High poverty level in rural areas due to structural, institutional bottlenecks

A key finding of the "Poverty Assessment Update of Pakistan", released by Asian Development Bank, disclosed that structural and institutional bottlenecks including distortions in factor markets and market failures particularly land and labour markets, lack of diversified livelihood opportunities, and hierarchical social structures and social exclusion result in high poverty levels in country particularly in rural areas.
ADB assured to continue to focus on supporting necessary institutional, governance, and market reforms to promote improved efficiency and functioning of markets that result in creation of greater employment and livelihood opportunities for the poor. This will also lead to greater inclusiveness in society as empirical evidence has shown that economic empowerment is one of the most effective antidotes to social exclusion.
Strengthening the skill base of the labour force through technical education and vocational training will be important to ensure supply of trained labour that matches the needs of the market and promotes job generation. A focus on strengthening agriculture markets will result in creating greater opportunities in rural areas, and given the agriculture-industry linkages, will lead to more diversification in sources of livelihoods.
Improvement in infrastructure and services, particularly in secondary cities, will lead to improved competitiveness of these centres to support economic growth and job creation, while improving the quality of lives of the urban poor, ADB report added. The Poverty Assessment Report brings out several causes of persistent poverty in the country.
These include the lack of equitable economic and social opportunities that lead to inequality and dent the direct impact of economic growth on poverty. For example, despite some lowering of unemployment, greater job generation needs to accompany growth for it to result in reduced poverty. ADB should expand its focus on creation of new economic opportunities through direct interventions in key economic sectors including infrastructure development, and the financial and industrial sectors.
Supporting the role of the private sector development in strengthening the productive capacity of the economy and creating employment opportunities to absorb the growing labour force in the country will be key to promote inclusive growth in the country. ADB identified two major key issues with respect to poverty in Pakistan.
The first is whether the downward trend in poverty can be sustained at a time of threatened macroeconomic stability, which is manifested in the once again rising fiscal and current account deficits, high inflation averaging around 25 per cent, and squeezing fiscal space for maintaining high investments in pro-poor sectors.
With the deterioration in economic fundamentals, growth is expected to plunge in 2008/09 and cause poverty to rise, hence the reference to Pakistan having come full circle. The second is about the quantum and pace of poverty reduction: that is to say whether the recent improvements in themselves are substantive and fast enough to make a difference in poverty to the lives of those that need to benefit from these improvements the most.
On these two issues, there is a need for an objective assessment to identify the challenges ahead in sustaining poverty reduction and forcing its pace at a time when the living standards of the poor are severely threatened by major price spikes for food and oil commodities in an overall poor economic and social protection environment. Even if the massive 12.2 percentage points decline in poverty is accepted, 22.3 per cent of the population, which translates into roughly 35 million people, still lives below the poverty line.
This is higher than the number of absolute poor in Pakistan in 1996/97 and goes to confirm the insufficient decline in the percentage of the poor in the last 10 years. Further, poverty is inequitably distributed with levels of rural poverty being double to urban poverty.
In rural areas, skewed access to assets (land) and power, and the inability of the poor to mitigate income fluctuations, challenge their ability to emerge from poverty, and result in "poverty of opportunity". In the urban areas, the deteriorating living environment, inadequate access to basic amenities, problems of slum dwellings, and crippling infrastructure are some of the major issues that are still to be addressed.
One of the worrying aspects of the present situation is the growing economic inequality in the country. The Government in the latest Economic Survey for 2007/2008 has accepted this as a critical issue. According to available data, the gap between the rich and the poor between 2001 and 2006 has significantly widened, with the Gini coefficient having increased from 0.2752 to 0.3018 in this period.
As another testimony to growing inequality, the ratio of income of the richest 20 per cent to the poorest 20 per cent has gone up from 3.76 to 4.20. Despite some improvement, ADB report said that Pakistans progress on human and social development has not been commensurate with the surge of economic growth witnessed in recent years.
The 2005 Human Development Index (HDI) rating for Pakistan in the Human Development Reports for 2007-2008 gives it a very low rank of 136 out of 177 countries. Although Pakistans net primary enrolment ratio and adult literacy have increased during the last four years, accompanied by a reduction in infant and child mortality, progress in health and education is marked by the continuance of spatial (rural/urban, inter-provincial) variations.
Large gender disparities also continue to persist in literacy, primary enrolment, and educational attainment and labour market. The Pakistan Millennium Development Goal Report for 2005 has noted that even if the net primary enrolment continues to increase at the rate of 2.5 percentage points per annum, as observed in the last four years, it will only become 77 per cent by the year 2015, which is well below the MDG target of 100 per cent.
A similar shortfall exists for health-related MDG targets such as infant and maternal mortality. Imbalances in distribution also exist in the levels of nutrition among regions. Pakistans manifold challenges described above arise as a result of longstanding and interwoven economic, social and political inequalities in Pakistan.
These inequities are manifested in the type and nature of institutions and rules that then emerge through an endogenous process to govern society. The ways in which these institutions function and are sometimes hijacked by powerful vested groups affect opportunities of ordinary people and their ability to invest, advance, prosper, and benefit from high growth episodes in the country.
Quoting empirical evidence, ADB report mentioned that this poverty assessment update shows that different groups, depending on their location, socio-cultural status, and access to opportunity, experience poverty in Pakistan differently. Some groups, by virtue of their superior bargaining power as bestowed by the existing institutions, are able to prevail over other groups that have relatively weak power base and institutional support.
Thus the correlation between the unequal distribution of assets and opportunities and inequitable institutional support and bargaining power gives rise to a circular flow of mutually reinforcing adverse patterns of poverty and inequality. According to ADB report, traditional economics literature highlights growth constraints in terms of low savings, inadequate infrastructure, low human capital, poor macroeconomic management, and various types of market distortions and inefficiencies.
Recent literature, however, has cited weak institutions and poor governance as causes for the failure of conventional market-oriented policies in generating growth and reducing poverty. There are many examples from Pakistan on this failure.
Thus, for instance, market asymmetries whereby poor farmers pay more for inputs than richer ones due to the local and national institutional structures, not only result in a loss of income for the poor, but these structures of power also mediate access of farmers to markets that constrain their future economic opportunities. Similarly jobs in many cases, for example, are provided across ethnic biraderi lines.
A growing consensus in the development literature is that market-oriented reforms might not work without more serious attention to institutions. This is corroborated in the background field studies on poverty undertaken for this update. The report highlighted that the extent to which growth reduces poverty depends on growth being politically, geographically, socially, and economically more inclusive and equitable.
Creating a better understanding of the overall political economy and constraints to inclusiveness will contribute toward identifying initiatives for promoting the kind of growth that would have the greatest impact on reduction of poverty and inequity in society. In conclusion, ADB stated, high and sustained economic growth rates are important for overall reduction in poverty in Pakistan.
The non-economic institutional factors are, however, critical determinants of the "spread" of the benefits of growth and the relative access to opportunities of the different socio-economic groupings. Addressing such "social gaps" is, therefore, a matter of addressing the structural and institutional barriers to emerging from poverty.
The different spatial and social status-related experiences of poverty and growth (rural, urban, ethnic background, gender, and others) in Pakistan contribute in a significant way to first, the way in which poverty manifests itself; second, the ability to benefit from growth; and third, the development of contextually-appropriate and institutionally-enabling responses to address the needs of the poor.