Tuesday :: Feb 17, 2009

The State of Pakistan - Part 2: Rural Poverty


by eriposte

[NOTE: This was originally posted at UN Dispatch in slightly modified form and is cross-posted here. I would like to thank the editors of UN Dispatch for the invitation to post there on South Asian issues. The UN Dispatch post does not have some of the URLs in the references cited in this post - this version at TLC has the URLs as well.]

In my previous post at The Left Coaster, I provided an overview of the dangerous situation that Pakistan finds itself in today and the increase in terrorism-related violence in Pakistan over the past several years. As I pointed out, the current turmoil in Pakistan is not just restricted to its Federally Administered Tribal Areas (FATA) and the North-West Frontier Province (NWFP) - other regions of Pakistan are also under the grip of violence. There are many reasons for this - some are unique to the provinces/regions in question and others are somewhat more generic in nature. One of the commonly known "generic" reasons for Pakistan's current state is the blowback from the support that previous Pakistani governments (especially those that were military-dominated) provided to fundamentalist or "jihadi" militants to help Pakistan in its proxy wars - on the eastern frontier against India in Kashmir and on the Western frontier in Afghanistan (initially against the Soviets and subsequently to fight Afghan factions deemed unfriendly to Pakistan). However, another important "generic" reason for the state of affairs in Pakistan is not as commonly discussed and I will focus on that in today's post - a sharp rise in Pakistan's rural poverty since the late 1980s, which is in striking contrast to a significant decrease in rural poverty in India during the same time period.

For clarity, this post is separated into the following sections (all emphasis in this post is mine):

1. Summary
2. Insurgency in Balochistan
3. The Link Between Landlessness and Rural Poverty in Pakistan
4. Rural Poverty Trend (1987-2002): Pakistan v. India
5. Economic/Monetary Policy and Rural Poverty in Pakistan
6. Lessons for Pakistan and the U.S.
References


1. Summary

Discussions on the precarious situation in Pakistan today tend to be focused mostly on the threat from fundamentalist or "jihadi" militants. The focus on that threat is absolutely critical, however, there are underlying structural factors that also play a key role in Pakistan's instability. Rural poverty is a major factor. Approximately two-thirds [1] of Pakistani people live in rural areas. Studies by leading Pakistani economists [2] have established that higher rural poverty in Pakistan is positively correlated with higher landlessness - a long-standing problem due to minimal land reform in post-independence Pakistan. Approximately 67% of Pakistani households don't own any land [2]. However, landlessness is not the only major determinant of poverty in Pakistan's rural areas [2-4]. Unlike India's declining rural poverty in the 1987-2000 time period [5], rural poverty in Pakistan increased dramatically since the late 1980s [2, 4] in part due to misguided economic/monetary policy, some of which was driven by the IMF/World Bank. The increase in rural poverty was also accompanied by a further skewing of Pakistan's income distribution in favor of the wealthy [6] - in contrast increased income inequality in India was largely an urban phenomenon in the comparable time period, with rural income inequality either declining or stagnant [5]. Owing to a confluence of such conditions, Pakistan was not able to adequately protect the real income of its rural citizens during a period of modest GDP growth. Pakistan has also faced balance of payments challenges and given its largely self-inflicted, unstable, and risky profile, has not had the luxury of being able to run large fiscal deficits during times of economic distress - as a result, countercyclical policy actions compounded already flawed policy, thereby worsening the rural poverty situation.

Any solutions aimed at stabilizing Pakistan should focus not just on the internal security threat from "jihadi" or fundamentalist militants, but address long-standing socio-economic issues (especially the factors leading to high rural poverty) and governance issues (these are not really discussed much in this post but pertain mostly to demands of better and more autonomous local/provincial governance that have been a major reason for internal ethnic conflicts in Pakistan, as well as in other South Asian countries like India [7] and Sri Lanka [8]). It is highly unlikely that focusing on any of these facets in isolation would substantially address Pakistan's deep-seated problems. It is hard to overstate this fact because much of the U.S. foreign policy establishment discourse around Pakistan tends to revolve around security issues and terrorism. For example, the recent writings and interviews of Bruce Riedel [9], who has been tapped by the Obama administration to lead an interagency review of U.S. policy towards Pakistan and Afghanistan, reveal content that is heavy on security issues and very light or negligible on socio-economic and governance issues that often create fertile conditions for the proliferation of militancy or terrorism. It is also instructive that even U.S. establishment foreign policy think-tank coverage of Pakistan [10] often tends to be heavy on military/security issues and very light on socio-economic and governance issues, despite the fact that militants and terrorists often thrive by exploiting the vacuum created by poverty and poor governance.

