the government figures, stating that according to

the government survey conducted in 1998, and published in 2001,

a total of 32.2 percent of total population of Pakistan is living

well below the poverty line, and that the ADB refers to these

figures for measuring poverty line.

The representative of IMF, Pakistan mission, when asked about

their criterion for demarking the poverty line, stated that the IMF

does not fix poverty line in any country, including Pakistan.

However the Fund adopts the poverty line defined by the

government reports. According to the UNDP Human Poverty

Index, 1997, 72 million people in Pakistan, nearly 50% of the total

population was living below poverty line. While according to

UNDP Human Development Report, 2002, this figure rose to 84.6

per cent of the total population, translating to roughly 120 million

people earning less than US$ 2/day, living an impoverished life,

with no access to the basic amenities of life. More worse is that,

the situation in the agricultural sector was gloomier. Government

subsidies were taken back on pesticides and fertilizers, thereby

inflating the cost of crop production. Small farmers, especially,

found themselves caught in the vicious circle of poverty when

their crop yield could not match the cost of production, forcing

them to borrow from the bank, or other sources, for both the next

crop and to support their livelihood, plunging them deeper into

the swelling poverty indices. Whatever the reasons behind the

deteriorating living human condition and rising poverty, such as,

14
flawed socioeconomic policies, the dictates of the foreign donor

agencies, or excessive spending on defense, what is evident is

that at the end of day the common people suffer the most and are

the hardest hit, as the benefits of any improvement in economy

never reach them. The rulers and policy makers in Pakistan have

failed to recognize the intensity with which poverty is rising in

the country. This was clearly illustrated recently, when the

government issued a strongly worded denial after the World Bank

reported a rise in the poverty level in Pakistan. The Finance

Minister, Mr. Shaukat Aziz, surprised everybody when he claimed

that giving importance to reports released by foreign institutes

was in vogue, even when their findings “lacked credibility” and

were completely inaccurate! Was it not the same honorable

Minister who, himself, praised these financial institutions for their

active guidance in designing and planning the government’s fiscal

policies? Were they not credible then? One thing is for certain

and that is the inflation will continue to rise and the poverty line

will be re-defined yet again, as the divide between the rich and

poor widens. Till such a time the poor will keep struggling as they

wait for the promised economic uplift through the dictates of

donor agencies – which have yet to materialize.

Benazir Bhutto, 2004 in her article

“Without a War on Poverty, We Will Never Defeat Terror” in

Guardian, UK. The whole world is focusing on the elimination of

15
the terrorists & the terrorism from the world. The crisis of poverty

is effectively disregarded. In Pakistan the talk of stock market

rises and foreign exchange increases hides a more troubling

picture. The numbers of young people killing themselves because

of hunger was 1,200 in six months. These are the officially

recorded figures - the real figures are believed to be much higher.

In Pakistan, the average income has been shrinking. The cost of

living is rising sharply. It is becoming increasingly difficult for the

ordinary citizen to pay fat utility bills and buy the basic

necessities of life. The Pakistan Economic Survey admits that

poverty has increased since democracy was derailed in 1996. The

gap between the rich and the poor is growing at an alarming rate.

The war against terrorism is primarily perceived as a war based

on the use of force. However, economics has its own force.

Militancy and greed cannot become the defining images of a new

century that began with much hope. The time has come to

rethink. By returning to the values of democracy, the will of the

people, broad-based government and building institutions that

can respond to the people, the social malaise can be addressed.

The neglect of rising poverty against the background of religious

extremism can only complicate an already difficult world

situation.

16
 T. Kurosaki, 2005 in his article “Poverty in

Pakistan and Community Development” explains the

characteristics of poverty in Pakistan. He says Within South Asia,

Pakistan is lagging more in human development than in economic

growth. Incidence of poverty (headcount of those individuals

whose consumption expenditure is below the Poverty line) is high

at more than 30%, about 40 millions in absolute terms, and

increasing rapidly in the late 1990s.Income poverty is more

severe in rural areas, among the landless, and closely correlated

with deprivation in education and health. Macro performance

during the 1990s was not pro-poor because the growth rate was

lowered and the labor absorption capacity of economic growth

was reduced. The income poor in Pakistan not only suffer from

average low consumption but also are subject to high

fluctuations in consumption due to income risk and the lack of

safety net measures. He emphasizes Education is key to

employment and reduction of poverty. Livestock is more pro-poor

than crop agriculture but its role in economic growth may be

limited to short- to middle-run. Social safety nets are weak,

especially those provided by the public sector or by formal

institutions. Private networks based on personal relations are

more important safety nets.

