NationalVolume 12 Issue # 14

The paradox of rising inequality amidst growing prosperity

Many research reports, including those by the World Economic Forum, in recent years have highlighted the phenomenon of rising income and wealth disparities worldwide. An OECD survey some time back showed that between the mid-1980s and the mid-2000s income inequality increased in 16 European countries. Today, 16pc of the global population earns 55pc of the income while 72pc of the poor account for just over 1pc of wealth.
It has been found that rising inequality is a special characteristic of the fast growing economies like China and India which have seen a spate of billionaires added to Forbes magazine’s list of the world’s wealthiest individuals. The only region where inequality seems to be decreasing is Latin America, particularly in Mexico, Brazil and Argentina where income transfer programmes to the poor and increased access to education account for some lessening of disparities.

As elsewhere, income and wealth distribution in Pakistan, too, is highly skewed. The latest Household Integrated Economic Survey by the Federal Bureau of Statistics indicates that the top 20 percent of Pakistani households consume on average four times more than the poorest 20 percent and earn more than five times as much. Since richer households generally tend to understate their income this ratio is an understatement of the true state of affairs and the real difference in living standards of the richest and the poorest families.

The FBS data revealed that no significant differences exist, on an average, in per capita consumption levels among urban and rural households for the lower four quintiles or 80 percent of households. The difference becomes significant when comparing per capita consumption levels of the richest 20 percent of urban and the richest 20 percent of rural households. This is where the income and consumption differential in favor of urban households is most acute. On an average, households were worse off in real terms in 2013-14 than in 2011-12 since the average income increase during this time was exceeded by the cumulative inflation of over 18 percent in these years. In other words, the standard of living for the average Pakistani household declined indicating that poverty has increased.

Another relevant report in this connection is the latest Human Development Index which shows that Pakistan has stagnated at 146 in ranking out of 187 countries, with the income inequality rising between the rich and the poor. We also have glimpses from various reports of prevailing inequality within different parts of the country and even within a province. The Punjab province is a developed province but extreme poverty and disparity persist in its southern parts. Balochistan province is the most glaring example of inequality among provinces.

Another report by UNDP titled Development Advocate Pakistan shows that inequality has grown between 1998-99 and 2013-14, although multidimensional poverty – which includes health, education and living standards – has fallen from 55.2pc to 38.8pc between 2004-5 and 2014-15. It says that in 1987-88, the Gini coefficient, which measures income inequality, was 0.35 and that this number rose to 0.41 in 2013-14. The report reveals that some Pakistani districts are as well off as any developed country, while others are on par with the poorest in sub-Saharan Africa

According to the report, one of the world’s great achievements in the past few decades is the significant fall in global poverty. Between 1990 and 2012, the number of people living with $1.90 a day has fallen by more than a billion. However, despite this, income inequality has increased within and across the countries. Because of this inequality, the economic growth is affected, crimes increase, talent is wasted, and social mobility is hindered. In this situation, the most critical challenge of the 21st Century is achieving the Sustainable Development Goals, which includes ending poverty in all its forms and leaving no one behind.
As per Pakistan’s Multidimensional Poverty Index, 54.6pc of rural Pakistanis are poor compared to 9.3pc of the population in cities. Multidimensional poverty stands at 31.5pc in Punjab and 73.7pc in Fata. The UNDP report alleges that to date, Pakistan’s response to inequality has been superficial and focuses on symptoms rather than root causes. As a result, inequality has persisted and grown. It recommends that to tackle inequality, key institutions need to be reformed and fiscal, monetary and other policies should be made equitable. It says regional inequality can be addressed by investing in lagging regions and districts, particularly in rural areas.
The major reason behind rising social and economic inequality is IMF-dictated neoliberal economic policies, which has led to drastic cuts in social spending, generating poverty, joblessness and social exclusion. This is helping the rich to sustain power and wealth while the poor are ending up with increased vulnerability to external shocks. There is little evidence that the government is making any serious efforts to address the issue of rising social and economic inequality. The government ministers keep referring to CPEC and large-scale investment from China and boast about foreign exchange reserves, built on borrowed money from the IMF and other creditors, with the least idea of repercussions of the reckless borrowing.

With the mounting external debt and circular debt owed to energy companies, the fiscal space for social sector expenditures is fast contracting, leaving little room for the steps aiming at reducing inequality. On account of bad economic policies by successive governments and regimes, Pakistan’s public debt is ever-increasing and has never come down since 2007. In the period between 2000-2007, Pakistan added $1.6 billion in external debt in eight years but burdened the nation with further $19.6 billion in just four years (2008-11). In the later period, since 2008 it is the domestic debt which increased more rapidly than the foreign debt.

The current PML-N govt. is no different from its predecessors, blindly borrowing from external sources. As of March 2015, total debt liabilities stood at Rs.19,299.2 billion – domestic debt at Rs.12,044.8 billion and foreign debt Rs.6,385.3 billion. The debt to GDP ratio stands at: 66.4% and debt servicing at $6.820 billion. The ratio of revenue/debt repayments is 47%, which is alarming.

Loan for the sake of repayment of loans has emerged as Pakistan’s number one problem during the last decade as the country repaid $ 11.2 billion out of the total procured loans of $ 30.7 billion during the period. But the PML-N government has little time to think about the impact of the bourgeoning debt. On account of a rising debt burden, economic and social rights could be further undermined in Pakistan by the lack of respect for human rights. The social and economic cost of rising inequalities is high; it is damaging social fabric, creating violence and political instability in the country.

To tackle the scourge of rising inequality, Pakistan needs to take bold and serious steps to grapple with multiple factors ranging from bad economic policies to poor governance. It is time the government got rid of the neo-liberal market-led model of economy, which is the main reason of accumulation of wealth in a few hands. The government should also introduce progressive taxation and prioritize the social sector expenditure.