The credit for any reduction in poverty in the country goes to
privatisation, de-regulation and liberalisation, not to the so called pro-poor
expenditures.
Over a period of five years between 1999-2004, the government of
Pakistan spent Rs.1 trillion on poverty reduction. According to the Finance
Ministry, Poverty Reduction Special Programme included budgetary and non-budgetary
expenditures both by the federal and provincial governments.
Now, the 'Labour Force Survey 2005' (first two quarters) reports that
over the last five years, the government has spent a hefty amount of Rs.1332
billion on poverty-related and social sector programmes to help the poor and
vulnerable sections of the society. The PRSP expenditures -- budgetary and
non-budgetary -- during 2001-05 stood at Rs.1124 billion; the budgetary
expenditures averaged 4.1 per cent of the GDP for the period. Of this, the
government spent Rs.316.2 billion on pro-poor sectors exceeding the targeted
Rs.278 billion by Rs.38 billion. And, by the end of the third quarter of
2005-06, Rs.250 billion had been spent on pro-poor sectors.
Both reports count and boast of gains. For example, the writers of the
first report claim that increased pro-poor expenditures appear to have
contributed in employment generation. As a result, the unemployment rate that
was 8.3 per cent in 2001-02 declined to 7.7 per cent in 2003-2004 and to 6.5 per
cent during July- December 2005.
The report claims that since 2003-2004 and till the first half of
2005-2006, 5.82 million jobs were created while the average job creation stood
at 1.0-1.2 million per annum. This is quite unfounded and doubtful. One must
contend whether it is pro-poor expenditures that helped reduce the unemployment
rate or something else: such as de-regulation and liberalisation of the
economy. In the same breath, the writers of the report say that the IT sector
alone generated 114,737 jobs in 2005-2006. Obviously, the amount spent on
deregulation and liberalisation does not come under pro-poor expenditures.
Further evidence strengthens the doubts about the efficacy of pro-poor
expenditures in reducing poverty. The report says two sectors, education and
health, absorbed half of the pro-poor budgetary expenditures. Sure, how they
could generate jobs and reduce unemployment rate to the tune of 1.8 per cent.
The gains, according to the report, in education sector are improvement in
literacy and enrolment rates; and in that of the health sector is immunisation.
The report also tells about other programmes such as Khushal Pakistan
Programme-2 (KPP-2) and Khushal Pakistan Fund (KPF) started during 2005 for
poverty alleviation. The KPP-2 is a special programme that aims at initiating
small development schemes with an amount of Rs.20 billion to be spent during
the current fiscal year under the Public Sector Development Programme (PSDP).
Another boast of the report needs to be checked. The report claims that
the percentage of population living below the poverty line, which stood at
34.46 per cent in 2000-2001, declined to 23.9 per cent in 2004-2005. In rural
areas it fell to 28.10 per cent from 39.26 per cent while in urban areas from
22.69 per cent to 14.9 per cent. At the same time, it is argued that 'strong
economic growth' created employment opportunities. In other words, this implies
that high economic growth is a result of pro-poor expenditures.
All this is surrounded by two controversies: i) whether high economic
growth trickled down or not; and, ii) whether the number of people living below
the poverty line declined or not. Under the circumstances, it may safely be
assumed that the relation between poverty reduction expenditures and poverty alleviation
gains is not a causal one. With careful research some other factors will be
found responsible both for economic growth and poverty reduction. And, surely
these factors are de-nationalisation, privatisation, de-regulation and
liberalisation of the economy.
Let's look for some other evidence: a report that bases itself on
third-party international sources such as IMF, World Bank, world Economic
Forum, Global Competitiveness Report, International Country Risk Guide, in its
latest edition (Economic Freedom of the World 2006 Annual Report that is
actually based on the data for 2004), awards Pakistan the following scores (out
of 10; the higher the score the higher the rank and the freer the country
economically):
In the area of the size of government (that includes government
consumption, transfer and subsidies, government enterprises and investment, and
top marginal tax rate), Pakistan's score is both improving and fluctuating: in
2000 it was 6.6; in 2001, 7.3; in 2002, 7.7; in 2003, 7.3; and in 2004, 7.2.
In the area of legal Structure and security of property rights (that
includes judicial independence, impartial courts, protection of intellectual
property, military interference, and integrity of legal system), Pakistan's
overall score is declining: in 2000 it was 4.6; in 2001, 3.4; in 2002, 2.7; in
2003, 2.3; and in 2004, 2.5.
In the area of access to sound money (that includes growth of money
supply, inflation variability, recent annual inflation, and freedom to own
foreign currency), Pakistan's score is generally on the rise: in 2000 it was
6.5; in 2001, 2002, 2003, 6.8; and in 2004 6.4.
In the area of freedom to exchange with foreigners (that includes taxes
on international trade, regulatory trade barriers, size of trade sector,
official versus black market exchange rates, and restrictions on capital
markets), Pakistan's score is steadily improving: in 2000 it was 4.2; in 2001,
4.7; in 2002 5.9; and in 2003 and 2004, 5.8.
In the area of regulation of credit, labour and business (that includes
regulation of credit and labour markets, and regulation of business),
Pakistan's score on the whole is improving: in 2000 it was 5.2; in 2001, 5.6;
in 2002, 6.0; in 2003, 5.8; and in 2004, 6.5.
This explains the whole economic picture of Pakistan. Every Pakistani with
a little economic thinking knows for sure that since the regime of General
Ziaul Haq, the government in Pakistan has been on the way to denationalising
the nationalised entities, privatise the state enterprise, de-regulate the
state monopolisations and liberalise the economic and business activities,
though with a heavy heart. Indeed, it is this process that is responsible for
the reduction in poverty, not the pro-poor expenditures whether budgetary or
non-budgetary. The above scores testify to this opening of Pakistani economy.
A recent research by Goldwater Institute, USA, confirms that states with
low-tax and low-spending (Arizona, Colorado, Florida, Georgia, Missouri,
Nebraska, Nevada, South Dakota, Tennessee and Texas) enjoyed sizable decreases
in poverty rates during the 1990s, while states with high-tax and high-spending
(Alaska, California, Delaware, Hawaii, Massachusetts, New Mexico, New York,
Rhode Island, Vermont and Wyoming) actually suffered an increase in their
levels of poverty. It concludes that decline in poverty in the 'small
government' states strongly confirms the hypothesis that reduced taxes and
state spending encourage the emigration of people and businesses to areas where
private-sector job growth is able to flourish and become a powerful and
effective anti-poverty programme. However, while taxes and business climate
alone are not the only factors in reducing poverty rates, they certainly help
most in the war on poverty.
A few weeks back, President General Pervez Musharraf said that he had a
deep desire to help the poor people of Pakistan. He should realise that it is
not a Herculean task. What you need to do, first and foremost, is to improve
the functioning of the legal structure and security of the property rights;
reduce the size of the government; ensure the accessibility of sound money;
assure the citizens of Pakistan freedom to exchange with foreigners; and impose
minimum of regulations on markets of credit and labour, and business activity.
This will restore to the people of Pakistan that confidence without
which they would never be able to pursue their economic ends on their own. In
simple words, people need an environment in which they are free to start a
business venture, in which their earnings are safe, their property secure,
their freedoms taken care of and their choice is not limited. This will bring
real prosperity to them which will last for generations.
Note: This article was completed in December 2006.
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