Irshad Saleem, 2006 in his article

published in The Dawn Newspaper (Pakistan) states that the

17
Govt. of Pakistan claims poverty to be 23.9% while the World

Bank and UNDP estimates are 25.7% and 28.3% respectively.

The Pakistan Economic Survey 2006-07 acknowledges that the

gap between the rich and the poor in the country widened in the

period 2001 and 2005 (when the two surveys that have provided

the data were held). The ratio of the income of the richest 20 per

cent and the poorest 20 per cent went up from 3.76 to 4.15. The

Gini Coefficient, which is universally regarded as an efficient

measure of income equality, changed from 0.2752 to 0.2976 (that

is for the worse). The thrust towards privatization of facilities in

the social sectors, especially education and health, has made

these services more costly and less affordable for the common

man. The government’s own figures say that the poor are now

spending 14.6 per cent more (as compared to 2001) on health.

The poor are spending 50 per cent more on transport and 11 per

cent more on food. It is time the government attended earnestly

to the problems of poverty rather than gloss them over by

juggling around with figures. Without real progress in this field,

the millennium development goal of halving poverty by 2015 will

never be achieved.

Qurat-ul-ain, 2006 in her article Poverty in

Pakistan states that Poverty cannot be described it can only be

felt. The proportion of people living in extreme poverty on global

level fell from 28 percent in 1990 to 21 percent in 2001 (on the

18
basis of $1 a day). In absolute numbers the reduction during the

period was 130 million with most of it coming from China. In Sub-

Saharan Africa, the absolute number of poor actually increased

by 100 million during the period. The Central and Eastern Europe

and the CIS also witnessed a dramatic increase in poverty. While

incidence of poverty declined in South Asia; Latin America and

the Middle East witnessed no change. Although extreme poverty

on global level has declined, the gap between the rich and poor

countries is increasing, even when developing countries are

growing at a faster pace than developed ones – perhaps due to

the large income gaps at the initial level. In a world of six billion

people, one billion have 80 percent of the income and five billion

have less than 20 percent. Poverty has many dimensions in

Pakistan.Sound macroeconomic policies and implementation of

structural reforms in almost all sectors of the economy has

transformed Pakistan into a stable and resurgent economy in

recent years. The real GDP has grown at an average rate of over

7.5 percent per annum during the last three years (2003/04 to

2005/06). With population growing at an average rate of 1.9

percent per annum, the real per capita income has grown at an

average rate of 5.6 percent per annum. The evidence provided by

the Labour Force Survey 2005 (First two quarters) clearly

supports the fact that economic growth has created employment

opportunities. Since 2003-04 and until the first half of 2005-06,

5.82 million new jobs have been created as against an average

19
job creation of 1.0 – 1.2 million per annum. Consequently,

unemployment rate which stood at 8.3 percent in 2001-02

declined to 7.7 percent in 2003-04 and stood at 6.5 percent during

July – December 2005. Total remittances inflows since 2001-02

and until 2005-06 have amounted over $ 19 billion or Rs.1129

billion. Over the last five years the government has spent Rs.1332

billion on poverty-related and social sector program to cater to

the needs of poor and vulnerable sections of the society.The

latest estimate of inflation - adjusted poverty Line is Rs.878.64

per adult equivalent per month ─ up from Rs.723.40 in 2001. The

percentage of population living below the poverty line has fallen

from 34.46 percent in 2001 to 23.9 percent in 2004-05, a decline

of 10.6 percentage points.A strong growth in economy, rise in per

capita income, a large inflow of remittances and massive

spending on poverty-related and social sector programs were

expected to reduce poverty in Pakistan.Thus we can conclude

that Pakistan has emerged as ‘Asian Tiger’ with reference to the

Economic growth during last couple of years. And government of

Pakistan spent about Rs.1332 billion to reduce the poverty. And

as a result poverty reduced from 39.26 to 28.10 percent (rural)

and from 22.69 to 14.9 percent (urban). Concisely, in spite of all

efforts of government poverty still stands as an iron wall for

Pakistan’s economy. And to break this iron wall we are in need to

apply poverty reduction strategies at utmost level.

