The economy is growing back to its historic path of 5 percent amid low inflation after a tough period. That is supposedly a recipe of moving towards poverty eradication, if there is any truth in trickledown theory. The absolute poverty numbers are declining in Pakistan by all kind of measures - be it a new or old methodology (see graph) or multidimensional poverty index.
The old poverty line, based on food energy intake (FEI) suggests that poverty decreased from 29 percent in 1999 to 9 percent in 2014. This poverty line was revised by the Planning Commission recently using cost of basic needs (CBN) method, that includes food and non-food needs. Per this line, poverty halved from 58 percent in 1999 to almost third (30%) of the population in 2014. Multidimensional Poverty Index (MPI) indicates that 39 percent of the Pakistani population was multidimensionally poor in 2014-15, down from 55 percent in 2004-05.
Counter intuitively, the percentage of population undernourished is not falling (see graph) and unfortunately the prevalence of stunting in children under the age of 5 years is on the rise (see graph). The problem seems uglier when the indictors are compared with India and Bangladesh. The population undernourished in Bangladesh was same as in Pakistan in 2000 at 22 percent; and today we are still at the same level while in Bangladesh it fell to 16 percent and in India to 15 percent.
In case of stunting in children, back in the 90s Pakistan was doing much better than India and Bangladesh, and in the 2000s all the countries converged virtually at the same point. Something terribly went wrong at home lately as while our neighbors kept on working on subsiding stunting issue; the graph moved northward for Pakistan.
Why is so? What went wrong here? Why the dichotomy? Yes, the inequality is on rise as the UNDP study calculates that Pakistan's richest 20 percent consumed seven times more than the poorest 20 percent in 2014; they used to consume 5 times more in 1988. Worsening inequality is a global phenomena and it is getting higher even in rich countries; but they do not have problem of absolute poverty.
The question is that why the nutrition indictors are getting worse in Pakistan than its neighbors while the absolute poverty at home is falling faster? There is something fundamentally wrong with the food economy at home, especially in the last ten years or so.
This can be linked to the fiscal constraints the country has. In the absence of tools to raise fiscal revenues, the country has kept on relying on debt for sticky expenditures. Debt servicing and defense spending averaged at 99 percent of federal revenues since FY08. It's a time when subsidies related to power sector, owing to circular debt, were too high; and it had to be financed by debt, leaving no space for running agriculture subsidies.
The authorities virtually have swayed from any agriculture related subsidies in the past decade; and have moved towards support price mechanism that proved detrimental for marginalized population. In 2008, the PPP government introduced wheat support price mechanism to effectively replace direct subsidy mechanism. It increased wheat price in one go from Rs625 to Rs950 per 40 kg. And there is no stopping since then. Today the price is Rs1350 per 40kg against the world price of around Rs1000 per 40 Kg and In India the price is R950 per 40 kg.
That increase in wheat prices virtually cascaded into every food item. The food price index in Pakistan has more than doubled since 2008 (see graph) while the per capita income did not increase proportionately whilst inequality worsened. This explains that it is getting harder for non-farm poor in Pakistan to afford basic food; and hence nutrition and stunting indictors are shaping badly.
In case of poverty, the World Bank basic indictor of poverty headcount indicates that poor living below $1.9 per day in Pakistan was at 6 percent (2013) while in India it was at 21 percent (2011) and in Bangladesh 19 percent (2010). Thus, the population percentage of Pakistan living below $1.9 per day is almost one third of that of its neighbors is a misleading statistic. What matters most is whether poor are well fed. Alas, that is not the case, and part of the problem is high food prices which are linked to indirect ways of subsidizing farm economy.
Yes, farmers are supposedly better off by this policy of higher support price mechanism; but it's killing the poor. And the fact that mismanagement of support price mostly helps big farmers; small farmers remain vulnerable to low income and high food expenditure.
Now with fiscal deficit trimmed while the power related subsidies are low, the need is to rethink the policy framework i.e. to move away from support price to directly subsidizing farm inputs - as the latter policy can reduce the food prices and would help the poor to get food. The spending on food as percentage of total expenditure in Pakistan is at 41 percent while in India it is at 31 percent and is much lower in many other developing countries (see table). This has to be curtailed.
The bottom line is unless we sort the issue of malnutrition and stunting, the supposedly demographic dividend will turn into a demographic catastrophe.
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