The lessons for Pakistan are clear, but it is also important that both the U.N. and the United States develop a more enlightened policy framework vis-a-vis Pakistan that considers all of these factors. In particular, I would encourage the U.S. State Department to work closely with U.S./U.N. agencies in playing a more active role in helping the current Pakistani government address some of these internal issues more effectively, and thereby develop a truly transformative foreign policy framework along the lines that I have outlined previously [11].


2. Insurgency in Balochistan

To separate out the problem of fundamentalist or "jihadi" militants from some of the other structural issues in Pakistan, it is instructive to consider the Pakistani province of Balochistan - situated in the south-west of Pakistan and bordering both Afghanistan (north) and Iran (west). Since the 1950s, Balochistan has seen multiple, usually ethnically-driven, insurgency movements [12, 13] against successive Pakistani governments, and generally these were strongly put down by the latter, sometimes with help from Iran which has a significant population of ethnic, Iranian Baloch [14]. Akhtar [15] has discussed some of the history behind the Balochistan insurgencies. He points out that the major insurgency in the 1970s that was crushed by the Pakistani military had fairly broad-based support within Balochistan with significant ethno-nationalist hues and was also tied to issues of provincial governance and autonomy. In contrast, the most recent and ongoing insurgency is not as broad-based, although it is partly attributed to the previous government's handling of Balochistan's key natural resources, with questions surrounding the voice that ethnic Baloch have or don't have in these types of decisions. Per Akhtar [15]:

Needless to say there are considerable differences between the present movement and that of the 1970s. The confrontation this time appears to be between a much more amorphous band of militants and the authorities over the fate of Balochistan’s natural resources, the building of military cantonments in the province, and so-called “mega development” projects, including the soon to be completed Gwadar port on the south-western tip of the province. While the broader demand for provincial autonomy continued to inform the ethno-nationalist discourse, it is clear that the present phase of the struggle has emerged in response to the current military regime’s initiatives to establish greater control over the resources and territory of Balochistan.

[...]

Balochistan’s vast land mass – comprising over 40 per cent of Pakistan’s territory – and its reasonable endowment of natural resources including land, gas, minerals, as well as a highly strategic coastline, mean that it is a viable target for spatio-temporal fixes. The fact that the regime plans to construct military cantonments in Sui, home to Pakistan’s largest known supply of natural gas, Gwadar, a highly strategic coastal city, and Kohlu where there are reportedly major deposits of untapped energy reserves, would seem to corroborate this “territorial imperative”. This also seems consistent with the increasingly blatant resource-grabbing antics of the dominant state actor, the military, which has in recent decades built up a huge corporate empire, with capture and commercialisation of land as one of its major components [Siddiqa 2007].10 The establishment of territorial control has also facilitated the expanding interests of multinational capital which has substantively increased its presence in Pakistan during the tenure of the present regime. Most importantly, Chinese companies were given almost exclusive contracts to undertake construction of the Gwadar port, the first phase of investment totalling $ 248 million of which the Chinese provided $ 198 million [GoP 2005].

...The nationalist discourse surrounding Gwadar indicates the broader fears of cultural extinction that remain embedded within Baloch politics. Alongside the demand that “development projects” benefit the Baloch, including but not limited to the provision of employment for Baloch youth, nationalists have also protested that Gwadar is likely to precipitate an influx of non-Baloch into the province – for jobs, and due to broader multiplier effects – that will further skew the demographic imbalance in the province. For at least two decades the Baloch have claimed – the Sindhis have been at it for even longer – that they are being turned into a minority in their own province due to successive waves of in-migration.