20
 John wall, 2006 in his article “Poverty in

Pakistan, op-ed by Pakistan Country Director” Poverty is an

ethical concept, not a statistical one. It is not only lack of roti,

kapra aur makan—food, cloth and shelter. Amartya Sen aptly

sums up many dimensions of poverty as lack of "capability"—

capability to overcome violence, hunger, ignorance, illness,

physical hardship, injustice and voiceless ness. The World Bank

has argued that poverty often lies in the absence of opportunity,

empowerment and security, and not just the absence of food on

the table. However statistically measuring poverty in the same

country at different periods of time raises many difficulties.

According to CPI and SPI measures, poverty headcount had been

rising throughout the 1990s and peaked in 2000-01, a bad drought

year. It then fell sharply in 2004-05, a very good agricultural crop

year. Under the CPI, poverty headcount dropped by 10.6 per cent,

under the SBI it dropped five per cent. Those two estimates

probably capture the extremes. A less flawed price index might

well find a third estimate in between these extremes. The reason

for the difference is that incomes of a very large portion of the

population are just above and just below the official poverty line.

Compared to 2000-01, the consumption distribution has improved

substantially in 2004-05, meaning almost all families are better

off. The fact that there is an enormous clustering of population

around the poverty line means that even small changes in

consumption or income can affect poverty headcount ratios

21
dramatically. This is the case in Pakistan, where the

improvement in consumption distribution in 2004-05 has led to a

sizeable decline in poverty. It also explains why a difference in

the estimated rate of price inflation between 2000-01 and 2004-

05 of about eight per cent (depending on whether we use CPI or

SBI) makes such a huge difference in the estimated fall in

poverty. This clustering of Pakistan’s population just above and

just below the poverty line also implies that families are quite

vulnerable to falling into poverty with the slightest run of bad

luck. A drought or bad agricultural year, an illness of a

breadwinner, rises in prices of basic commodities not

compensated by rises in income—all of these can cause families

to fall into poverty. The 2004-05 poverty data show that rapid

growth did reduce poverty quite sharply — whether by five or 10

per cent is somewhat academic. It also points to the urgent need

for enhancing capabilities through better social mobilization,

education, public health and rural infrastructure.

Huzaima Bukhari & Dr Ikram ul Haq, 2006

in their article “Central Board of the Rich” say that Pakistan's tax

system puts disproportionately more burden on the poor than on

the rich. This imbalance needs to be removed for poverty to

decrease. According to a study conducted by the Centre for

Research on Poverty and Income Distribution (CRPID), 63 per

cent of the poor in Pakistan fall in the category of 'transitory

22
poor'. This has also been observed by the State Bank of Pakistan

(SBP) in its annual report 2004-05 which states that the standard

definition of 'transitory poor' includes those households that are

below the poverty line for most of the time but not always during

a defined period. Of the rest of the poor, 32 per cent were found

to be 'chronic' poor and 5 per cent 'extremely poor'. Chronic and

extremely poor are households that are always below the poverty

line, all the time during a defined period. On the other side of the

divide 13 per cent of the non-poor population (living above the

poverty line) was classified as 'transitory vulnerable' and 21 per

cent as 'transitory non-poor’. But it is an undeniable fact that in

Pakistan, ill-directed, illogical, regressive and unfair tax system

is widening the existing divide between the rich and the poor.

The sole stress on indirect taxation (even under the garb of

income taxation through presumptive tax regime on goods and

services) without evaluating its impact on the economy and the

life of the poor is a serious cause for concern. The contribution of

direct taxes as percentage of the Gross Domestic Product (GDP)

was merely 3.01 per cent in 2003-2004, whereas in 2002-2003 it

was 3.15 per cent (Source: Central Board of Revenue (CBR) Year

Book 2003-04).Exorbitant rate of General Sales Tax (on an

imported article of public consumption, the effective rate of

indirect tax before any further supply is 42 per cent. Nowhere in

the world is such a high rate of tax prevalent on imported goods)

