It is generally accepted that the declining trend in poverty in Pakistan during the 1970s and 1980s was reversed in the 1990s. According to official estimates, the incidence of poverty increased from 26.6 percent in FY1993 to 32.2 percent in FY1999; whereas, the number of people living below the poverty line increased by over 12 million during this period.

After the nuclear tests and the imposition of sanctions, Pakistan had to face numerous problems leading to the slow down of economic growth and a decline in development expenditure. Agriculture productivity was threatened by a severe and prolonged drought. While efforts were underway to meet the economic challenge, the government was overthrown and General Pervez Musharraf - a commando from the armed forces - assumed power as the country’s Chief Executive.

To his good fortune, the 9/11 tragedy took place. He opted to fight the American war on terror and the overthrow of a democratic regime was forgiven. Pakistan’s foreign debts were rescheduled and small amounts were written off. This relief, however, did not make for any improvement in the poverty situation. Unemployment continued to grow due to disinvestment of state-owned enterprises. Women and the landless in the rural areas suffered the most.

As the country’s Prime Minister, private banker Shaukat Aziz wished to be remembered as a person who said goodbye to the IMF, reduced both urban and rural poverty and ushered in an era of affluence. To create this mirage, banks were told to provide easy loans for consumer spending; internationally recognised yardstick for measuring poverty was replaced by a discarded tool. Not content with this, the data was fudged. This enabled General Musharraf and his protégé, Shaukat Aziz, to claim that poverty had declined by 10 percentage points. But the actual data now available goes to establish that there was instead an increase in poverty. Government policies of privatisation, and robbing Peter to pay Paul were the principal reasons for the increase. Little attention was paid to the strengthening of state institutions or improving governance.

It must be recognised that poor governance is the key underlying cause of poverty in Pakistan. It has not only enhanced vulnerability, but is also the prime cause of low business confidence that, in turn, translates into lower investment levels and growth. Governance problems have also resulted in inefficiency in the provision of social services, which has had serious implications for human development in the country. The lack of public confidence in state institutions, including the police and the judiciary, have eroded their legitimacy and directly contributed to the worsening conditions of public security and law and order during the people’s regime led by President Asif Ali Zardari.

Economic factors have also contributed to making life difficult for all sections of society, except the very rich. Decline in the Gross Domestic Product (GDP) growth rate is the immediate cause of the increase in poverty. According to the latest data released by the State Bank, GDP is unlikely to grow by more than 2 percent this year. The burgeoning debt burden and declining competitiveness of Pakistan’s economy in the increasingly skill-based global economy are making a significant contribution to the worsening economic situation. While the former occurred due to economic mismanagement, the latter was because of Pakistan's low level of human development.

With regard to the debt burden, the increasing debt service requirement has resulted in a growing fiscal squeeze. This is forcing a decline in the proportion of GDP, which can be spent on development and social sectors. The poor law and order situation has led to the flight of capital as well as private sector investment.

At the same time, reduction in tariffs, exhaustion of simple import substitution opportunities, and elimination of export subsidies means that international competitiveness is an increasingly important determinant of investment opportunities in Pakistan. Because of the low level of human development, lack of political stability, and poor state of physical infrastructure, areas of the economy where Pakistan is still competitive are not many. The effects of poor governance serve to reinforce the adverse impact of structural factors. The existence of pervasive poverty, wherein a significant proportion of the population remains poor over an extended period of time, is strongly linked with the ability of the government to ensure good governance. Beset with the threat of terrorism that is eroding the very foundations of the state, the government’s focus on the subject is blurred and the effort half-hearted.

Estimates of agricultural growth, as reported by the Pakistan Economic Survey for the first centennial, may be highly overstated. Incorrectly accounted livestock, fishing and forestry value-added in some years may have contributed to the high reported growth rate of 4.6 percent per annum for the early 21st century. After adjusting for these overstated subsector growth rates, the growth rate of the agricultural sector during this decade declines to only 3.1 percent per annum. With such low growth per capita, it is argued that the increase in rural poverty was inevitable. Fluctuations in the production of major crops, particularly cotton, excessive land fragmentation, highly-skewed land distribution, the prevailing tenancy arrangements, and low levels of human capital are among the major causes of the rise in rural poverty as now witnessed.

To compound the stress of poverty, Pakistan has grossly neglected the population welfare sector. Over 40 percent of Pakistan’s population is below 15 years of age and about 22 percent comprises females of reproductive age. Such an age structure has a built-in momentum for future population growth. High dependency ratios, large families, and a small number of earners are the result of this age structure, and these factors are considered major correlates of poverty.

Household size varies inversely with per capita expenditure quintile and is much larger among poor households in urban and rural areas. The mean number of children in the lowest quintile is three time as high as that in the highest-income group. The dependency ratio for the top quintile is less than half that of the bottom quintile. Because of the rapid growth of population, the absolute size of the illiterate population has increased even faster than the literate population. The population boom has also led to irrevocable environmental degradation and high levels of housing poverty. However, Pakistan has yet to experience a fertility transition. The need to have a Minister for Family Planning or to make huge investment in wasteful activities is a matter requiring understanding of the policymakers.

n    The writer is a retired secretary of the Government of Pakistan.