Poverty In Pakistan

WHAT IS POVERTY Poverty is a condition in which a person or community is deprived of, or lacks the essentials for a minimum standard of well-being and life. Since poverty is understood in many senses, these essentials may be material resources such as food, safe drinking water, and shelter, or they may be social resources such as access to information, education, health care, social status, political power, or the opportunity to develop meaningful connections with other people in society. Poverty may also be defined in relative terms. In this view income disparities or wealth disparities are seen as an indicator of poverty and the condition of poverty is linked to questions of scarcity and distribution of resources and power. The definition and measurement of poverty have evolved over time. The periodic changes in the definition stem from the variation both across time and space in the description of what constitutes socio-economic well-being. The ability of meeting the costs of minimum nutritional requirements is the most important component of the “basic needs” approach to the measurement of poverty. This definition has been strengthened by including socioeconomic indicators of well being such as high rates of morbidity and mortality, prevalence of malnutrition, illiteracy, high infant and maternal mortality rates. Most elements of these aspects of poverty are based mainly on economic considerations. Consequently, many of these indicators are quantifiable. Recently, the definition of poverty has been further broadened. New definitions incorporate problems of self-esteem, vulnerability to internal and external risks, exclusion from the development process and lack of social capital. The new additions to the definition of poverty capture the qualitative aspect of socio-economic well being. These definitions also influence the design of pro-poor policies for economic growth, public expenditures, safety net programs and tools for assessing the impact of programs and projects on poverty reduction. Generally poverty is a result of many and often mutually reinforcing factors including lack of productive resources to generate material wealth, illiteracy, prevalence of diseases, natural calamities such as floods, drought and manmade calamities such as wars. With increasing urbanization expected in the coming decades, the number of poor in urban areas, mainly the

unemployed and those engaged in the informal sector, will grow faster and thus turn poverty into an urban nightmare from the currently observed rural phenomena. At the international level, an unequal economic and political partnership, as reflected in unfavourable terms of trade and other transactions for developing countries is also a major cause of poverty in developing countries. Some causes of poverty are not direct, for example, traditions and norms which hinder effective resource utilization and participation in income generating activities.

Map of world poverty by country, showing percentage of population living on less than 1 dollar per day.

The percentage of the world's population living on less than $1 per day has halved in twenty years. However, most of this improvement has occurred in East and South Asia. The graph shows the 1981-2001 period.

GLOBAL EXPERIENCE

It has now become abundantly clear that accelerated growth per-se is necessary but not sufficient condition for bringing about sustainable poverty reduction. There are other complementary factors which have to accompany higher growth. The most important of these is investment in human development – education, training, literacy, health, drinking water, nutrition, population planning. Countries which have neglected human development may achieve some spurt in growth and poverty reduction for a short period of time but these gains will not last long. Growth together with investment in human development offers a much better chance for alleviating poverty. But even then, some segments of population living in remote, isolated areas and marginalized lands or living without any tangible assets other than their labor may require targeted interventions by the government to create opportunities for them to earn livelihood. It has also become apparent that in every country there would be highly vulnerable groups who would need social protection and social safety nets. Thus if a country is able to put together these four factors – accelerated growth, investment in human development, targeted poverty interventions and social protection – the probability of achieving reduction in the incidence of poverty becomes quite high.

INTRODUCTION Pakistan's development had a promising start after Independence. Helped by large external resources Pakistan has been one of the world’s largest recipients of official development assistance since 1950. The country was able to grow at slightly over 2 percent per capita, tripling per-capita incomes between 1950 and 1999 and yielding substantial declines in poverty. While this is an achievement compared to many stagnating low income economies, it is much below what other developing countries, such as those in East Asia, were able to achieve, and below Pakistan’s potential. More seriously perhaps, pervasive and deep problems of governance, growing public spending on defense and other unproductive programs, and insufficient focus on human development eroded the country’s institutions, weakened economic management, and created an increasingly unfavorable investment climate. In the 1990s, these problems were compounded by external shocks and exacerbation of governance problems. Most of the decade was lost in stop and go stabilization reform programs which deteriorated further an investment climate already weakened by a turbulent and uncertain political environment, ambiguous government commitment to free markets and erosion of accountability and integrity in the major institutions of the state. Of particular concern is the fact that Pakistan’s social indicators remain below those in countries at similar levels of income. Internal differences in poverty and human development have also persisted over time, or widened among regions, between rural and urban areas, and between women and men. Pakistan’s social indicators, including infant mortality, life expectancy, female primary and secondary enrollment are today among the lowest in the world. A major effort started in the early 1990s to improve public sector social service provision through an 8-year long effort called the Social Action Program (SAP), in part financed by external development agencies, which has so far been unable to achieve its targets on a number of focus areas. Over the past half century, poverty remains widespread in the developing world, More than 1.2 billion people live on less than $1 per day at purchasing power parity, and more than 2.8 billion — almost half the world’s -population- live on less than $2 a day. These impoverished people often suffer from under nutrition and poor health, have little or no literacy, live in environmentally degraded areas, have little political voice, and attempt to earn a meagre living on small and marginal farms or in dilapidated urban slums. The development requires a

higher GNP and a faster growth rate is obvious. The basic issue, however, is not only how to make GNP grow but also who would make it grow, the few or the many. If it were the rich, it would most likely be appropriated by them, and poverty, and inequality would continue to worsen. But if it were generated by the many, they would be its principal beneficiaries and the fruit of economic growth would be shared more evenly. Thus many developing counties that had experienced relatively high rates of economic growth by historical standards discovered that such growth brought little in the way of significant benefits to their poor as, many of the world great people had said. No society and can surely be flourishing and happy, of which by far the greater part of the numbers are poor and miserable. Social welfare depends positively on the level of per capita income but negatively on poverty and the level of inequality. The problem of absolute poverty is obvious. No civilized people can feel satisfied with a state of affairs in which their fellow being live in conditions of such absolute human misery, which is probably why every major religion has emphasized upon the importance of working for poverty alleviation and is at least one of the reasons why international development assistance has the universal support of every nation like Pakistan, having population of 138 million people, its economy has been expanding at a per capita rate of about 1.6% a year during the past decade. Nevertheless, Pakistan bears burdens common to many developing nations a large (138 million) and rapidly growing (2.5 %) population,- a highly stratified and traditional society, inadequate social and health services with military spending in 1994 more than twice as high as spending on health and education combined, high infant mortality(91 per 1000) and illiteracy rates ( 50% for men and 76% for women ), a primary school dropout rate of 63% compared with a South Asia average of 50%, a sizeable portion of the population living in poverty, an estimated 12 million children (half under the age of 10) working under near slavery conditions, a growing radical Islamist movement, and a rapidly deteriorating urban and rural environment. Pakistan has experienced considerable environmental damage. Much of its forests have been destroyed for firewood, and the rate of deforestation in Pakistan since 1980, (almost 3% per year) is one of the highest in the world. The soil is rapidly eroding, water supplies are being depleted, and the process of desertification is moving inexorably forward. This declining natural resource base is beginning to lead to agricultural problems, and the natural