and ever-growing price acceleration in petroleum products has

23
crippled the purchasing power of people. As a result, a large

segment of the middle class is being pushed into lower middle

class category while the total number of persons living below the

poverty line is also increasing at an alarming pace. The priority of

our rulers -- military and civil alike -- remains achieving revenue

targets. But they will have to find ways and means to come out of

this tangle to make Pakistan a competitive place where investors

find satisfactory conditions to live and invest. In a country where

there is no security of life or property, let alone the availability of

a host of tax benefits and other incentives, investors will never

venture to risk their capital. The total amount of income tax

collected in financial year 2003-04, was Rs 157,448 million. If we

subtract tax collected at source on goods (Rs 22,829 million) and

services/contracts/supplies (Rs 24,959 million) which are in

substance indirect levies, the rest of the collection comes to Rs

109,703 million. This means that the collection of direct taxes as

percentage of total revenue is only 21.06 per cent and not 31.73

per cent as claimed by the CBR Year Book 2003-04. After

adjusting for this miscalculation, direct tax-to-GDP ratio for 2003-

04 is a dismal 2.1 per cent and not 3.02 per cent as claimed by

the CBR. It proves beyond any doubt that the tax system is

directly contributing to rising poverty as people who possess

enormous income and wealth are not being subjected to income

taxation. It hardly needs any further evidence to show that the

24
CBR has been single-handedly destroying Pakistan's trade and

industry and contributing to rising poverty by:

? Leaving exorbitant sales tax and forcing importers for self-

assumed value addition even before actual sales;

? Imposing indirect taxes on goods and services under the

presumptive tax regime in the garb of Income Tax Law;

? Imposing withholding tax without any facilitation and then

taking punitive action on non-compliance or using it as a revenue

collection tool;

? Withholding undisputed refunds payable to taxpayers;

? Making excessive tax demands and

? Resorting to all kinds of negative tactics and high-handedness

to meet its budgetary targets.

Actions of the tax machinery are detrimental to economy, social

justice, business and industry. If a given amount of revenue is

needed to finance public services, then each taxpayer should

contribute in line with his ability to pay taxes. Those who

possess more economic power (income and wealth) should

contribute more to the public exchequer and vice versa. The

ability to pay principle views tax policy issues in isolation of

incidence of public expenditure. Many regard this principle as the

most equitable and just method of taxation. It is emphasized

primarily for its re-distributive role. We in Pakistan have

completely deviated from this principle, though an equitable

redistribution of the national wealth is a constitutional obligation

25
of the government. The existing tax system is the worst

expression of colonial heritage. The common man is subjected to

paying 15 sales taxes on essential commodities. (Actual tax

incidence on imported commodities is 42 per cent on finished

imported goods, if we take into account customs duty, 15 per

cent sales tax, and mandatory value addition of 10 per cent and 6

per cent income tax.) But the mighty sections of society such as

big industrialists, landed classes, generals and bureaucrats are

paying no wealth tax/income tax on their colossal

assets/incomes, courtesy exemptions they have granted to

themselves, as they are the rulers. According to SPDC report,

Pakistan's tax regime consists of four main revenue sources:

GST, CED, Customs Duty and Income Tax. Its structure is

dominated heavily by indirect taxes, which together make up

over two-thirds (68 per cent) of combined federal and provincial

tax receipts. If surcharges and presumptive taxes levied under

the garb of income tax are included, the report observes, indirect

taxes rise to over three-fourth (78 per cent).GST claims 9.3 per

cent of the income of the poorest 10 per cent of households, but

only 5.9 per cent of the income of the richest 10 per cent. In other

words, the burden of GST on the lowest decile is 58 per cent

higher than on the highest decile. But CED is the most regressive

tax. Its burden on the lowest decile is 100 per cent higher than on

the highest decile. The customs duties are the least regressive

but even their burden on the lowest decile is 28 per cent higher

26
as compared to that on the highest decile. Policymakers have

exempted selected food items like wheat and rice from GST.

This, however, does not imply zero-rating of GST on these

commodities because the inputs that go into their production are

all subject to sales tax. That is why though the nominal tax rate

on these items is zero, the effective tax rate on them amounts to

about 7 per cent. The average burden of direct taxes is 0.3 per

cent, while the burden of indirect taxes is 13 per cent. The

average burden of personal income tax on household incomes

halved from 0.6 per cent in 1987-88 to 0.3 per cent in 2001-02.