Factors such as the ones discussed above, especially fears of ethnic domination or suppression, have been a significant factor in the relationship between some of Pakistan's provinces and the Pakistani government. In fact, linguistic, provincial rights and ethnicity were a major factor in the violent creation of Bangladesh from Pakistan in 1971 [8]. In the case of Balochistan, issues of ethnic rights and provincial autonomy are superimposed on the problem of grinding rural poverty, in a province that is substantially rural. Rural poverty in Balochistan was estimated to be ~42% in 2001-02, a bit lower than in Sindh and the NWFP [2]. However, as of 2001-02, 78% of households owned no land in Balochistan and among the landless, Balochistan's rural poverty rate was the highest in Pakistan, at nearly 70% [2]. As it stands today, not only is the Taliban increasingly using Balochistan (and its capital city Quetta) as a base to fund and manage their operations against the U.S., Pakistan and Afghanistan [16], at the same time, a largely unrelated anti-government insurgency driven by different guerilla groups has resumed after a hiatus [17]:

A separatist group in Pakistan's southwestern Balochistan province set a 72-hour deadline Friday to kill John Solecki, the local head of the United Nations High Commissioner for Refugees, if 141 women held in the torture cells of the country's intelligence agencies were not freed.

The Baloch Liberation United Front (BLUF), a secular and nationalist guerrilla organisation seeking independence from Pakistan, also demanded the release of 6,000 more political prisoners.

The takeaway from the story of Balochistan is simple. Ultimately, one cannot solve Pakistan's security problems without adequately addressing issues of rural poverty and provincial/local governance and rights. In the remainder of this post, I will focus on Pakistan's rural poverty.


3. The Link Between Landlessness and Rural Poverty in Pakistan

The following chart from Anwar et al. [2] shows the trend in rural poverty in Pakistan (red line). The absolute numbers are not as relevant since those are subject to the assumptions and methodology used, but the relative trend is alarming. After decreasing steadily through the 1970s and early 1980s, Pakistan's rural poverty rate has sharply increased through the 1990s.

Anwar_et_al_2004_Pakistan_rural_poverty.jpg

Anwar et al. point out that [2]:

The landless households are substantially high in Pakistan. About 67 percent households own no land (landless plus non-agriculture, see Table 6). In contrast, about 18.25 percent household own under 5 acres of land and 9.66 percent household own 5 to 12.5 acres of land, which merely provide subsistence level of living standards. A very small proportion of households hold large farm sizes in the country. Strikingly, barely 1 percent (0.64 percent plus 0.37 percent) households own greater than 35 acres of land suggesting a highly skewed landownership pattern. This is also confirmed by the Gini coefficient of land holding which was very high at 0.6151 in 2001-02 (see Table 8). Thus, highly unequal land distribution is the main manifestations [sic] of poverty in rural Pakistan.

[...]

However, poverty levels generally decrease with increases in land holding and eliminates with 55 acres and above. Thus, distribution of landownership seems to be one of the most important determinants of rural poverty in the country.

Distribution of land holding at province level indicates that about 86 percent households own no land in Sindh (landless plus non-agriculture), followed by 78 percent in Balochistan and 74 percent in Punjab (see last column, Table 7). The unequal landownership pattern is clearly reflected by the fact that a very small portion of all households holds large farm size in all provinces.

[...]

It appears that landlessness to agricultural land is one of the most important contributors to rural poverty in Pakistan. A high concentration of landownership and unfair tenancy contracts are major obstacles to agricultural growth and alleviation of poverty. Thus both agricultural growth and poverty alleviation can be achieved, if land inequality is reduced and the tenants are protected by well-enforced tenancy contacts.

Accompanying the increase in rural poverty has been a trend towards greater income inequality. Per Anwar [6]:

The Lorenz curve of 2001-02 for Pakistan lies below the 1984-85 (see Figure 4). Thus, it can be concluded that income distribution worsened resulting in higher income inequality in 2001-02 relative to 1984-85. More changes in income distribution occurred in the higher part of income distribution than the middle and lower part of income distribution. Consequently, the Lorenz curve for 2001-02 became more skewed at upper part of income distribution implying a gain in income share to the richest 20 percent at the expense of the poorest 20 percent and middle 60 percent resulting in increased hardship of these income groups during this period (also see Table A2 at Annexure II). Notably, the kink at upper part of income distribution is indicative of the fact that 1 percent richest who used to gets 10 percent of total income in 1984-85 now get almost 20 percent total income in Pakistan in 2001-02.


