INCOME N POVERTY
The Nation has published an article entitled “Per capita income and poverty reduction” on July 26, 2006 written by former Finance Minister Mr Sartaj Aziz. This article has been written in response to my comments on Sartaj Aziz sahib’s remarks on President Pervez Musharraf’s address to the nation telecast by a private TV channel on Friday, July 21, 2006. President Musharraf in his address to the nation on July 20, 2006 discussed at length the economic achievements of the government over the last six to seven years, including doubling of per capita income and reduction in poverty.
Sartaj Aziz in his comments on the President’s speech did not agree on two points. First, that the per capita income has not doubled and secondly, that the World Bank and the UNDP have questioned poverty estimates released by the government. He, however, agreed that ”with accelerated growth during 2001-05, some reduction in poverty has certainly occurred but cannot be so large”.
In my comments to Sartaj Aziz sahib’s remarks on Kamran Khan’s programme, I very humbly tried to explain that per capita income is a current dollar concept and that both the World Bank and the UNDP have validated the poverty estimates released by the government. In his article, Sartaj sahib not only very strongly disagreed with me but also asked me to refer to the text books that I have studied for my PhD.
Let me discuss the issue of per capita income first. Sartaj sahib has stated that real GDP has grown at an average rate of about 5.0 percent per annum during the last 6 years and adjusting for population growth of 2 percent per annum; the real GDP per capita has grown at an average rate of 3.0 percent per annum during the last six years. At this rate, Sartaj sahib states that it will take 24 years to double per capita income.
If we accept this argument then we will be stating Pakistan’s per capita income in 2030 as: Pakistan per capita income is x dollar in 2030 at the constant price of 1999-2000 (the base year). Is this the way we state a country’s per capita income? Does any country states its per capita income at constant price or at base year? Has London Economist in its June 3, 2006 issue mentioned India’s per capita income at $ 728 at the base year of 1993-94? The answer is of course no. Per capita income is defined in current dollar term and not at the base year price.
What Sartaj sahib is stating is the difference of two growth rates, ie real GDP growth and population growth and therefore, describing the growth in real per capita GDP and that, it will take 24 years to double the real per capita GDP (one may call this as real per capita ‘income’: a measure of economic well-being). Should we use GDP or GNP to represent income? It does not matter for developed countries.
For example, in 1995 the US GDP was $ 7254 billion and the US GNP was $ 7247 billion, a difference of only $ 7 billion or less that 0.1 percent. However, this difference is more prominent in the case of countries like Egypt, Turkey, Pakistan, Bangladesh etc where a large number of their citizens are working abroad and sending substantial amount of remittances (see Text-books: Macroeconomics, third Edition by Andrew Abel and Ben Bernanke; Addison-Wesley, 1998; page 31 and Macroeconomics: Theories & Policies, Fifth Edition by Richard Froyen; Prentice Hall, 1996; page 18). Therefore, the proper measure of income is GNP. It is in this perspective that we define per capita income as Gross National product at market price in dollar term divided by the country’s population. And this is the number that the President gave in his speech.
Let me turn to the issue of poverty reduction. The government has released the poverty numbers for 2004-05 in Pakistan Economic Survey 2005-06. The result shows that poverty in Pakistan has declined from 34.46 percent in 2000-01 to 23.9 percent in 2004-05. Sartaj Aziz sahib is not willing to accept that a 10.56 percentage point reduction in poverty has taken place over the last four years.
Though he agrees that some reduction in poverty has certainly taken place but he is unwilling to accept a relatively large reduction in poverty. In his defence he has referred to a news item published in English daily on June 20, 2006 under the heading “WB, UNDP question poverty estimates”. It is generally observed in Pakistan that people suffer from headline syndrome. They form their opinion by reading the headline of the newspaper. I am afraid; this appears to be the case in hand. The title and the text of the same news item are at odd with each other. While the title suggests that the World Bank and the UNDP have questioned the poverty estimates, the text however shows that both the institutions have endorsed the poverty estimates of the Centre for Research on Poverty and Income Distribution (CRPRID).
Let me quote from the text for general readers. “The World Bank Country Director for Pakistan John Wall told Dawn that his institution had no hesitation to endorse the numbers arrived at by the CRPRID …”. Likewise, Prof Nanak Kakwani - an expert of the UNDP and an authority on poverty estimation, is quoted in the news item that “by adopting the poverty estimates and methodology used by the government’s CRPRID, he arrived at the poverty estimates of 34.46 percent in 2001-02 and 24.0 percent in 2004-05”. It is to be noted that this is the number released by the government, which is fully corroborated by Prof Kakwani.
In order to further clarify their position both the institutions had issued their press releases. Let me take the liberty of quoting from the press release of these two Institutions.
The World Bank’s press release of June 22, 2006 with title “World Bank validates Poverty Estimates” states that “the World Bank has validated the Government of Pakistan’s official poverty estimates as recently published in the Pakistan Economic Survey, 2005-06. The Government has maintained consistency with past measures using the same poverty line and inflation indices as used for the 2000-01 estimates…”.
“A World Bank spokesperson said that several international agencies, including the World Bank have validated this result independently”. The UNDP press release of June 22, 2006 states “The UNDP endorses the official poverty estimates. The front-page article in the DAWN dated 20 June, 2006 incorrectly states that UNDP questions the estimates. The UNDP would like to clarify that we do not question poverty estimates of the CRPRID. Mr Nanak Kakwani, a UNDP colleague and a world-class expert estimating poverty levels, examined in detail the methodology that underpins the latest poverty estimates for Pakistan. He validated the national headcount ratio as estimated by the CRPRID”.
Sartaj sahib then went on to discuss at length the paper of John Wall of the World Bank and quoted different numbers on poverty estimates. I would very humbly submit that poverty estimates and poverty lines are highly sensitive to the methodologies used and especially to the manner in which how and what type of price indices are used to inflate the poverty lines.
Different methodologies used by different development partners and other experts can come up with different numbers. For example, the World Bank would like to use different prices such as Survey Based Index (SBI) instead of the CPI-based inflation; therefore, they are bound to get different numbers. Other may like to use Sensitive Price Index (SPI) or Wholesale Price Index (WPI) or even only the food component of the CPI to inflate the poverty line and therefore, bound to get different numbers.
The question is that should the CRPRID keep on changing the methodology each time to estimate poverty? Should the CRPRID keep on changing goal post every time a new Survey is released? In that case, how can one measure the increase or decrease in poverty with different methodologies. Therefore, the experts argue that in order to maintain consistency and transparency across years, it is absolutely essential that we apply the same agreed upon methodology over the years, irrespective of its weaknesses and strengths. This is exactly what the CRPRID has done. This is exactly what the World Bank has stated in its press release that “the government has maintained consistency with past measures …….”
As regards the credibility of Pakistan’s statistics, I would simply point that the credibility has now been well established. Had there been no credibility of Pakistan’s statistics the international investors would not have taken risk on Pakistan for 30 years by investing in Pakistani paper. The floatation of Pakistan’s sovereign bond would not have been a success had there been no credibility of Pakistan’s statistics. No one would have provided billions of dollar to us had there been no credibility of statistics. Let me conclude by saying that as a nation we must learn to celebrate our success.

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This is the sign of 1 who loves GOD that his chief care z goodness n devotion n his words r mostly in praise n glorification of GOD.