The progressively of the tax rate has also declined over this

period. This can be discerned from the fact that while the burden

of personal income tax as a percentage of household income has

doubled from 0.1 to 0.2 per cent for the 7th decile, the

corresponding burden for the 10th decile has declined by half

from 4.3 to 2.1 per cent. "The preceding incidence analysis of the

tax regime shows that the richest 10 per cent of households bear

the least burden of indirect taxation and that their relative

advantage with respect to direct taxes has further improved over

the last decade and a half.

Thus we can analyze from the study that there is significant

improvement in the economy since the last five years. The

poverty has also been reduced significantly but still there is

definite need to devise such policies which will help us in

eradicating the core causes of the poverty. i.e. unemployment,

27
low productivity of labor, lack of education, lack of awareness,

lack of proper facilities, unstable economic and political systems,

unequal income distribution, over population and feudalism.

3. Analysis of Data

3.1 Past Analysis

1960’s

Macro Variables 1960’s

Real GDP (% growth rate) 6.8%
Agriculture (%) 5.1%
Manufacturing (%) 9.1%
CPI (%) 3.2%
Trade deficit (%of GDP) --
Current account deficit % of GDP --
Pop. below poverty line( millions) 19 million
in 1960

Table1.1 Different factors contribution in Pakistan Economy 1960’s

If one examines Pakistan’s economic growth record, 1960’s

stands out as the decade with the best performance. The growth

rates of 1960’s and 1980’s seem to be quite close in most

categories, but there are conceptual and ideological differences

between two military regimes of Ayub Khan and Zia-ul-Haq. The

1960’s has been termed as a “controversial” decade for the type

of economic policy pursued and the resulting economic and

political effects. The past analysis of the economy shows that the

period of 1960’s was good for the economy although there were

28
certain factors such as Indo-Pak war 1965. Ayub khan’s era is

considered as the era of economic growth and consistent

development. Growth rate of the GDP was 6.8% while the

inflationary trends were only 3.25%.In this era, Government

presence was seen everywhere, directing and encouraging the

private sector and the market. The agriculture sector was

identified by the Government as a vehicle of growth. As there was

great economic development, it proved to be very helpful in

reducing poverty.

10

0
Real GDP
Agr(%) Manu(%) CPI(%)
%

% 6.8 5.1 9.1 3.2

Graph 1.1 Different factors contribution in Pakistan Economy 1960’s

1970’s

Macro Variables 1970’s

Real GDP (% growth 4.8%
rate)
Agriculture (%) 2.5%
Manufacturing (%) 5.5%
CPI (%) 12.5%

29
Trade deficit (%of GDP) --
Current account deficit --
% of GDP
Pop. Below poverty line 46.53%
(%)

Table 1.2 Different factors contribution in Pakistan Economy 1970’s

The 1970’s did not prove to be very pleasant for the economy and

due to dismemberment of East Pakistan and unstable political

situations. The economy of Pakistan was not functioning well.

This resulted in high inflationary trends of 12.5% and high poverty

rate of 46.53%. That was the same decade when nationalization

process took place. The period after 1973 saw a serious

worldwide recession affecting Pakistan’s exports. Recurrent

domestic cotton crop failures and floods in 1973, 1974 (along

with past attacks) and 1976 affected Pakistan’s main exports.

Bhutto’s economic programme has been labeled a failure by his

critics. In many ways, he was an unlucky politician too and there

were certain events like dismemberment of East Pakistan and

floods that damaged his policies a great deal. The positives of

this era were that the most of the industries nationalized in that

era were inefficient. Despite this fact, these industries

experienced a reasonable growth. According to an estimate, the

no. of people living below the poverty line in 1970 was 46.53% of

the total population.

30
 14

12

10

0
Real GDP % Agr(%) Manu(%) CPI(%)

% 4.8 2.5 5.5 12.5

Graph 1.2 Different factors contribution in Pakistan Economy 1970’s

60

40

20

0
pop.below poverty

% 46.53

Graph 1.3 Population below poverty line in Pakistan 1970

1980’s

Macro Variables 1980’s

Real GDP (% growth 6.5%
rate)
Agriculture (%) 5.4%

31
 Manufacturing (%) 8.2%
CPI (%) 7.2%
Trade deficit (%of GDP) 8.9%
Current account deficit 3.9%
% of GDP
Pop. below poverty (%) 30.68%
in 1980

Table 1.3 Different factors contribution in Pakistan Economy 1980’s

The 1980’s decade was the time of constant improvement in

economy as the real GDP growth rate rouse to 6.5% and the

inflation dropped down to 7.2%.Higher rates of industrial growth

were led by the coming on stream of the earlier investment made

by the public sector under Bhutto, specially in heavy industries,

and also by the rapid expansion in the domestic demand. While

the trend to liberalize the economy was escalated consciously in

the Zia’s period. The soviet invasion of Afghanistan and the

excessive involvement in Pakistan by the U.S.A, helped in sure

the steps wee taken to increase growth. Thus started the

economic revolution and the middle class emerged as the

formidable political and economic category.