4. Rural Poverty Trend (1987-2002): Pakistan v. India

It is instructive to compare the trajectory of rural poverty in India and Pakistan during similar time periods by comparing the chart shown above for Pakistan to the one below for India, based on data from Panagariya [5]. The absolute poverty rates are not directly comparable between Pakistan and India due to different methodologies and assumptions used for estimation (for a chart showing adjusted estimates for India's poverty rates that provide more of an apples-to-apples multi-decadal comparison than the official poverty estimates from the Indian government, click here). It is the relative trend that is illuminating. In comparison to Pakistan's dramatic worsening of rural poverty since the late 1980s, India's rural poverty, that had largely stagnated until the mid-1970s has seen a significant reduction since the early 1980s. Additionally, while Pakistan's income inequality worsened in this time period, the income inequality worsened mostly in urban India, whereas the trend in rural income inequality in India was largely unchanged or may have even declined [5].

India_poverty_rates_official_Panagariya.jpg

[NOTE: Panagariya [5] provides a detailed overview of various factors involved in India's relative success and that is beyond the scope of this post. However, land reform has not played a significant role in Indian poverty reduction efforts and there is still a lot of room for reforming India's landholding and property rights laws, not to mention significantly improving socio-economic policies and human development indicators. The comparison provided here should not be interpreted as a sign that much more progress cannot be made in India - quite the contrary is true [18]. The purpose of the comparison is merely to discuss India vis-a-vis Pakistan.]


5. Economic/Monetary Policy and Rural Poverty

Pakistan's poverty trends have been a bit of a puzzle. As Amjad pointed out [4]:

Pakistan has witnessed over the last three decades periods of high economic growth, as in the 1960s, accompanied with increasing poverty levels, periods of low economic growth, as in the 1970s, accompanied by reductions in poverty levels, periods of high economic growth leading to a decline in poverty as in the 1980s and periods of low economic growth as in the 1990s accompanied by as we shall see by increasing poverty levels.

Our interest in this post is the last period, the 1990s. What are the factors that led to the sharp increase in rural poverty during this period?

There are numerous factors that have been invoked to explain Pakistan's increase in rural poverty rates since the late 1980s, including the decline in net capital inflows. Anwar observed that [6]:

It is noteworthy that the above period of last 15 years has been characterised as an era of stabilisation and adjustment programmes, which were undertaken within the framework of “Washington Consensus” of IMF and the World Bank. The main objectives of these programmes were to improve the efficiency in resource use, enhance economic growth and remove macroeconomic imbalances to a sustainable level. It is important to note IMF adjustment programmes put too much emphasis on removing structural rigidity and macroeconomic imbalances and pay no attention to the equity and welfare of the poor and the vulnerable. The policy reforms pursued under these programmes were the wage and employment restraint policies,6 cut in pro-poor subsidies, cut in development expenditure, increases in sales taxes and utility charges and frequent devaluations. Thus, worsening of distribution of income as well as the rise in both relative and absolute poverty was inevitable.

It may be noted that the adverse implications of adjustment reforms on poverty are suggestive and do not establish a causal link between policy reforms and poverty. To establish a causal link, one needs to develop a macro model. However, non-existence of time series data on poverty precludes establishing a causal link...

Amjad notes the difference in rural poverty trends between India and Pakistan [4]:

To conclude this section on balance we can state that the dominant view that has now emerged from the analysis and review of the data is that poverty levels increased in the 1990s and that there was significant and large increase in poverty in rural areas during this period. This view is now openly acknowledged by the Jamali government which set up in December 2003 a Task Force to come up with policy measures to reverse this trend of rising poverty and unemployment levels in the country. This view is also supported by the latest Human Development Outlook 2003 published by the CRPRID (2003), studies by PIDE , the SPDC in its annual survey last year [SPDC (2002)] and the Asian Development Bank, the ILO, and the UNDP.

[...]

For those who may argue that given India’s size and economic diversity overall trends in poverty may mask regional differences for our study it is important to note that the Indian States bordering Pakistan also witnessed a decline in poverty in the 1990s in line with the overall national trend.