environment itself must struggle to support the large population. Agriculture currently accounts for about 26% of Pakistan’s GDP and occupies almost 55% of its workforce. The fight against poverty represents the greatest challenge of our times. Considerable progress has nevertheless been made in different parts of the world in reducing poverty. The proportion of people living in extreme poverty on global level fell from 28 percent in 1990 to 21 percent in 2001 (on the 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. The recent trends in global and regional poverty clearly suggest one thing and that is, that rapid economic growth over a prolonged period is essential for poverty reduction. At the macro level, economic growth implies greater availability of public resources to improve the quantity and quality of education, health and other services. At the micro level, economic growth creates employment opportunities, increases the income of the people and therefore reduces poverty. Many developing countries have succeeded in boosting growth for a short period. But only those that have achieved higher economic growth over a long period have seen a lasting reduction in poverty – East Asia and China are classic examples of lasting reduction in poverty. One thing is also clear from the evidence of East Asia and China that growth does not come automatically. It requires policies that will promote growth. Macroeconomic stability is therefore, key to a sustained high economic growth. 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. This issue of global imbalance is at the core of the challenge to scale up poverty reduction. In Pakistan, Poverty Reduction Strategy was launched by the government in 2001 in response to the rising trend in poverty during 1990s. It consisted of the following five elements: •

Accelerating economic growth and maintaining macroeconomic stability,

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Investing in human capital,

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Augmenting targeted interventions;

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Expanding social safety nets; and

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Improving governance.

The net outcome of interactions among these five elements would be the expected reduction in transitory and chronic poverty on a sustained basis. The reduction in poverty and improvement in social indicators and living conditions of the society are being monitored frequently through large- scale household surveys in order to gauge their progress in meeting the targets set by Pakistan for achieving the seven UN Millennium Development Goals by 2015. The revival of strong growth, and doubling of real public spending over the last six years, after the stagnation of a decade, has expanded employment, resulted in some increase in real wages, and reduced poverty incidence. The extent of reduction in poverty incidence over 2001-05 is a matter of some debate but there is little disagreement that poverty has declined in recent years. This is hardly surprising considering especially the strong agricultural growth in 2004-05. The more interesting question is why has poverty reduction not shown a clear downward trend since 1990. Obviously greater progress in poverty alleviation would have been possible but for the inherent inequalities promoted by the existing power and asset structures, a tax system that does not generate sufficient revenue to fund poverty programs adequately and a labour market that has yet to fully exploit opportunities offered by labour intensive exports. Rural poverty and growing differences in income between rural and urban areas are a matter of growing concern. According to government numbers, the rural poverty incidence in 200405 was at 28 per cent was almost double the rate of urban poverty. Surely the high incidence of rural poverty in a bumper crop year cannot be the basis of much satisfaction. Government pro- poor spending, though still low, has increased in recent years to 4.5 per cent

of GDP as fiscal space has opened up and progress on some rural programs such as rural electrification and girls' education is impressive. Increased pace of social spending has improved gross enrolment ratios and reduced gender differences. But net primary enrolment rate of 60 percent in 2004-05 means that 40 per cent of the primary school cohort were not in school. The overall education spending is still less than 2 per cent of GDP and quality and governance issues in public education remain huge. At the same time, the government must be given credit for turning its urgent attention to higher education and skills gap and developing cogent plans. Reducing poverty incidence and increasing the access of the poor to basic public services in the rural areas is, however, only one dimension of Pakistan's distribution problems which are reflected in growing income inequalities and regional differences. It seems that the current high growth is deepening inequalities more dramatically than was the case in the earlier high growth periods of 1960s and 1980s because the growth of incomes of the relatively well to do is being fuelled greatly by extraordinary booms in the real estate and stock market. There is not even a modest capture of the windfall profits because of a total absence of capital gains taxation. USA, even after the tax cuts of recent years, has a 15 per cent capital gains tax rate. More generally the income taxation of the well to do has yet to become effective. As mentioned above, the economic rents in the private sector have not disappeared. Though it is difficult to quantify the impact of this factor, it does exacerbate income disparities. Containing of income and consumption disparities as well as steady reduction in poverty especially rural poverty needs to be built in more explicitly as an integral part of the future economic strategy because clearly the issue of the distribution of growth benefits has assumed more urgency with economic liberalisation and greater role for the private sector. The distribution problems have distinct dimensions in rural and urban areas, with poverty being much more of a problem in rural areas and growing income disparities much more of a problem in urban areas. In rural areas the share of consumption of the highest quintile to the

lowest quintile was only two only 2.2 in 2004-05 and had changed little since 2000-01. But as mentioned above, rural poverty is widespread and nearly 80 per cent of Pakistan's poor live rural areas. In contrast urban areas account for little over 20 per cent of the poor. But in urban areas consumption disparities are huge and growing. In 2004-05 the share of consumption of the highest quintile to the lowest quintile in urban areas was over 12 times and had grown from 10.4 in a short period of four years. Some of the ways in which Pakistan's policy approaches to the twin issues of poverty and income distribution might be strengthened are discussed in the next section.