By becoming the capitalist world’s “Front line” state against the

entire things soviet, Pakistan Government gained in terms of

financial ads and resources. Thus the no. of people living below

the poverty line reduced from 46.53% of the total population in

1970 to 30.68% of the total population in 1980. So it can be said

that this decade proved to be very helpful in the eradication of

poverty in Pakistan.

32
 9
8
7
6
5
4
3
2
1

0
Real trade CAD(%of
Agr(%) Manu(%) CPI(%)
GDP % deficit GDP)

% 6.5 5.4 8.2 7.2 8.9 3.9

Graph 1.4 Different factors contribution in Pakistan Economy 1980’s

40

30
20
10

0
pop.b elow poverty

% 30.68

Graph 1.5 Population below poverty line in Pakistan 1980

30.68% of the total population in 1980 was living below the

poverty line as compared to 46.53% in 1970.

1990’s

Macro Variables 1990’s

Real GDP (% growth rate) 4.6%
Agriculture (%) 4.4%
Manufacturing (%) 4.8%
CPI (%) 9.7%

33
 Trade deficit (%of GDP) 4.4%
Current account deficit % of 4.5%
GDP
Pop. Below poverty line (%) in 22.11%
1990

Table 1.4 Different factors contribution in Pakistan Economy 1990’s

Due to inconsistent policies of Government, 1990’s is considered

as decade of great economic disparities.

Since 1988 to 1997, Pakistan had four General Elections, with

both Nawaz Shareef and Benazir Bhutto returned to power twice,

yet none of the elected Governments were able to complete its

full tenure. Thus we can conclude that it was the time of total

instability. Further more, while the democratic transition was

arrested in October 1999 yet again the economic policies have

continued even more vigorously. The process of liberalization,

openness, privatization and market friendliness continued

unabated regardless of the visibly noticeable damage caused. In

addition to that, The Government has been continuously raising

the administered prices of utilities such as Gas and Petroleum

Products. The privatization has also formed part of the

adjustment package, as did the continuous devaluation of the

Pakistani Rupee.

The consequence of these policies has been a serious economic

crisis at the macro economic and the individual level throughout

the 90’s. Still the policy in the end of the 90’s proved to be

significant in eradication of poverty.

34
 10
9
8
7
6
5
4
3
2
1
0
Real GDP trade CAD(%of
Agr(%) Manu(%) CPI(%)
% deficit GDP)

% 4.6 4.4 4.8 9.7 4.4 4.5

Graph 1.6 Different factors contribution in Pakistan Economy 1990’s

30

20

10

0
pop.b elow poverty

% 22.11

Graph 1.7 Population below poverty line in Pakistan 1990

3.2 Current Analysis

2004-2005

Macro Variables 2004-

2005

35
 Real GDP (% growth rate) 8.4%
Agriculture (%) 7.6%
Manufacturing (%) 12.5%
CPI (%) 9.3%
Trade deficit (%of GDP) 1.3%
Current account deficit % of 1.4%
GDP
Pop. Below poverty line (%) 23.9%

Table 1.5 Different factors contribution in Pakistan Economy 2004-2005

Since 2004 to 2005 again it was the era of economic growth for

Pakistan and growth has reached to a percentage of 8.4%. Today,

roughly 33% of Pakistan's population is classified as 'income

poor', whereas nearly half suffers from the deprivation of basic

opportunities of life. The majority of Pakistan's human poverty is

to be found among women and in its rural areas.

If present trends continue, it is estimated that Pakistan will take

another 170 years before it can stake a claim for a place in the

list of developed nations based on socio-economic indicators.