[...]

In India sustained agricultural growth in the 1980s and 1990s which translated itself into real wage increases for farm and non-farm labour in the rural areas was an important factor in leading to a decline in rural poverty. As mentioned earlier Pakistan witnessed on average an over 4 percent growth in agricultural production, albeit with a significantly higher growth rate of population, yet saw poverty levels significantly increasing. What were the structural features and changes in the 1990s in the rural economy which can explain rising rural poverty with a respectably high rate of agricultural growth?

He then goes on to identify several major factors [4] that he believes are mainly responsible for Pakistan's poverty dilemma:

(a) Mistimed financial/monetary reform: Amjad writes: "A striking example of this is the financial sector reform programme adopted in the late 1980s as part of the Banking Sector Adjustment Loan from the World Bank which some have termed as the single biggest disaster in terms of economic decision making in this period. By drastically raising interest rates to market prices on government borrowing it increased many fold the interest payment burden of the government which increased from Rs 33.2 billion or 4.9 percent of GDP in 1987-88 to Rs 243.3 billion or 7.7 percent of GDP in 1999-2000. Clearly the sequencing of the financial sector reform was wrong. The fiscal deficit should have been reduced prior to the financial reforms so that the government did not have to borrow at such high rates of interest. This seriously constrained public sector development expenditures in the 1990s. The same could be said of the sequencing of the tariff reforms and changes in the taxation structure which led to the closing of a very large number of industrial units (around 3000) increasing unemployment and a regressive taxation structure which increased the burden of taxes on the poor and was an important contributory factor in increasing income inequality in the 1990s."

(b) Countercyclical fiscal actions: Amjad observes that the "targeted lowering or the capping of the fiscal deficit as part of the IMF stand by loan agreements at a level during the 1990s ... seriously constrained the Public Sector Development Programme (PSDP) which declined sharply from around 6.4 percent of GDP in 1992-93 to only 2.8 percent in 2000-01. Part of this decline was the result of the government’s decision not to participate in commercial activities but this dramatic decline at a time when private investment was also falling further slowed down the growth of the economy with an adverse impact on poverty and employment in the economy."

(c) The erosion of the safety net for the poor: He discusses "the failure to effectively protect real incomes of the poor and the vulnerable segments of the population against rise in prices of essential items. Of this a pertinent example is the removal or the phasing out of poverty related subsidies in the 1990s particularly on food and essential items." He also mentions the lack of protection against increasing energy prices and that "the safety nets for the vulnerable and the poor proved grossly inadequate to deal with the deteriorating economic, employment and poverty situation in the 1990s. This is not to underestimate the dedicated work done by NGOs and other welfare bodies in this period the absence of which would have matters worse but a stark recognition of the fact that productive employment is the only real safety net for the majority of the working population in a developing country like Pakistan."

(d) Public spending not optimized for employment creation: Per Amjad, the "special public works programmes started were clearly neither sufficient nor well targeted to halt the rate of rising unemployment and underemployment in the economy. To make matters worse little protection was afforded to workers against falling real wages and deteriorating employment conditions as more and more employment was made precarious in the form of parttime, daily or on contract basis. The weakening bargaining position of workers was dealt a very serious blow with the passage of the Industrial Relations Ordinance 2002 which both curbed workers’ rights for collective bargaining and provided enormous leeway to convert permanent workers into contract workers a practise which has become very common in many of the large scale units in the country."

(e) Poor development of Pakistan's human development indicators: Amjad says that the "efforts to improve the country’s very low human development indicators were on the whole disappointing in terms of results achieved and resources allocated for this critically needed improvement."

(f) Foreign exchange freeze and economic sanctions: Amjad writes that "the freezing of the foreign exchange accounts in the aftermath of the nuclear explosion in May 1999.... not only adversely affected the deposit holders but shattered business confidence from which the country has not yet fully recovered. It can be disputed whether there was any alternative in the wake of economic sanctions (although it may have been worth playing it out for some more time before freezing the accounts) the simple fact was that this situation should never have been allowed to develop."


