POVERTY AND INEQUALITY

POVERTY

 The fight against poverty represents the greatest challenge of our times. Considerable progress has nevertheless been made in different parts of the world in reducing poverty. The proportion of people living in extreme poverty on global level fell from 28 percent in 1990 to 21 percent in 2001 (on the basis of $1 a day). In absolute numbers the reduction during the period was 130 million with most of it coming from China. In Sub-Saharan Africa, the absolute number of poor actually increased by 100 million during the period. The Central and Eastern Europe and the CIS also witnessed a dramatic increase in poverty. While incidence of poverty declined in South Asia, Latin America and the Middle East witnessed no change[1].

Poverty Indicators 2001 and 2004-05

 

Head Count

       Poverty Line

Severity of Poverty

 

2001

2005

2001

2005

2001

2005

Pakistan

34.46

23.9

7.03

4.76

2.13

1.48

Urban

22.69

14.9

4.55

2.87

1.35

0.84

Rural

39.26

28.1

8.04

5.64

2.44

1.77

Poverty Line

723.40

878.64

-

-

-

-

 

  At the macro level, the economic growth implies greater availability of public resources to improve the quality and quantity of education health and other services. On the other hand at the micro level economic growth creates employment, opportunities, increase in the income of the people and therefore reduce poverty. The countries that have achieved high economic growth over a long period of struggle have seen a lasting reduction in poverty. In a world of 6-billion people, 1 billion have 80 percent of the income and 5 billion have less than 20 billion of the income. In the next 25 years 2 billion more people will be added in the world of poverty and 50 million of them will be in the developing countries.

Comparative Poverty Profile 2001 and 2004-05

Percentage of Population

2001

2004-05

Extremely Poor

1.1

1

Ultra Poor

10.8

6.5

Poor

22.5

16.4

Vulnerable

22.5

20.5

Quasi Non-Poor

30.1

35

Non-Poor

13

20.5

 

 Pakistan had launched the poverty reduction strategy in fiscal year 2001. The main focus of this strategy is in accelerating the economic growth and maintaining macro-economic stability, investing in human capital augmenting targeted interventions; expanding social safety nets, and improving governance.

 The latest estimate of inflation adjusted poverty line is Rs. 878.64 per adult equivalent per month up from Rs. 723.40 in fiscal year 2001. Head Count Method is used to find out the status of poverty in an economy. According to the head count method the overall poverty is decreasing from 34.46 percent to 23.9 percent. There is a decrease of 10.56 percentage points. While the poverty gap between rich and poor is decreasing by 2.27 percentage points that is 7.03 percentage points in the FY 2001 to 4.76 percentage points in the FY 2005.

 In urban areas the headcount ratio tells that the poverty is decreasing with 7.79 percentage points that is from 22.69 percent in the FY 2001 to 14.9 percent in the FY 2005 and the poverty gap decreases from 4.55 percent to 2.87 percent that is the decrease of 1.68 percentage points from FY 2001 to FY 2005.

  HOn the other hand, the headcount method in rural areas shows that the poverty decreases from 39.26 percent in FY 2001 to 28.1 percent—a decrease of 11.16 percentage points and poverty gap is reduced up to 8.04 percent in FY 2001 to 5.64 percent in FY 2005—a decrease of 2.4 percentage points.

 The above statistics tell that the poverty in rural areas reduces faster than the poverty reduction in urban areas, and the poverty line increased from 723.40 percent in FY 2001 to 878.64 percent—an increase of 155.24 percentage points. All of the above figures show a strong economic growth and thus there is a reduction of poverty in Pakistan.

 

INEQUALITY

 

 The inequality of any economy is measured by Gini Coefficient and the ratio of the highest to the lowest quintile. The Gini Coefficient has only two values that are 0 and. The higher the values of Gini Coefficient, greater will be the inequality.

 The trend of the Gini Coefficient shows that there is an increase in the inequality in an economy. The empirical evidence shows that the consumption is increasing while the growth rate is decreasing because of the decrease in an absolute poverty. The Gini Coefficient is a broad single aggregate measure. It suppresses the profit of the distribution. The percentage share of expenditure shows that overall inequality in Pakistan has increased marginally but relatively more in urban areas as compared to the rural areas with the difference of 0.086 percentage points.

 During the FY 2001 to FY 2005 the inequality of urban areas increased at a faster pace as compared to that of the rural areas, this is because the labor in the urban areas is more diversified in terms of skills and education as compared to the labor in rural areas. Therefore, the wages are distributed according to the skill and education of the labor, while in case of the labor of rural areas, all the labor force has to perform an equal or homogenous task. In urban areas, there is a wide range of self-employment; therefore, the income in self-employment varies according to the nature of job, while in the rural areas the bulk of self-employed has to work in a homogenous sector.

 The gap between the poor and richer is widened to some extent from 3.76 in FY 2001 to 4.15 in FY 2005 by the ratio of 0.4 percentage point. At regional level the gap between poor and rich has winder in urban areas is more rapidly than in rural areas that is an increase from 10.4 percent in FY 2001 to 12.02 percent in FY 2005 at the ratio of 1.62 percentage points but in rural areas, this gap is decreasing from 2.22 in FY 2001 to 2.19 in FY 2005 with the decline of 0.03 percentage point. Therefore, we can say that the gap between the rich and the poor in rural area is decreasing while it increases in the urban areas.

 

 

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1. Economic Survey 2005-06

(Muhammad Aamer Shahzad)

 

 

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