The News – Reforms and the poverty trap

Kamila Hyat

Op/Ed, 13 June 2019. Pakistan struggles with many problems. The new budget may result in more as inflation hits households. In our media-generated frenzy over current events, we sometimes forget how the lives people live are central to their individual struggles.

Poverty is the biggest struggle for many. It holds back access to quality education, to housing, to healthcare, to opportunity and to so much else.

The essential structures that can best enable people to escape poverty, by equalising the field and providing them an environment in which the rule of law prevails, where access to justice is even and education alongside a social welfare net is available to all simply does not exist.

Whereas Pakistanis are, according to international monitoring groups, one of the highest givers of charity among all nations, with Rs 240 billion given out in 2018 and a larger sum expected this year, the reality is that these donations by those who possess good will and generosity really achieve very little.

They may for a very short period benefit an individual family, but this does not last long.

These dynamics of charity are all the more true given that we have been unable to regularise it and ensure donations to organisations, which can in at least some cases make a real long term difference in lives. We believe in charity, both because of tradition and religious convictions.

Perhaps because of our rooting in this, we fail to look at figures which show that charity, whether in the form of donations from within the country or external aid poured into a nation from outside in the end makes very little difference.

Today, one in every four Pakistanis lives in poverty, surviving on less than $1.90 per day. There are others who hover only marginally above this line.

The Economic Survey 2018 shows some improvement over the decades, but it is not enough. Forty-four percent of children in the country are stunted and levels of wasting with an impact on mental development are almost as extreme. We do not need figures to understand poverty and suffering.

Reports in the media say that people this year, confronted with rising food price inflation which currently at 8.51 percent, one of the highest in years, were forced to break their fasts in Ramazan with nothing more than roti and water. Others live in circumstances of constant malnutrition month after month and year after year. Women and children suffer most.

As a nation, we have not been able to provide our people enough food, leave alone other needs. Safe water is even more difficult for them to obtain. The improvements noted by the Economic Survey have come essentially as a result of frequently discredited poverty alleviation programmes, notably the Benazir Income Support Programme.

This is a suggestion that state assistance can play an essential role in enabling people to escape poverty, even though the BISP scheme is far from ideal and has many flaws.

As the government launches a new scheme under its Ehsaas Programme to offer people food rations and aid in other forms, it is important to understand how poverty can best be tackled. In the first place, reports by prestigious international organisations that World Bank and IMF programmes, which are presently dictating policies in Pakistan, often hurt the interests of the poor rather than protecting them.

The requirements laid down frequently by the IMF which harm the interests of working people and undermine labour rights and labour power effectively have a negative impact on the most deprived sections of society. Corporate interests instead advance further.

Such policies, in place in African countries since the 1970s, have according to findings by economists hurt each of the countries they work in by further eroding the living conditions of people. None of these countries has improved in terms of their ability to lift people out of their poverty.

Pakistan presents a similar case study, with IMF loans first accepted by it in the 1960s. Almost five decades later, we continue to require loans in even bigger amounts in order to run government. This cannot be a good outcome and raises questions about any benefits the IMF and World Bank claim accrue from their programmes.

Bangladesh has benefitted from World Bank supported programmes, reducing poverty from over 44 percent in 1991 to 13.8 percent in 2016-17. This achievement has however been backed by government policies which have supported investment in human development and indigenous poverty alleviation programmes designed to meet the specific needs of that country.

Bangladesh’s commitment and its ability to maintain stable economic growth is something we need to study.

Given that Pakistan already ranks as a developing economy according to the UN and is placed above Bangladesh in terms of economic attainment, it should be even better placed to offer its people much more. That this has not happened is saddening, with Pakistan’s development statistics for population control, health, maternal mortality and education all below those of Bangladesh.

We can move into more stormy terrain. While there is widespread global promotion of the idea that socialism as an economic system results in chaos, there are notable examples of countries which have benefited enormously and quickly from adopting socialist models.

In 2006, a militant socialist government took over in Bolivia. It has remained in power through a process of regular election since then. In these years under President Evo Morales, the country experienced spectacular economic growth and poverty reduction, with no hint of chaos.

Inflation stands at below four percent a year, less than 20 percent of people experience poverty, down from 38 percent before the socialists took over, and inequality has shrunk dramatically.

Bolivia hopes to attain what Cuba had already achieved less than a decade after its 1959 revolution: the highest literacy rates in the world at 99.75 percent. Women are even more literate than men. People in that country live longer than those in the US because of the universal healthcare available to every Cuban and education for every child is free.

There is also a system in place to provide social safety.