POVERTY DIAGNOSTICS Poverty in Pakistan, is a major economic issue. Nearly one-quarter of the population is classified poor as of October 2006. The declining trend on poverty in the country seen during the 1970s and 1980s was reversed in the 1990s by poor Federal policies and rampant corruption.. This phenomenon has been referred to as the "Poverty Bomb. The government of Pakistan has prepared an "Interim Poverty reduction Strategy Paper" that suggest guidelines to reduce poverty in the country. According to the world bank, the program has had tangible success, with the World Bank stating that poverty has fallen by 5 percent since 2000. As of 2006, Pakistan's Human Development Index is 0.539, higher than that of nearby Bangladesh (0.530), which was formerly a part of Pakistan, but lower than that of neighboring India (0.611). Incidences of poverty in Pakistan rose from 22–26% in the Fiscal Year 1991 to 32–35% in the Fiscal Year 1999. They have subsequently fallen to 25-28% according to the reports of the World Bank and UN Development Program reports.These reports contradict the claims made by the Government of Pakistan that the poverty rates are only 23.1%. Poverty has remained stagnant in the 1990s. National poverty head-count rate changed from 29.3 percent in 1993. 94 to 32.2 percent in 1998-99 according to calculations based on the calorie-based poverty line used by the Federal Bureau of Statistics (FBS), and from 28.6 percent to 32.6 percent over the same period (head-count in 1990-91 was 34 percent) according to calculations based on the basic need-based poverty line used by the World Bank. While urban poverty has fallen, rural poverty has shown little improvement between 1990-91 and 1998-99 according to either calculation, which implies a widening of the rural-urban gap over the 1990s. This is of particular concern because 71 percent of Pakistanis live in rural areas. The incidence of rural poverty is closely associated with lack of ownership of agricultural land. The poor are also less able to diversify their agricultural production and are thus more susceptible to economic shocks. As in other South Asian countries, large family sizes, low level of educational attainment and outcomes in health constrain the poor’s ability to get out of poverty. Gender differences remain substantial in all measurable outcomes, particularly in education and health.

TRENDS IN POVERTY AFTER 1990/91 Assessing trends in poverty after 1990/91 is difficult because no data on the distribution of household consumption (or income) are available at this time. In the three-year period from 1990/91 to 1993/94, the annual rate of increase of private per capita consumption in real terms was about 3 percent according to the national accounts. If the household distribution of consumption had remained unchanged after 1990/91, growth of private per capita consumption at this rate would have resulted in a decline in poverty (as per the previous reference poverty line). Poverty incidence could have declined quite a bit, because in 1990/91 there were many households below but in the vicinity of the poverty line. The limited data available on wages of unskilled workers suggest that these wages may have increased somewhat, in real terms but not significantly, after 1990/91; in fact, wages of unskilled construction workers in Karachi appear to have declined (World Bank 1995). However, it is difficult to hypothesize that income distribution since 1990/91 remained unchanged. The geographic disaggregation of consumption poverty estimates is constrained by the relatively small sample size and design of existing household surveys. Disaggregation is possible at the provincial level, and for urban and rural areas within each province for 1990/91 and 1991. It is also possible to disaggregate the estimates for rural Punjab, which account for well over half of all rural observations, into "south" and "north". The relevant estimates of poverty incidence based on the reference poverty line are presented in Table 2.5 from the two most recent surveys namely, the HIES 1990/91 and the Pakistan Integrated Household Surveys (PIHS) 1991 (World Bank 1995). Nationwide, the estimates of poverty incidence from the HIES and the PIHS are close (34 percent and 31.6 percent, respectively), and they show higher poverty in rural areas, although the difference is less for PIHS estimates. About 74 percent of the poor live in rural areas. Punjab as a whole has considerably more poverty than Sindh. Rural South Punjab has an extremely high incidence of poverty of close to 50 percent. This is much higher than the incidence of poverty in rural North Punjab (26­p;32 percent), and in rural Sindh as well (31& 36 percent). Depending on the survey used, the incidence of poverty in rural North Punjab is either about the same (HIES) or much lower (PIHS) than the incidence of poverty in rural Sindh.

Estimates for the two smaller provinces show large inconsistencies between the two sources. The HIES shows NWFP as being poorer than the national average with 40 percent poverty incidence, while the PIHS yields an estimate of just 20 percent. The reverse is true for Balochistan, with the HIES showing a very low poverty incidence of 22 percent, while the PIHS yields an estimate of 41 percent. Further research is needed to ascertain the poverty rankings of these provinces between themselves and relative to the other provinces. In another study , estimates of poverty (rural and urban) have been made for Pakistan as a whole and for various provinces. These estimates are based on different poverty lines for the years 1984/85, 1987/88, and 1990/91. Because of a lower poverty line, the percentage of poor people is much lower than in the World Bank estimation. Also, changes in the incidence of poverty over time are different between the two sets of estimates. In the World Bank estimates, there is a consistent decline in the incidence of poverty for Pakistan as a whole between 1984/85 and 1990/91. In the Naseem et al. study, there is a decline in the incidence of poverty between 1984/85 and 1987/88, following a similar trend as in the World Bank study; but between 1987/88 and 1990/91, decline continues until 1990/91 according to the World Bank, whereas in the Naseem et al. study, there is an increase in the incidence of poverty between 1987/88 and 1990/91. As between regions, there are also differences in the movement over time in the incidence of poverty. While it declined consistently in Punjab and Balochistan, there is an increase in the incidence of poverty over time in two other provinces. This is true not only for all overall poverty indexes, but also for the rural and urban areas separately.

Poverty in Pakistan 1984-85 to 1990-91

CHARACTERISTICS OF THE POOR An attempt is made in to relate the incidence of poverty to the employment profile as well as to an asset profile of the households. All households are classified into four broad categories: agricultural, wage earners outside agriculture, self-employed outside agriculture, and a residual "other". Agricultural households were further classified by their access to land: owner cultivators, tenants, and agricultural laborers. Nonagricultural wage earners were classified into "white collar," skilled/semi-skilled, and casual/manual workers. White collar workers were mainly employed in regular and secure jobs in the formal sector. The skilled/semi-skilled category included production workers and tradesmen such as plumbers and electricians. Casual/manual workers were involved in largely unskilled and casual laboring jobs with low rates of pay and insecure employment. The self-employed were classified by the asset value of their enterprises. Poverty headcounts correspond well with level of asset holdings within both the wage-earner and self-employed groups. White collar workers have the lowest incidence of poverty (22.1 percent) among the wage earners, which is very close to that of the self-employed with assets worth Rs 10,000 or more. The skilled/semi-skilled workers have a higher incidence (28.1 percent), and casual/manual laborers higher still (38.3 percent). The self-employed are an even more diverse category, within which ownership of capital appears to make all the difference, though there are probably other correlated factors at work including human capital. Those with assets valued at under Rs 1,000 had the highest incidence of poverty among all groups (51.2 percent). This group, which comprises about 9 percent of the urban sample, are worse off than even casual laborers. The results indicate the importance of both human and physical capital in determining the incidence of poverty. In the rural sample, 64 percent of the households are classified as agriculturists, with owner cultivators as the largest group (36.6 percent). Tenants, with 13.6 percent of the rural sample, have a high incidence (43.8 percent). Agricultural laborers, who constituted 7 percent of the rural sample, were even worse off. Among the nonagricultural rural households, casual workers have the highest incidence (45.1 percent) as do self-employed with less than Rs 1,000 in assets (46.3 percent). The incidence of poverty among wage earner and selfemployed households is remarkably similar in urban and rural areas.