6. Lessons for Pakistan and the U.S.

The lessons for Pakistan are pretty clear. Fighting militants is probably the most challenging task ahead for the nascent Pakistani government, given that past governments and the Pakistani military have long encouraged and supported militants as long as their target was not Pakistan itself. However, an equally big - and in some ways more daunting - challenge is to drive sound economic/monetary/fiscal policies and adequate land reform that address the root cause of poverty and simultaneously create the conditions for more representative provincial governments that provide an adequate level of provincial autonomy without requiring secession from Pakistan.

Any solutions aimed at stabilizing Pakistan should therefore focus not just on the internal security threat from "jihadi" or fundamentalist militants, but address long-standing socio-economic issues (especially the factors leading to high rural poverty) and governance issues. It is highly unlikely that focusing on any of these facets in isolation would substantially address Pakistan's deep-seated problems. It is hard to overstate this fact because much of the U.S. foreign policy establishment discourse around Pakistan tends to revolve around security issues and terrorism. For example, the recent writings and interviews of Bruce Riedel [9], who has been tapped by the Obama administration to lead an interagency review of U.S. policy towards Pakistan and Afghanistan, reveal content that is heavy on security issues and very light or negligible on socio-economic and governance issues that often create fertile conditions for the proliferation of militancy or terrorism. It is also instructive that even U.S. establishment foreign policy think-tank coverage of Pakistan [10] often tends to be heavy on military/security issues and very light on socio-economic and governance issues, despite the fact that militants and terrorists often thrive by exploiting the vacuum created by poverty and poor governance. It is important that both the U.N. and the United States develop a more enlightened policy framework vis-a-vis Pakistan that considers all of these factors. In particular, I would encourage the U.S. State Department to work closely with U.S./U.N. agencies in playing a more active role in helping the current Pakistani government address some of these internal issues more effectively, and thereby develop a truly transformative foreign policy framework along the lines that I have outlined previously [11].


REFERENCES

1. "Rural Poverty in Pakistan", Rural Poverty Portal (IFAD).

2. T. Anwar, S. K. Qureshi, and H. Ali, "Landlessness and Rural Poverty in Pakistan", The Pakistan Development Review, Issue 43, #4, Winter 2004.

3. S. Malik, "Determinants of Rural Poverty in Pakistan: A Micro Study", The Pakistan Development Review, Issue 35, #2, Summer 1996.

4. R. Amjad, "Solving Pakistan’s Poverty Puzzle: Whom Should We Believe? What Should We Do?", The Pakistan Development Review, Issue 42, #4, Winter 2003.

5. A. Panagariya, "India: The Emerging Giant", Oxford University Press, 2008.

6. T. Anwar, "Prevalence of Relative Poverty in Pakistan", The Pakistan Development Review, Issue 44, #4, Winter 2005.

7. Eriposte, "Developing A Framework to Understand and Develop Working Solutions to Major Conflicts: The Case of Mizoram (India) - Part 4", The Left Coaster, Jan 2009.

8. Eriposte, "Language and Ethnic Conflict in South Asia", The Left Coaster, Feb 2009.

9. B. Riedel, "Pakistan and Terror: The Eye of the Storm", Annals of the AAPSS, 2008; T. Rubin, "Bruce Riedel: We need to make the war against al Qaeda Pakistan's war, not just America's war", Academy Blog, 2008; B. Gwertzman interview of B. Riedel, "Riedel: U.S. Needs to Tread Carefully in Pakistan", Council on Foreign Relations, 2008.

10. Council for Foreign Relations, Pakistan Archives.

11. Eriposte, "The State Department and Transformative Foreign Policy", The Left Coaster, Dec 2008.

12. A. Bansal, "Why Balochistan is Burning", Rediff.com, Jan 2006.

13. "Baluchistan Insurgency", GlobalSecurity.Org.

14. "Baloch People", Wikipedia.

15. A. S. Akhtar, "Balochistan versus Pakistan", Economic and Political Weekly, Nov 2007.

16. E. Schmitt and M. Mazzetti, "Taliban Haven in Pakistani City Raises Fears", New York Times, Feb 2009.

17. "UN hostage: Pak dismisses demands as unrealistic", Sify News, Feb 2009.

18. J. Dreze and A. Sen, "India: Development and Participation", Oxford University Press, 2002.

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