While there are still desperately poor people in the country, the achievements of the Cuban state have come despite crippling US sanctions and survived the collapse of the USSR, Cuba’s main ally, in 1991. There has of course been a price paid by people, with repression of some rights a part of Cuba’s history.

There are obvious lessons. The quickest way to rescue people from poverty is through state-ordained reforms designed to benefit a majority of people. When this is not possible, commitment and well-designed programmes can work at least partially.

Pakistan has struggled consistently with its efforts to rescue people from poverty. Charity, whether doled out internally or obtained from external sources, cannot play a long-term role in altering the structures which keep poverty intact.

Yes, it can make each of us feel good. Yes, it can demonstrate the generosity of a country, but in the final analysis more thought at the government level is required to make any significant difference and to pull away the shroud of poverty which traps millions of people and prevents them from reaching their potential or helping their country attain what it is capable of.

The writer is a freelance columnist and former newspaper editor.

Dawn – Pakistan – India trade much below full potential: World Bank

Mubarak Zeb Khan

Islamabad Capital Territory – Pakistan, 06 December 2018. Trade between Pakistan and India is only valued at a little over $2 billion, but it could be as high as $37 billion, says a World Bank report.

The current trade between the two countries is much below its full potential. It could only be harnessed if both countries agreed to tear down artificial barriers.

The bank also estimated Pakistan’s potential trade with South Asia at $39.7bn against the actual current trade of $5.1bn.

Report unpacks four critical barriers

The report, “Glass Half Full: Promise of Regional Trade in South Asia”, released here on Wednesday unpacks four of the critical barriers to effective integration.

The four areas are tariff and para-tariff barriers to trade, complicated and non-transparent non-tariff measures, disproportionately high cost of trade, and trust deficit.

Talking to a group of journalists on key points of the report here at the World Bank office on Wednesday, lead economist and author of the document, Sanjay Kathuria, said it was his belief that trust promotes trade, and trade fosters trust, interdependency and constituencies for peace.

In this context, he added, the opening of the Kartarpur corridor by governments of Pakistan and India would help minimise trust deficit.

He said such steps will boost trust between the two countries. For realising the trade potential between Pakistan and India, he suggested the two countries start with specific products facilitation in the first phase.

Mr Kathuria said Pakistan had least air connectivity with South Asian countries, especially India. Pakistan has only six weekly flights each with India and Afghanistan, 10 each with Sri Lanka and Bangladesh and only one with Nepal, but no flight with the Maldives and Bhutan.

Compared to this, India has 147 weekly flights with Sri Lanka, followed by 67 with Bangladesh, 32 with the Maldives, 71 with Nepal, 22 with Afghanistan and 23 with Bhutan.

The report recommends ending sensitive lists and para tariffs to enable real progress on the South Asia Free Trade Agreement (Safta) and calls for a multi-pronged effort to remove non-tariff barriers, focusing on information flows, procedures, and infrastructure.

Policy-makers may draw lessons from the India-Sri Lanka air service liberalisation experience. Connectivity is a key enabler for robust regional cooperation in South Asia.

Mr Kathuria says reducing policy barriers, such as eliminating the restrictions on trade at the Wagah-Attari border, or aiming for seamless, electronic data interchange at border crossings, will be major steps towards reducing the very high costs of trade between Pakistan and India.

He argues that the costs of trade are much higher within South Asia compared to other regions. The average tariff in South Asia is more than double the world average. South Asian countries have greater trade barriers for imports from within the region than from the rest of the world.

He says these countries impose high para tariffs, which are extra fees or taxes on top of tariffs.

More than one-third of the intraregional trade falls under sensitive lists, which are goods that are not offered concessional tariffs under Safta. In Pakistan, nearly 20pc of its imports from, and 39pc of its exports to, South Asia fall under sensitive lists.

World Bank Country Director for Pakistan Illango Patchamuthu said Pakistan is sitting on a huge trade potential that remains largely untapped. “A favorable trading regime that reduces the high costs and removes barriers can boost investment opportunities that are critically required for accelerating growth in the country,” he said.

World Bank’s Director Macroeconomics, Trade and Investment Caroline Freund said Pakistan’s frequent use of tariffs to curb imports or protect local firms increases the prices of hundreds of consumer goods, such as eggs, paper and bicycles.

They also raise the cost of production for firms, making it difficult for them to integrate in regional and global value chains, she said. “Pakistan needs to promote export promotion policies to ensure sustainable growth.”

On the issue of currency devaluation, she said undervalued currency is an anti-export measure. She suggests exchange rate should be determined by the real market trend.