PERFORMANCE DURING THE LAST FOUR YEARS Pakistan’s growth performance over the last four years is enviable in many respects. Sound macroeconomic policies and implementation of structural reforms in almost all sectors of the economy have 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 strong economic growth is bound to create employment opportunities and therefore reduce unemployment. The evidence provided by the Labor 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 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. The rising pace of job creation is bound to increase the income levels of the people. In recent years the role of remittances in reducing poverty has been widely acknowledged. Remittances allow families to maintain or increase expenditure on basic consumption, housing, education, and small-business formation. Total remittances inflows since 2001-02 and until 2005-06 have amounted over $ 19 billion or Rs.1129 billion. Such a massive inflow of remittances particularly towards the rural or semi-urban areas of Pakistan must have helped loosen the budget constraints of their recipients, allowing them to increase consumption of both durables and non-durables, on human capital accumulation (through both education and health care), and on real estate. To the extent that the poorer sections of society depend on remittances for their basic consumption needs, increased flow of remittances would be associated with reduction in poverty. Although, growth is necessary but it is not sufficient to make any significant dent to poverty. Realizing this fact the government had launched a directed program under the title of Poverty Related and Social Sector Program some five years ago. 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. Such a huge spending on targeted program is bound to make a significant dent to poverty. The latest estimate of inflation - adjusted poverty line is Rs.878.64 per adult equivalent per month ─ up from Rs.723.40 in 2001. Headcount ratio, i.e., 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. In absolute numbers the count of poor persons has fallen from 49.23 million in 2001 to 36.45 million in 2004-05. The percentage of population living below the poverty line in rural areas has declined from 39.26 percent to 28.10 percent while those in urban areas, has declined from 22.69 percent 14.9 percent. In other words, rural poverty has declined by 11.16 percentage points and urban poverty is reduced by 7.79 percentage points. Consumption inequality increased marginally during the period. These findings are consistent with the developments on economic scene that have taken place in Pakistan since 2000-01. 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.

COMPARISONS

Poverty Status 2001 and 2004-05: Survey Evidence Table 1 gives a comparative snapshot of poverty status during 2001 and 2005. The latest estimate of inflation ─ adjusted poverty line is Rs.878.64 per adult equivalent per month ─ up from Rs.723.40 in 2001. Headcount ratio, i.e., 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. In absolute numbers the count of poor persons has fallen from 49.23 million in 2001 to 36.45 million in 2004-05. The percentage of population living below the poverty line in rural areas has declined from 39.26 percent to 28.10 percent while those in urban areas, has declined from 22.69 percent 14.9 percent. In other words’, rural poverty has declined by 11.16 percentage points and urban poverty is reduced by 7.79 percentage points. The other two indicators, poverty gap and severity of poverty are aggregate measures of ‘spread’ of the poor below the poverty line, i.e., they aggregate the distance (proximity or remoteness) of all poor individuals from the poverty line. A lower value indicates that most of the poor are bunched around the poverty line. In line with the improvement in headcount, both the poverty gap and severity of poverty has also declined substantially in the country. These findings are consistent with the developments on economic scene that have taken place since 2000- 01. 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. Table 1: Poverty Indicators 2001 and 2004-05.

The estimation of poverty line enables the policy makers to further identify and group the population into various ‘poverty bands’ such as extremely poor, vulnerable and non-poor etc. Table 2 presents a comparative profile of 2001 and 2004-05 for the six groups. While the percentage of population classified as ‘extremely poor’ remain almost identical in the two periods, the proportion of ultra poor and poor have declined appreciably. At the higher end, the percentage of quasi non-poor and non-poor in the economy increased notably. Table 2: Comparative Poverty Profile 2001 and 2004-05 Percentage of Population

Detailed analysis of the consumption patterns of the population grouped by quintiles provides strong evidence in support of the observed reduction in poverty levels between 2001 and 2004-05. Table 3 compares mean and median of real monthly consumption expenditure per adult equivalent of the 2 periods. Overall, the growth in real mean expenditure of the population from Rs.1004 to Rs.1171 is 16.6 percent. The growth in real mean expenditure of top 20% percent population at 22 percent is nearly 2½ times that of the bottom 20%. The closeness of mean and median values across the bottom 0% of the population indicates that consumption expenditures are bell-shaped normally distributed around the mean and median of each quintiles. Only the top 20% of the population exhibit greater skewness in consumption behavior as mean and median consumption expenditures are different.

Table 3: Consumption Expenditure between PIHS 2000-01 and PSLM 2004-05 at the Prices of 2001.

Comparing the share of major food and non-food items in total expenditure across the 2 points in time provides another perspective on the stability of consumption behavior and reliability of the data. Table 4 gives the percentage expenditure share of major items in the monthly per adult equivalent expenditure. Notable increase in shares between the two periods is observed in transport category and other miscellaneous expenditure, e.g., email, internet etc. The share of medical expenses and education record a marginal decline from 2001 level. In case of education, this may reflect substitution by households of own expenditure with that provided by the government via up scaling and better targeting of expenditures on education in PRSP. Table 4: Percentage of per adult equivalent monthly consumption expenditure by commodity group.

Table 5 compares the growth rate in per adult equivalent monthly consumption expenditure on few commodity groups of bottom 20% with the top 20% of the population for the year 2001 and 2004-05. Except for the negative growth in medical care expenses of the richest 20%, all other commodity groups indicate a lower and in some cases, i.e., education, clothing, and personal care, a negative growth rate for the poorest 20% during the period. A marginal negative growth in clothing and items of personal care may reflect cheaper imports from China, while in case of education, increased expenditure on education by the government may have substituted household own expenditure on education. The highest growth (50.4 %) for the poorest 20% occurred in the transport and traveling expenses. Table 5: Comparison of per adult equivalent monthly consumption expenditure between PIHS 2000-01 and HIES 2004-05 at 2001 prices by commodity group and quintile.

