Escaping the poverty trap

LAHORE: Reducing poverty has remained a cornerstone of every government in Pakistan, but policies adopted in last 15 years have proved to be directed towards either maintaining or increasing it further.

The mantra of trickle effect of high GDP growth has failed in past high growth cycles in the country. Some reduction was witnessed but those living in extreme poverty were not affected. The growth rates in last four years have averaged even below the growth in population, which has further increased poverty in the country.

The other way to address poverty is to adopt policies that could curb inequalities. When inequalities are reduced in a society, resources from rich are transferred towards poor. A rich does remain rich, but pro-poor policies ensure that benefits of growth please the poor class more.

In absence of high growth, there are lesser chances of a trickle-down impact. The present policies are geared to increase poverty as instead of reducing inequalities the government is seen trying contain poverty through programmes such as Benazir Income Support Program (BISP).

A huge amount of over Rs364 billion has been earmarked for BISP that, at best, could keep the beneficiaries from going further down but remain poor. It would not be able to reduce poverty as has been proved in past 14 years when the program was introduced with a budget of only Rs74 billion. The number beneficiaries, which were 3 million in 2008-09 increased to 7 million last fiscal and may increase to 9 million this year. In view of super inflation in the country more families from lower middle class that are not served by BISP would continue to fall into poverty trap.

A number of economists plead for inclusive pro-poor growth to reduce poverty. They caution the planners that unless there is sufficient change in resource distribution, people who have a larger initial share of the pie tend to gain a larger share in the pie's expansion.

They also cite credible global studies, which show that in countries where high growth was achieved with rising inequalities the median rate of decline in the $1-a-day headcount index is only about 1 percent a year only.

However, in countries where high growth was associated with a decline in inequality, poverty reduced by up to 10 percent depending upon the ratio of decline in inequalities. Economists argue that equitable growth is the fastest way to reduce poverty.

For whatever reasons past governments have failed to maintain a high growth rate. In last government, the GDP growth averaged 3.0 percent in the three and half year’s rule of PTI and is expected to remain around 3-3.5 percent this fiscal. This would hardly cover the growth in the population.

The present government has not introduced any policy initiative to reduce inequalities. Even from the nominal growth almost the entire share went to the rich and there was no trickle-down impact on the poorest. This implies that we should expect an increase in poverty in years to come.

Poverty cannot be reduced through subsidies. The poor class should be provided jobs through industrialization, particularly in industries that are labor intensive. Garment and knitwear units, for instance, are labor intensive, which should be facilitated by ensuring ease of doing business.

The government must establish common effluent treatment plants in clusters, where these units operate. The state could recover the maintenance cost on a monthly basis on the effluent thrown by each unit in a common facility. This will make numerous units globally compliant and make them eligible for exports to numerous countries.