36
 14

12

10

0
Real trade CAD(%of
Agr(%) Manu(%) CPI(%)
GDP % deficit GDP)

8.4 7.6 12.5 9.3 1.3 1.4

Graph 1.8 Different factors contribution in Pakistan Economy 2004-2005

30

20

10

0
pop.b elow poverty

% 23.9

Graph 1.9 Population below poverty line in Pakistan 2004

3.3 Poverty trends, Current v/s Past Analysis

The graph 1.10 shows the overall trends in the poverty since
1963-1999.

37
Graph 1.10 Poverty trends in Pakistan 1963-1999

4. Conclusion & policy implications

Thus we can conclude from the studies that the basic causes of

the poverty are unemployment, low productivity of the labor, lack

of education, lack of awareness, lack of proper facilities,

unstable economic and political systems, corruption, equal

income distribution over population & feudalism.

The recommendations for improving the situation are: The

Government should provide more employment opportunities by

setting up new industries and expanding the service sector. It is

important that the service sector should be properly trained &

skilled. There is a definite need to educate the people. The

people should be provided proper facilities. e.g. a farmer should

be provided proper and modern equipment. The political system

must be stabilized to have consistent policies. The Government

38
should control corruption properly. Circulation of money in few

hands should be discouraged and such methods should be

devised which would help in proper circulation of money.

Population of Pakistan is increasing at an alarming rate so Govt.

should use tools such as education that would induce awareness

in population. Such tools will be useful in making it possible to

reduce high population growth. Government should condemn the

feudalism and there should be conducted some anti-feudal

campaigns to uproot this system.

5. Appendix

Tables
1.1 Different factors contribution in Pakistan Economy 1960’s

1.2 Different factors contribution in Pakistan Economy 1970’s

1.3 Different factors contribution in Pakistan Economy 1980’s

1.4 Different factors contribution in Pakistan Economy 1990’s

1.5 Different factors contribution in Pakistan Economy 2004- 2005

Graphs

1.1 Different factors contribution in Pakistan Economy 1960’s

1.2 Different factors contribution in Pakistan Economy 1970’s

1.3 Population below poverty line in Pakistan 1970

1.4 Different factors contribution in Pakistan Economy 1980’s

1.5 Population below poverty line in Pakistan 1980

1.6 Different factors contribution in Pakistan Economy 1990’s

39
1.7 Population below poverty line in Pakistan 1990

1.8 Different factors contribution in Pakistan Economy 2004-2005.

1.9 Population below poverty line in Pakistan 2004-2005

1.10 Poverty trends in Pakistan 1963-1999.

6. Bibliography

 Central Board of the Rich, 2006

By Huzaima Bukhari & Dr Ikram ul Haq, The News

 Enigma of the Poverty Line

By Mohsin Babbar, http://www.sdpi.org

 Fighting Poverty in Pakistan, 2005

By Kamal Siddiqi, www.chowk.com

 If poverty is the question...

By Abid Ullah Jan, http://icssa.org

 Jihad against Poverty and Ignorance

By Shah N. Khan

 Op-ed: Causes of poverty, 2003

By Anjum Altaf, Daily times Site Edition

 Pak economy steady; poverty up 33%, 2003

By K J M Varma,

 Pakistan: More poverty or less , 2006

Irshad Saleem, Dawn

 PAKISTAN: NOW, THE POVERTY BOMB GOES OFF, 1999

By M Ziauddin, http://www.twnside.org.sg

 Pakistan's poor seek share of riches, 2002

40
 Analysis by Shahzeb Jillani, BBC World Service, Urdu

section

 Poverty in Pakistan, 2000

By Dr Akhtar Hassan Khan, www.pakistanidefenceforum.com

 Poverty in Pakistan: Issues, Causes and Institutional

Responses, 2006

ADB Pakistan Resident Mission, http://www.adb.org

 Poverty in Pakistan, op-ed by Pakistan Country

Director ,2006

By John Wall, http://www.thenews.com.pk

 Poverty in Pakistan and Community Development

By T. Kurosaki, www.google.com.pk

 Poverty in Pakistan, 2006

By Qurat-ul-ain, http://qurratulain.wordpress.com

 Poverty in Pakistan, 2001

By Dr. Akmal hussain, http://www.unmc.edu

 Without a War on Poverty, We Will Never Defeat Terror,

2004

By Benazir Bhutto, http://www.guardian.co.uk/

7.

References

www.google.com.pk (Search Engine)

www.worldbank.org

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Wiikipedia search engine

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