GOVERNMENT’S POVERTY ALLEVIATION POLICIES Eradication of poverty and reduction in inequalities of income and non-income indicators is one of the crucial pillars of Vision 2030. A society that is educated, healthy, and is mostly not-poor and equitable, will be resilient to shocks, and would be the best basis and guarantee of a well-functioning knowledge economy. Another important aspect of the poverty reduction strategy is employment generation for the poor. In this regard, expenditures on roads and highways, the most labor-intensive sector, constitute the major share in community services. These expenditures are projected to rise by almost seven times in 2006-07 as compared to 2001-02, representing an average growth rate of more than 50 percent. The government’s commitment towards sustained expenditures on pro-poor sectors is reflected in the Fiscal Responsibility and Debt Limitation Act promulgated in 2005. Under this law, social and poverty related expenditures are not to be reduced below 4.5 percent of the GDP in any given year and budgetary allocations to health and education will be doubled from the existing level in terms of percentage of Gross Domestic Product during the next ten years. Expenditures on pro-poor sectors in 2004-05, at 4.85 percent of GDP was well above the requirement under this Law. Pro-poor expenditure is projected to be 5.02 percent of GDP in 2005-06 and 5.25 percent of GDP in 2006-07. The strategy going forward as enshrined in the Poverty Reduction Strategy Paper for the medium-term (2006/07 – 2008/09) aims at forging a broad-based alliance with civil society in the quest to alleviate poverty and accelerate development. The complex and multidimensional nature of poverty warrants that strategies for poverty reduction encompass plans for rapid pro-poor economic growth, sound macroeconomic management, structural reforms, and social inclusion. The strategy is being enriched by the on-going process of dialogue with civil society and the poor. The strategy places considerable emphasis on taking advantage of the opportunities offered by globalization. Pakistan’s Poverty Reduction Strategy is underpinned by the following considerations:

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Continuing to ensure macro-economic stability and sustained high and broad-based economic growth by taking advantage of the opportunities offered by globalization, while at the same time unleashing the potential of domestic commerce, reducing inequalities and maximizing employment generation

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Directing public policy debate towards the needs of the poor

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Bringing about an effective transformation of society, by forging partnerships and alliances with civil society and the private sector

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Understanding the nature of poverty, and using that as a guide for all public actions

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Empowering the people, especially the women and the most deprived, by increasing access to factors of production, particularly land and credit.

Given the significant resources required to fund the Poverty Reduction Strategy (PRS), the Government has prioritized the PRS through the Medium Term Expenditure Framework (MTEF), which has been used to inform the budget. Four pillared strategy for poverty reduction in Pakistan: 1. Macroeconomic Stabilization and resumption of growth: The first pillar of this strategy is macroeconomic stabilization and resumption of growth. By 1999, the public debt of Pakistan had become unsustainable, public debt servicing pre-empted more than half of the revenues, and external and domestic debt exceeded the country’s GDP. The country had faced a full payments crisis in 1998, investor confidence in the economy was at lowest ebb, links with international financial community were disrupted, and the reserves were so low that the country was at the brink of default. This situation had to be rectified and a credible economic program had to be put in place to get the economy out of the crisis and back on the track. The results of this effort three years later are obvious to every one. Inflation is less than 4 percent, fiscal deficit has been brought down to 5 percent, external debt indicators have improved, public debt servicing has declined, domestic interest rates have reached all time low, exchange rate is stable and appreciating, exports are growing at

annual rate of 16 percent, tax revenues have exceeded their targets, and foreign reserves are touching about $ 12 billion or almost a year’s imports. This all round and broad based improvement in macroeconomic indicators has led to up-gradation of country’s credit rating. Macroeconomic stabilization is the foundation upon which resumption of economic growth can take place.

2. Improved Governance: The second pillar of the strategy is improved governance. The key ingredient of the governance agenda is the devolution plan whereby administrative, functional and financial responsibilities for delivery of social services are delegated to the district governments. Demand-driven development projects will be planned and executed by the direct beneficiaries rather than thrust upon them by the government agencies working from the Provincial and Federal headquarters in splendid isolation. The other practices which have been adopted are accountability, transparency, predictability and level playing field for all the players. Discretionary powers have been curtailed and rules and regulations are enforced. Merit-based appointments have become the norm and even Assistant Sub Inspectors of Police are selected through Public Service Commission. No SRO has been issued to favor one single individual or group to the disadvantage of others. Civil Service, Police and Judicial reforms have been initiated but will take a long time to come to fruition. 3. Structural Reforms: Structural reforms form the third pillar of the strategy. Broad based reforms in tax administration, trade liberalization, financial sector and privatization form the core. In tax administration, Central Board of Revenue is being restructured, tax net and tax base are being widened and the direct contact between tax collector and tax payer is being eliminated. Trade liberalization has resulted in tariff rationalization, removal of various restrictions from exports and imports and deregulation. Financial sector reforms have already resulted in a sound and healthy banking system, a buoyant stock market, a growing corporate debt market, a streamlined non banking financial institution structure and strengthening of supervision and regulation. Privatization process has been provided a legal framework under which transactions take place in an open and transparent manner. Public Corporations and banks were sold during the last three years and Rs 36 billion realized as the proceeds. Unlike the

past, none of the transaction was challenged in the courts of law and the market confidence in the process is quite high. Those who argue that we are selling blue chip public sector companies should realize that these companies have been causing an annual budgetary loss of Rs 100 billion. Is it justifiable to keep 100,000 persons employed in these Corporations while the rest of the population suffers from lack of budgetary resources for basic necessities such as education, health, drinking water etc.? 4. Poverty Targeted Interventions: The fourth pillar of the strategy is poverty targeted interventions. The prominent among them are Education Sector Reforms, Health for all, Population planning, Zakat, Khushali program for employment generation and works program, Food Support program and Khushali Bank. While Education, health and population planning cover the entire population the other interventions are targeted at the poor. Zakat program has been revamped to provide financial grants to the beneficiaries to start small enterprise or other income generating activities. Food Support program is aimed at subsidized wheat flour to those below a certain threshold of monthly income. Khushali program is allocated to the local governments to create and improve physical infrastructure and also generate employment. Khushali Bank is a micro finance institution which provides small loans to the poor under supervised group guarantee scheme. All these initiatives have begun to take shape in the last one or two years and it will take some time before they start yielding dividends.

