World Bank differs with Pakistan over poverty reduction figures

Business Recorder, January 22, 2007

By Arif Rana

In a draft on “Pakistan promoting rural growth and poverty reduction” the World Bank has sharply differed with the government of Pakistan over estimates of poverty reduction. It said the poverty reduction in Pakistan between 2001-02, and 2004-05, have been 5.2 percentage point bringing it down from 34.4 percent to 29.2 percent at national level and 39.1 to 34 (5.1 percentage point) for rural households.

The government estimates for the same period showed a decline of 10.6 percent and 11.2 percent for the national and rural poverty respectively.

The official figures show that between 2001-02 and 2004-05, rural and national poverty reduced from 39.3 percent to 28.1 percent and 34.5 percent to 23.9 percent respectively.

The draft noted that the government of Pakistan’s estimates for poverty reduction was different from the World Bank due to variation in inflation rates used to determine poverty line.

Business Recorder managed to get the copy of the draft, which was circulated by the World Bank to the concerned divisions/ ministries last week. The draft said the estimates of poverty in Pakistan are particularly sensitive to differences in methodology because a high percentage of rural households have per capita expenditures close to the official poverty line. 10.9 percent of rural households in 2001-02 had per capita expenditures within (+/-)5 percent of the official poverty line; in 2004-05, 8.95 percent of rural households were within (+/-) 5 percent of the Planning Commission official poverty line (Rs878.6). It said small changes in calculated real income (expenditures), whether do to actual changes in expenditures, price deflators or other methodological issues related to updating a poverty line, can lead to misleadingly large changes in poverty estimates.

To minimise this effect and to avoid debates on the definition of the poverty line, the analysis in this chapter focuses on the bottom 40 percent of the per capita household expenditure distribution.

The grouping nonetheless is similar to the definitions of the poor using various food consumption needs-based poverty lines in Pakistan. The rural poverty in Pakistan, which declined sharply in the 1980s, remained stubbornly high in the 1990s. In the 1980s rapid growth in agricultural GDP of 3.9 percent contributed to a steady decline in rural poverty from 49.3 percent in 1984-85 to 36.9 percent in 1990-91.

In spite of substantial growth in agricultural, real GDP in the 1990s (4.6 percent), however, rural poverty did not decline. Instead, the percentage of poor was essentially unchanged between 1990-91 (36.9 percent) and 1998-99 (35.9 percent). Several factors help explain the stagnation in the rural poverty in the 1990s.

Despite substantial agricultural growth, including over estimates of livestock income growth, rise in the real consumer price of major staples, and the skewed distribution of returns to land coupled with a declining share of the crop sector in the overall GDP.

The draft said since 1998-99, real household incomes, income-based poverty indicators and agricultural output have fluctuated sharply, with only slow improvement over the medium term. Recent household survey results indicate sharp reductions in rural poverty in Pakistan over the 2001-02 to 2004-05 period. Long-term trends are less encouraging, though, suggesting no major changes in real expenditures of the poorest 40 percent of households between 1998-99 and 2004-05. The changes in agricultural output due in large part to weather, mirror the changes in rural real incomes, over these periods but like real expenditures of the poor, agricultural output and incomes have increased only modestly over the period. Other factors outside agriculture, especially increases in workers remittances have also contributed to increased incomes since 2001-02.

In the medium-term, however, econometric evidence suggests that investments in human capital and physical infrastructure have been among the most important determinants of increased real incomes in rural Pakistan. It added that preliminary analysis of 2004-05, Pakistan Social Living Standards and Measurement Survey (PSLM) data indicates that both rural and urban poverty have declined since 2001-02. The Planning Commission’s estimates based on poverty line in 2001-02 suggests that poverty fell by 10.6 percentage point, from 34.5 to 23.9 percent between 2001-02 and 2004-05. Their estimates of rural poverty show a decline of 11.2 percentage point, from 39.3 percent in 2001-02 to 28.1 percent in 2004-05.