Poverty ratio down to 21.9pc

ISLAMABAD: The budget document for 2021-22 shows that the official level of poverty in Pakistan has declined from 24.3 percent in 2015-16 to 21.9 percent in 2018-19.

It indicates that poverty declined by 2.4 percent in three years from 2015-16 to 2018-19 on the basis of Cost of Basic Needs (CBN). It also shows that poverty declined mainly during the ruling period of PMLN. The official data was collected prior to the eruption of COVID-19 pandemic so poverty declined in the country. All independent economists concede that poverty increased after the outbreak of COVID-19 pandemic.

According to Annual Plan for 2021-22 tabled into National Assembly along with budget documents, the poverty is estimated by using the latest Household Income Expenditure Survey (HIES) data for 2018-19.

National Accounts data also provides consumption trends of private households. National accounts consumption is estimated using Gross Domestic Product (GDP) data and thus, is not comparable exactly with the consumption estimates based on household survey data.

However, for analysing impact of COVID-19 on poverty, it is assumed that contraction in private consumption is mirror image of fall in household consumption. As per the National Accounts Committee (NAC) assessment, private consumption contracted by 4.14 percent in real terms in 2019-20. Mapping the impact of this contraction on the resultant incidence of poverty, the headcount is estimated to increase from actual 21.9 to 25.36 percent at national level.

Analysis of the data from 2004-05 to 2018-19 shows that growth in consumption expenditure estimated from HIES data and that estimated from National Accounts are significantly correlated.

Thus, Ehsaas led initiatives are expected to have reduced poverty headcount by almost 2 percentage points, the Annual Plan stated. There is a need to look at into the drivers of poverty. The existing literature documents several factors that adversely impact poverty situation such as natural disasters, health shocks, crop failures etc. Factors affecting poverty positively include cash transfers, better crop return owing to better pricing or volume, remittances etc.

At this moment, a number of positive factors support the notion of decrease in poverty incidence. The huge transfer of money to rural areas in the shape of higher prices of crop output is expected to make a significant impact on poverty alleviation.

A similar episode of higher prices of wheat happened in 2008-10 which brought unprecedented increase in consumption expenditure and reduction in poverty. Government’s response to the pandemic and Ehsaas led initiatives have positively impacted the incidence of poverty and inequality and has reversed the negative impact of COVID-19 in terms of decline in overall consumption. In principle, the cash transfers are effective in reducing poverty or inequality because around three-fourth of the population surrounds the poverty line (termed as transitory poor or transitory vulnerable). Even a small cash injection can make a significant difference by reducing poverty or a shock like crop failure, which otherwise can lead to rise in poverty. COVID-19 could have had a disastrous effect on poverty situation in the absence of rapid cash support by the government.