One of the direct results of high fertility rates and the country's inability to reap the economic benefits of the demographic dividend is poverty and income inequality. Official data shows that the number of people living in absolute poverty has been almost halved in the country during the MDG timeframe.26 But this needs to be analysed in the context of income inequality: as the overall number of people considered officially "poor" has been declining, the incomes of the poorest fifth of the population is not rising fast enough to make any meaningful change in their lives.
Moreover, despite the overall reduction in headcount poverty (ie, the number of people living below the national poverty threshold), there are cities and divisions where the incidence of poverty has actually increased.27 Besides (as discussed later), the absolute reduction in headcount poverty does not give an accurate picture of the deprivations the poor are suffering from, since it generally ignores costs and expenses associated with social spending by individuals, like those on education and health.
Box 7.4: Evolution of the Official Poverty Line
The poverty estimation methodology adopted by Pakistan in the year 2001 was based on the Food Energy Intake (FEI) method. Using consumption data of 1998-99, the Planning Commission had estimated the official poverty line at Rs 637.54 per person per month on the basis of minimum energy consumption of 2,350 kcal a day. Later on, successive poverty lines were adjusted after accounting for inflation, with the official threshold reaching Rs 1,745 per adult equivalent per month by 2010-11 (Table 7.4.1). Yet, flaws in this calorie-based methodology started becoming apparent from 2007-08, when poverty was assessed at 17.2 percent despite the global financial crisis and its aftershocks in the local economy.28 Further skepticism arose after the Pakistan Social and Living Standards Measurement Survey 2010-11 found that the incidence of poverty had declined from 17.2 percent in 2008 to 12.4 percent in 2011; this was judged to be improbable under prevalent socio-economic conditions in the country at the time.
After analysing the shortcomings of the FEI methodology and studying poverty estimation techniques adopted by other countries, the Planning Commission adopted a Cost of Basic Needs (CBN) approach in 2016.
The CBN approach is commonly used in most developing countries today because it focuses on the consumption patterns of households in the reference group. The revised reference group covers households that lie in the 10th to 40th percentile of the distribution of per adult equivalent consumption expenditure; this was done to ensure that the new poverty line was a more representative benchmark. It takes into account households' average spending on food (on the basis of caloric intake), and then estimates major non-food expenditures for households. The poverty incidence using the old (FEI) and new (CBN) methodologies for the period 1998-99 to 2013-14 is presented in Figure 7.4.1.
According to the FEI methodology, only 9.3 percent of the population (or 17 million people) were living below the poverty line in 2013-14. On the other hand, the new (CBN-based) approach suggests that 29.5 percent of the population, or 55 million people, were living below the poverty line in that year. Similar differences appear in the preceding years by backdating this new poverty line. Despite the difference in numbers, the trend remains the same: the incidence of poverty has been declining in the country.
Pakistan has not been alone in observing a declining trend in headcount poverty over the past decade and a half. The World Bank has estimated global poverty to have fallen below 10 percent for the first time in 2015. It has also started using an updated threshold of US $1.9 per day to measure the poverty headcount in each country, after incorporating new information on differences in the cost of living across countries (on the basis of 2011 PPP exchange rates). This new threshold preserves the real purchasing power of the previous line (US $1.25 a day at 2005 prices) in the world's poorest countries. Based on available World Bank data, India appears to have made the greatest progress in reducing headcount poverty among a sample of regional countries, along with China and Indonesia, over the past decade or so.
Multidimensional poverty
Nonetheless, the fact that Pakistan also saw such a sizable reduction in poverty incidence - despite lacklustre economic growth, high food and energy prices, power shortages, unemployment and terrorism-related disruptions - raises some interesting questions. It also led the government to work on a more inclusive and non-income based measure of poverty. The result was the publication of the country's first Multidimensional Poverty Index (MPI) in 2016, which classified 38.8 percent of the population as multidimensional poor.29
Covering education, health and standard of living (measured through a total of 15 indicators), as shown in Table 7.2, the MPI has been designed to provide a broader look at the poverty landscape by focusing on non-monetary aspects of poverty. This is a more encompassing way to measure poverty on the ground, but it also requires multidimensional policies to be impacted as such.
Applying the MPI methodology to backdated PSLM data shows that multidimensional poverty incidence at the national level dropped from 55.2 percent in 2004-5 to 38.8 percent in 2014-15. In terms of indicators, the highest absolute reduction was recorded in the possession of assets/appliances, and in access to sanitation facilities and cooking fuel.30 Yet, despite recording progress, cooking fuel is still the indicator in which the highest number of people (60.6 percent of the population; regardless of poor or not) are considered deprived.31 This was followed by years of schooling (48.5 percent of the population was estimated to be deprived), overcrowding (38.3 percent) and access to health facilities (32.4 percent).
