According to the World Bank, Pakistan’s poverty level rose to 39.4 percent in the outgoing fiscal year, which pushed 12.5 million more people below the poverty line. Available official data shows that a large percentage of those who recently joined the ranks of the poor are those who lost their jobs due to sustained negative growth in the large-scale manufacturing sector – down 15 percent for 2022-23 and 10.3 percent for July this year.
Among the many factors behind the rising poverty level, an important one is a slowdown in private sector economic activity caused by paucity of credit which was hogged by the government to finance its current expenditure. According to media reports, private sector credit nosedived by 178.6 percent in the last fiscal year because the then Finance Minister Ishaq Dar decided to raise the budgeted current expenditure for the ongoing year by 26.5 percent against the revised estimates of last year, and more than 50 percent against the budgeted amount for last year. Experts say that this was a blunder by Ishaq Dar who put his party’s political compulsions above the larger national interest.
Pakistan’s average real per capita growth rate was just 1.7pc between 2000 and 2020 — less than half the average per capita growth rate (4pc) for South Asian countries over the period and well below the average of peer-group countries with similar economic structures. As a result, Pakistan’s per capita incomes have fallen behind. While Pakistan’s per capita income was among the highest in South Asia during the 1980s, it is now among the lowest in the region.
On a larger canvas, the rising poverty level in Pakistan has much to do with the elite classes’ domination of the economy and policy decisions favouring the vested interests of political, feudal and business leaders. This economic model must change if Pakistan is to get out of the present mess and embark on a new growth path. According to the World Bank, Pakistan is facing a twin human resource capital and economic crisis as illustrated by raging inflation, rising electricity prices, severe climate shocks, and insufficient public resources to finance development and climate adaptation.
To quote the World Bank,“Pakistan is also facing a ‘silent’ human capital crisis: abnormally high child stunting rates, low learning outcomes, and high child mortality.” Pakistan’s human development outcomes lag well behind the rest of South Asia and are roughly equivalent to those in many Sub-Saharan African countries with the costs disproportionately borne by girls and women, close to 40pc of children under five years of age stunted and the largest number (20.3m) of out-of-school children in the world.
The World Bank’s solution is a change in the present economic development model which is characterized by frequent balance of payments crises and unsustainable fiscal and current account deficits. This leads to periodic contractionary adjustments, slowing growth, creating uncertainty and undermining investments.
The bank has proposed that revenue mobilisation should be raised to 22pc of GDP against the existing rate of 9-10pc. According to an estimate, about 3pc of GDP could be immediately recovered by properly taxing properties and agriculture which could contribute 2pc and 1pc of GDP respectively. Simultaneously, expenditures could be reduced through reforms by 1.3pc immediately and about 2.1pc over the medium term and the funds so generated should be utilised in health, education and sanitisation outcomes.
Needless to say, heavy government reliance on bank borrowing at high interest rates for deficit financing is one of the key factors behind high inflation. This dependence can be lessened by reforming and privatising public sector entities that account for over 45pc of GDP, most of them loss-making and needing public money to stay afloat.
At the same time there is an urgent need to reduce recourse to indirect taxes as a source of revenue whose incidence on the poor is greater than on the rich. Also the government needs to cut wasteful expenditure, particularly open-ended perks and privileges to bureaucracy which gobble up billions of rupees every month.
Pakistani governments are in the habit of passing on the buck for upping the utility tariffs to the IMF programme. This is a lame excuse as they refuse to attack the root cause of the electricity crisis which is signing contracts that unduly favoured the Independent Power Producers. There was massive corruption involved in these deals. There is a consensus of opinion among energy experts that these agreements should either be scrapped or renegotiated to provide some relief to the common consumer.
It may be added here that the price of fuel includes the 60 rupee per litre petroleum levy for meeting the government’s ever-rising current expenditure to the tune of 869 billion rupees in the current year alone. Another example of gross economic mismanagement is the sugar cartel that charges a price well above what market conditions and also gets export subsidies. There are numerous ways to redress the ills of the economy if there is the requisite political will. But unfortunately that will is not there.