The PRSP process has been completely aligned with the Millennium Development Goals (MDGs) and the Medium Term Development Framework (MTDF). While the MTDF provides a framework for translating the ‘VISION 2030’ into action during the period 200510; its emphasis is on “sustained long term growth”. The PRSP on the other hand presents the strategy to ensure that the growth is broad-based and leads to effective poverty reduction. The detailed policies related to growth promotion are presented in the MTDF, while the PRSP takes those interventions as given and focuses on the package of interventions required to ensure that the sustained high growth is translated into effective poverty reduction; and the poor and marginalized are protected. In this regard, the following sub-strategies will be at the core of the Poverty Reduction Strategy of the Government. They will form part of the PRSP2 currently under finalization, which will become operational from next fiscal year.

1. Maximizing the Gains from Globalization Globalization is a multi-dimensional process which impacts all aspects of life, be it economic, social, cultural, or political. For globalization to lead to poverty reduction, domestic enterprises need to be increasingly competitive in the international market. This requires increased efficiency and upgrading skills of the labour force to improve its level of human capital. It requires the enforcement of quality control and standards. For domestic enterprises to be competitive in the global economy, good investment climate is essential, in which firms can start up, grow and prosper. 2. Trade Liberalization and Export Promotion The Government has implemented a comprehensive program of trade reforms gradually moving the economy away from protectionism towards greater trade openness and global economic integration. The Government has been taking a number of defensive trade measures – in the context of WTO – to protect the domestic industry against the dumping of cheap and illegal imports. Sustained export performance is a key priority. Towards this end, the Government is making efforts in the areas of trade facilitation, WTO related issues, export promotion and diversification, and extension of export promotion zones and industrial clusters. The Government’s policy will focus on measures to sustain textile exports and promote other sectors that are not yet capable of exporting. The Government is committed to liberalize and deregulate Pakistan’s trade and widen the export base through further strengthening of industrial activity and strong institutional supply side measures. The trade policy continues to focus on value addition for sustainable growth in export earnings. 3. Employment Generation and Poverty Reduction Economic growth has been quite robust during the last five years and particularly in the tenure of PRSP-I (2003-06). The growth momentum is likely to continue in the mediumterm. In order to maximize the poverty reduction impact of growth it needs to be aligned with an employment strategy that can ensure that growth is broad-based. Certain sectors of the economy are critical for sustained employment generation and growth leading to poverty reduction and improved income distribution. These sectors include, in particular:

Agriculture (agro-industry, agri-business and livestock) and water sector development; Small and Medium Enterprises (SMEs); and Housing and construction sector. Nearly 67 percent of the people live in the rural areas and majority of them are dependent on agriculture for their livelihood. Therefore, agriculture will continue to receive highest attention. The rural sector also comprises a large and expanding non-farm sector where employment generation is crucial. This also has the beneficial impact of strengthening the farm and non farm linkages and enhancing growth through the multiplier effect. New jobs can be created by accelerating growth in agriculture and by increasing the area under cultivation, raising crop yields, diversification of cropping patterns, production of high value crops such as fruits, vegetables, flowers, etc. Livestock has high potential for job creation and income generation as well. The SME sector has an enormous employment generation potential. This extends to SMEs in both the urban and rural areas. In order for SMEs to play their due role a comprehensive package of venture capital, credit, liberalization of controls, technology and skill up-gradation, marketing and management advisory services is needed. The SMEs in the rural areas are best placed to create new job opportunities and for income generation. SMEs can easily be involved in a number of profitable ventures such as fruit and vegetable processing, dairy and livestock, floriculture, fisheries, transportation of agriculture products and their marketing. The growth strategy in the MTDF provides for incentives to promote the whole host of crucial requirements identified above for the promotion of the SMEs. The housing and construction sector has received greater attention for employment creation in both the PRSP-I as well as the MTDF. It has been identified that this sector has linkages with about 40 building material industries. Moreover, this sector helps to further support the investment climate through its overall impact on the economy. Given its strong background and forward linkages and large employment potential effects, this sector is crucial for reducing poverty by generating job opportunities for the poor. Equitable growth requires development and implementation of policies which will positively impact all segments of the society in proportion to their requirements. Employment

opportunities need to be created in both rural and urban areas, farm as well as non-farm, and for men, women and youth. 4. Micro-Finance Microfinance plays a critical role in improving the lives of the poor people. The poor use financial services not only for business investment in their micro-enterprises but also to invest in health and education, to manage household emergencies, and to meet the wide variety of other liquidity needs that they encounter occasionally. Evidence from the millions of microfinance clients around the world demonstrate that access to financial services enables poor people to increase their household income, build assets and reduce their vulnerability to the crises that are so much a part of their daily lives. In the context of Pakistan, the use of micro-credit holds importance for both the agricultural and non agricultural sector. The need for credit is particularly important for poor farmers. Their requirement for agricultural inputs, seeds, fertilizer, pesticide etc. tends to be cyclical as does their income. However the two cycles do not always coincide. Rural loans for non agricultural purposes include such things as micro enterprises in unorganized sectors of rural economy. Realizing the importance of microfinance as a tool of poverty reduction and social mobilization, the government has accelerated its efforts to establish strong foundations of microfinance in formal sector along with extending support to the informal sector (NGOs) as well. Khushali Bank (KB) was established as the first specialized microfinance institution in 2000 and the Microfinance Institutions (MFI) Ordinance was promulgated in 2001 to provide a separate regulatory framework for microfinance institutions. As a result, during the last five years, four specialized microfinance banks (excluding KB) have started operation, which includes the First Microfinance Bank Limited (FMFBL) and Tameer Microfinance Banks working at the national level, the Rozgar Microfinance Bank Limited (RMFBL) and Network Microfinance Banks Limited (NMFBL) which are operating at the district level. In addition, the Pakistan Poverty Alleviation Fund (PPAF) has been working since 1999 as a distributor/ wholesaler of credit to the NGOs.