But more importantly, the MPI (in addition to providing a headcount poverty number), also makes it possible to measure the "intensity" of deprivation suffered by the poor. 32 As a result, one can make reasonable conclusions using the MPI about the quality of improvements noted in poverty reduction in the country. The intensity of deprivation fell by a marginal amount, from 52.9 percent to 50.9 percent (at the national level) between 2004-5 and 2014-15. In other words, each poor person is, on average, deprived in almost half of the weighted indicators, and there has been little improvement in this dynamic over the past 10 years. This implies that as the overall number of people considered multidimensional-poor has gone down during 2004-5 to 2014-15, there is a subset of the underprivileged, who have not been able to exit the poverty trap despite the government's poverty alleviation programs. This also goes to show that it becomes increasingly challenging to lift people out of poverty as we approach the poorest of the poor.
There also exists a widespread variation in absolute multidimensional poverty levels across the rural/urban divide, as well as across provinces. Strikingly enough, over half of the population living in rural areas (54.6 percent) is categorised as multidimensional poor, as opposed to just 9.3 percent in urban areas (Figure 7.4). Balochistan fared the worst, as poverty incidence rates for its urban and rural areas were highest relative to their peers in other provinces: a staggering 86.4 percent of people living in Balochistan's rural areas were classified as poor. Here, we would also like to highlight the fact that Balochistan - 71 percent of whose population is considered to be multidimensional poor - has recorded the lowest relative reduction in headcount MPI over time (14.9 percent).
Box 7.5: Explaining the Decline in Poverty
Given that this overall decline in poverty came about as the country's economy sputtered along and fiscal consolidation held sway, it is important to analyse the factors that made this possible.
Social safety nets: We believe that social safety programmes played a big role in reducing the incidence of poverty in the country. The primary among these is the Benazir Income Support Program (BISP); the BISP was launched in 2009 in the wake of the global financial crisis and double-digit domestic inflation. Mainly targeted at poor, ever-married women (ie married women as well as widows and divorcees), BISP has played a significant role in dealing with the twin challenges of poverty alleviation and women empowerment. Eligible beneficiaries are currently getting monthly stipends of around Rs 1,611 (Rs 19,338 per annum). By June 2017, the government targets to increase the BISP's reach to 5.6 million families, from approximately 5.3 million by end-June 2016 (Figure 7.5.1).
(To be continued)
26. Headcount poverty ratio in Pakistan (on cost of basic needs basis) dropped from 57.9 percent in 1998-99 to 29.5 percent in 2013-14 (source: Economic Survey of Pakistan 2015-16).
27. Despite vastly different landscapes and challenges, Sindh and Balochistan noted almost identical reduction in their absolute multidimensional poverty index (MPI) scores during 2004-15; this was also much lower than the reductions made by Punjab and KP (source: Multidimensional Poverty in Pakistan report, 2016).
28. Source: Economic Survey of Pakistan 2015-16.
29. A person is considered to be multidimensional poor if they are found "deprived" in at least 5 (one-third) of the 15 indicators shown in Table 7.2. The detailed criteria for deprivation for each indicator is discussed in the Multidimensional Poverty in Pakistan Report.
30. Source: Multidimensional Poverty in Pakistan Report, by Ministry of Planning, Development and Reform in collaboration with Oxford Poverty and Human Development Initiative and UNDP Pakistan.
31. A person is considered deprived in cooking fuel if their household uses solid fuels for cooking (wood, coal, dung etc) (source: Multidimensional Poverty in Pakistan Report).
32. For a person or household to be considered "deprived" in an indicator means that they fall below a threshold established for that indicator. For details about the deprivation cut-off for each indicator, see the Multidimensional Poverty in Pakistan Report. The term "Intensity" refers to the percentage of indicators (out of 15) in which a multidimensional poor person is considered deprived.
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Table 7.2 Calculating Multidimensional Poverty
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Dimension Indicator Weight
(percent)
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Education Years of schooling 16.67
Child school attendance (6-11yrs) 12.5
School quality 4.17
Health Access to health facilities 16.67
Immunization 5.56
Ante-natal care 5.56
Assisted delivery 5.56
Water 4.76
Sanitation 4.76
Walls 2.38
Standard of living Overcrowding (4 or more people per room) 2.38
Electricity 4.76
Cooking fuel 4.76
Assets/physical appliances 4.76
Livestock (only for rural areas) 4.76
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Source: Multidimensional Poverty in Pakistan Report
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Table 7.4.1: Changes in National Poverty Line
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Year National Poverty Line
(per adult equivalent per month)
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1998-99 Rs 637.54
2000-01 Rs 723.40
2004-05 Rs 878.64
2005-06 Rs 944.47
2007-08 Rs 1,141.53
2010-11 Rs 1,745.00
2015-16* Rs 3,030.00
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Source: Economic Survey of Pakistan 2013-14.
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*: Poverty line based on CBN method
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(Source: Economic Survey of Pakistan 2015-16).
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