AGENDA FOR THE FUTURE The formulation of strategy is the easy part but implementation of the strategy has always been weak in Pakistan. In order to implement this strategy at least five points need to be considered. •

Political ambivalence about poverty whereby the rhetoric is all thundering but the actions are missing has to give way to a strong political commitment in words and deeds. The Musharraf Government has explicitly brought poverty reduction to the forefront and made a strong commitment. But poverty cannot be reduced in a span of 1 or 2 or 3 years and its correlation with growth is quite high. Pakistan witnessed significant poverty reduction from almost 40 percent to 18 percent in a period when GDP growth rate was averaging 6 percent. But in the 1990s when the growth rate slowed down to 3 to 4 percent there has been a resurgence of poverty to 34-35 percent. Thus a long term action plan supported by all successive governments and implemented in a continuous and consistent manner will result in its reduction. We cannot expect results overnight and have to work hard and work sincerely for an extended time to reach this goal.

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Decentralization and delegation of powers: It has become abundantly clear that local communities are willing to share financial burden of social services if they can see that the benefits will accrue to them directly. But if they find that the user charges, taxes and fees disappear in a black box at Karachi or Islamabad they will be most reluctant to pay. The demand-driven nature of planning and accountability of results improve the cost effectiveness of expenditures. Thus the delivery of services can become efficient and accessible to the poor if they are operated and managed locally.

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Limited Institutional capacity: If we assume that there are no leakages or waste Pakistan still faces a serious constraint in form of limited and weak capacity of institutions to plan and deliver services. This capacity should be built at the local level and supplemented by public private community partnerships. There are excellent examples such as The Citizens Foundation Schools in the backward areas of Lyari

where the private businesses and individuals donors have contributed finances to a Non-governmental Organization for educating the kids of the poor families. In Punjab, Government school buildings have been made available to private sector and NGOs for using them for the second shift schools. Such examples abound throughout the country. The recent efforts of Human Development Foundation to build capacity at the district level will go a long way in resolving this constraint. •

Lack of access to justice, police and executive agencies – while robust informal social networks and non-profit Civil society organizations can take care of the needs of the poor in the areas of education and health there is no substitute available for justice, police and executive agencies of the government. Access to these agencies and their functionaries is almost non-existent and is a major source of helplessness, and lack of empowerment among the poor. Unless the mind-set and attitude of the Government functionaries is changed radically the poor will remain voiceless, their grievances will remain unaddressed and their vulnerability will not be tackled in any meaningful way.

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Gender face – Women in Pakistan are worse off among the poor compared to men. In a country where only 17 percent of female population participates in labor force, where female enrolment ratios are dismally low and where health indicators are worse for the female population poverty and vulnerability will remain a serious issue. Economic literature has amply documented that there is no other investment which fetches higher rate of return than investment in female education. This return does not take into account all the externalities associated with female education in form of better health, nutrition outcomes, lower fertility rate and better citizenship. Bangladesh exemplifies the enormous benefits of female education and labor force participation. Government there has not done what it was supposed to do but it was the non-governmental organizations such as BRAC who were instrumental in spreading their schools throughout the rural areas. The results are simply astounding. Until we pay attention to uplift the status of 50 percent of our population I am not convinced that we will be able to make a significant break through in poverty reduction.

THE BUDGET AND POVERTY ALLEVIATION IN PAKISTAN The newly announced budget in Pakistan relies heavily on the World Bank and IMF’s preferred mode of poverty reduction, liberalization that is supposed to generate investment, preferably foreign, leading to employment, eventually culminating in reduced poverty. That at least is the theory. In practice there have been severe problems with this strategy. However, the Poverty Reduction Strategy Papers espousing this strategy have been sponsored by the World Bank and other donors and are celebrated as being participatory, and dynamic; a ‘living document’ evolving with the needs of the people. The Pakistani PRSP has been recently finalized, in December 2003 and has a profound impact on the recently proposed budget. Before we look at the Pakistani case in any detail it would be useful to try to understand why the World Bank embarked on the potentially perilous journey of espousing participatory research. Given its recent history, why the change of heart? The disempowerment and immiseration of millions in the Third World as a result of Structural Adjustment Plans that the World Bank promoted in country after country has not only led to considerable documentation and critical analysis, but also to increasingly visible protest movements, critically within the West itself. The first memorable example of the strength of that protest movement remains Seattle 1999 but since then it has become commonplace to find antiglobalisation protestors at every major World Bank, WTO and IMF meeting. The critiques of these protest movements and alternative theorists seem to be reaching the inner circle of World Bank intellectual supporters such as Stiglitz, Sachs, and Bhagwati. All of them now criticize the Bank’s approach and methodology. More importantly, the record of the World Bank as aiding ‘development’ in its client countries received a major set back in recent years as many of its ‘star pupils’ like Argentina and Ghana slid into chaos in spite, or more likely because of, following World Bank and IMF dictates closely. Something obviously needed to be done. The Poverty Reduction Strategy Papers are a response to both the obvious issue of increasing world poverty that many claim results from the very policies countries followed under World Bank guidance, and to critiques regarding the non inclusive nature of World Bank policy making.

Final PRSPs had been presented to the boards of World Bank and IMF by around 50 countries by January 2004. According to the World Bank, ‘PRSPs are prepared by governments through a participatory process involving civil society and development partners, including the World Bank and the International Monetary Fund (IMF)’. It would be useful at this point to ask who represented ‘civil society’ to balance a heavy donor presence. The concept of civil society when not being used to refer to society in general is more specifically used to denote that segment of society that interacts with the state, influences the state and yet is distinct from the state. The principle vehicles of civil society representation in the case of PRSPs have been NGOs. Fortunately for the World Bank the concept of civil society is vague enough to allow easy manipulation. Who is chosen to represent civil society is very much at the discretion of the government and the donors. In Pakistan after the first round of so called public participation, a coalition of NGOs, unions and activists wrote to the World Bank, the Government of Pakistan, IMF and other agencies to register their complaint. The letter writers claim, ‘The Interim-PRSP (I-PRSP) was made public by the Ministries of Finance and Planning in November 2001. While the I-PRSP document itself suggests that extensive public consultation took place in the preparation stages, there is no concrete evidence to confirm this claim. The vast majority of civil society groups are still only discovering that the PRSP process exists’. A selected group of NGOs were then included in the consultation process. The final PRSP released in December 2003 makes claims regarding inclusion and participation that remain hard to verify. The report claims that ‘the PRSP participatory process has been further enriched by social mobilization at the grassroots level through the Rural Support Programs Network (RSPN) in setting priorities and improving implementation’. It is generally acknowledged that the RSPN is the archetypical establishment friendly NGO. More importantly the report gives no information about how this participation was solicited, who was invited and how the discussions were conducted. It remains hard to prove these claims of participation. Critically, the IMF and World Bank in their own reports do not raise any questions about the process of participation. The Joint Staff Assessment report on Pakistan’s PRSP supposedly written to critically evaluate the process of PRSP formulation in a country, claims that ‘the broad participatory approach that was initiated during the interim PRSP underpinned the final PRSP’. The report goes on to indicate satisfaction at the level of

participation in strategy formulation, focusing its concerns primarily on the speed of strategy implementation. In Pakistan, while the who, what and how of civil society participation remains uncertain, the list of donors who contributed remains long and clear: ‘The World Bank and other key donor partners including ADB, DfiD, INGAD, UNDP, UNFPA, ILO, UNICEF, WHO, JICA, CIDA, USAID, EU, GTZ, NORAD actively supported the full PRSP process and contributed towards policy design, implementation, and evaluation’. This is part of a wider pattern of PRSP in other countries. It might be tempting to view the failure of this PRSP to be as participatory as it claims, as a uniquely Pakistani problem. However, a recent Oxfam report titled ‘From “Donorship” to Ownership?’ points to failures in participation across a range of different countries. Many other monitoring organizations like Focus on Global South and Eurodad have made similar claims. The Oxfam report claims, ‘Donors maintain far too much control over policy content, employing conditionality and ‘backstage’ negotiation to the detriment of participation processes. Lastly, these new opportunities for dialogue on policy remain very fragile and dependant on the largesse of donors, rather than being institutionalised as a right’. It is however, in the content of the PRSPs that we find the biggest contradiction to the frequent claims of participatory decision-making. In country after country the PRSPs are reimposing a ‘previously tried and failed policy paradigm’ of the Structural Adjustment Plans. Oxfam reports that the thrust of the PRSP reports has been almost identical in all fifty reports written so far. What a coincidence, that in country after country the PRSPs continue to reflect the ‘structural adjustment emphasis on ‘belt-tightening’ economic frameworks, liberalization, privatisation and growth based on one or two primary exports’. In almost all the PRSPS there is a complete absence of historical and socio-political analysis regarding why poverty exists. The Pakistani PRSP only notes in passing that as a result of the participatory workshops conducted by the Rural Support Networks Program some reasons for poverty were identified and these included: ‘discriminatory education system, high incidence of health problems, widespread unemployment, inaccessibility to capital from traditional sources to start productive enterprise, few opportunities for women to earn a livelihood, lack of availability of vocational skills,…..environmental degradation, inconsistent water supply,

lack of access to justice, and a rapid rise in population,….’. No attempt is made to distinguish the indicators of poverty from the causes. Herein lies the crux of the matter. The absence of causal analysis is critical in allowing the PRSPs to propose strategies for reduction of poverty that have been documented by others to be contributing towards the growth of poverty. A Focus on Global South report points out that ‘reducing the discussion of poverty to poverty alleviation…..can be intentionally deceptive…..and if the poverty diagnosis is incorrect, so too will the emerging strategy. This is why we believe that the policy matrices that appeared in most PRSP processes seldom show a demonstrable connection with actual poverty reduction’. The World Bank’s PRSPs continue to support trade and financial liberalization and privatization that has been shown by many researchers to actually lead to increased poverty through elimination of subsistence farming, de-industrialization of third world countries and larger share of value-added going to the multinationals that are receiving increased priority over the concerns of the citizens. The development industry is not a monolith and there is no doubt that there may be many within the World Bank who may sincerely believe that increased liberalization is the way forward for development in the third world. However, in the face of increasing evidence from all parts of the world that this is not the case, and in the face of increasing revisions by the very economists who supported this framework intellectually, such a belief is hard to justify. In fact an organization that operates on non-democratic structures itself is an unlikely champion of participatory decision-making. Voting power at World Bank is determined by a country’s financial contribution. The US has between 15.5-18% of vote in every board and the combined vote of the G7 countries is close to 45%. The headquarters of both IMF and World Bank are at Washington due to the stipulation that headquarters will be located in countries with the highest contribution. Significant changes in policy direction require a majority vote of 85%. So far the US has maintained its veto power by ensuring that its voting power never slips below 15%. This organization certainly understands the language of ‘effective demand’ i.e. responding to the demands of those who can pay, but to expect it to actively promote democratic participation may be naivety of the highest order.

CONCLUSIONS To conclude, Pakistan has built its poverty reduction strategy on the basis of its own historical experience and incorporated the lessons of global experience also. The strategy has the inputs of all stakeholders but it needs strong political commitment, real devolution of powers to grass roots level, a vibrant private public-community partnership for delivery of services, change in the bureaucratic values and norms and a focus on gender disparities. Pakistan’s poverty reduction strategy has yielded handsome result in the shape of sharp reduction in poverty. Although, poverty has declined but the fact remains that 23.9 percent people of Pakistan still live below the poverty line. Further reduction in poverty is a major challenge for the government. A clear lesson from the past four years of Pakistan and from other countries’ experience is that sustained growth on a consistent basis is needed to reduce poverty. Macroeconomic stability is, of course, a prerequisite for the sustained economic growth that brings the poverty reduction and rising living standards that we all want to see. But macroeconomic stability is not sufficient. Rather, it is the foundation on which to build a thriving economy. Successfully targeted social programs, fair and broad based fiscal regimes, labor markets that promote job creation, and high quality education opportunities for the neediest, are also key to poverty reduction. If these issues are resolved sooner than later we can embark on a path of sustainable poverty reduction. Pakistan’s poverty reduction strategy has yielded handsome result in the shape of sharp reduction in poverty. Although, poverty has declined but the fact remains that 23.9 percent people of Pakistan still live below the poverty line. Further reduction in poverty is a major challenge for the government. A clear lesson from the past four years of Pakistan and from other countries’ experience is that sustained growth on a consistent basis is needed to reduce poverty. Macroeconomic stability is, of course, a prerequisite for the sustained economic growth that brings the poverty reduction and rising living standards that we all want to see. But macroeconomic stability is not sufficient. Rather, it is the foundation on which to build a thriving economy. Successfully targeted social programs, fair and broad based fiscal regimes, labor markets that promote job creation, and high quality education opportunities for the neediest, are also key to poverty reduction.