Poverty Reduction Strategies in Pakistan: What Worked, What Didn’t?

Aadil Mansoor

In the last decade Pakistan has devised at least three poverty reduction strategies meant to be used as tools for setting economic policy with the aim, at least in theory, of alleviating poverty. But their performance has made it clear that meeting the needs of the country’s poorest continues to take a back seat to goals such as rapid economic growth and fulfilling the requirements of international donors. The strategies have been aimed at ensuring that Pakistan continues to receive much-needed support from international lenders like the International Monetary Fund (IMF) and the World Bank. Their success or failure, too, has depended on external factors like the global economic environment and Pakistan’s geopolitical role in the world.

The Poverty Reduction Strategy Papers (PRSP) were first developed in 1999, initiated by the IMF and the World Bank after widespread failures of the structural adjustment programmes they had developed for various countries in the 1990s. Contrary to these programmes – criticized for being top-down and lacking sensitivity to national priorities – the PRSPs were developed by national governments and had poverty reduction as their central goal. The core principles of the approach were that the strategies should be country-driven, result-orientated, comprehensive, partnership-oriented and have a long-term perspective.

Driven by the urgency for debt relief from international lenders in the middle of a balance of payments crisis, Pakistan adopted the process in 2000 by setting up a PRSP Secretariat in the Finance Division. The secretariat’s location in the finance ministry made it clear that the PRSP was, first and foremost, a means of attracting foreign lending. The secretariat hastened to develop an Interim Poverty Reduction Strategy Paper (I-PRSP) for 2001-2003. Notwithstanding the primary purpose, which was to qualify for IMF and World Bank funding, the IPRSP was greeted with considerable fanfare and high-level ownership. General (retd) Pervez Musharraf, who had recently taken over the throne through a coup d’état, viewed it as a tool to legitimize his rule and gain confidence at home and abroad. Shaukat Aziz, his finance adviser, used the I-PRSP to showcase the government’s resolve to improve the country’s economic and social situation.

But as the IPRSP’s critics argued, under the garb of poverty reduction the government was in fact responding to economy-wide structural reforms required by the IMF and the World Bank. Many actions contained in the I-PRSP – tax reforms, public expenditure management, monetary policy, external adjustment, debt management and privatisation – required a stretch of the imagination to connect them with poverty reduction.

And while the implementation period of the I-PRSP saw the economy growing by more than six per cent per year, with high levels of investment and profitability in banking, telecommunications, consumer goods and real estate leading to greater employment opportunities, rising incomes and declining poverty, these changes could not be attributed to the I-PRSP. They were driven by external factors such as a significant increase in remittances after the September 11, 2001 terrorist attacks and dividends from Pakistan’s decision to be the frontline state in the ‘war against terrorism’.

Pakistan’s first formal PRSP (PRSP-I), completed in December 2003 and meant to be implemented over the 2004-2006 period, was prepared in a much more optimistic economic environment than the I-PRSP. Admitting that reducing poverty and inequality remained major challenges, it was based on four pillars: achieving rapid, broad-based economic growth while maintaining macroeconomic stability; improving governance, devolution, and social and economic justice; investing in human capital and improving public service delivery; and targeting the poor and vulnerable and reducing inequalities. PRSP-I also had a sharper focus than the I-PRSP, identifying agriculture, small and medium enterprises, housing, construction, information technology and telecommunications as key drivers of growth and poverty reduction.

Because of its focused approach and high-level ownership (Shaukat Aziz had by then become prime minister) PRSP-I had a substantial influence on public policy, but it was continued economic momentum that enabled the government to promote further expansion in high priority sectors. Improved revenues through higher taxes, privatisation and remittances resulted in the expansion of the public sector development programme, especially in rural areas that were lagging behind the consumer-led growth financed by cheap credit. Further boosts came through foreign aid that poured in after the US operation in Afghanistan and the 2005 earthquake in Northern Pakistan.

The government justified the impact of PRSP-I, as measured by the Pakistan Social and Living Standards Measurement Surveys (PSLM), in terms of a decrease in poverty headcount ratio from 35 per cent in 2000-2001 to 22 per cent in 2005-2006. Similarly, most social indicators, such as literacy, primary enrollment, children’s immunisation, access to health services, disease incidence, access to drinking water, and unemployment rates showed significant improvements in the period between 2000-2001 and 2006-2007. Disparities, however, remained evident between rural and urban areas and between various regions.

PRSP-II, the latest strategy paper, was implemented over a much more turbulent period (2008-2010), and the increasing poverty under its watch has demonstrated the limitations of the PRSP approach when overall economic growth is not forthcoming. Its formative phase was marred by the outbreak of terrorism at home, the waning of Musharraf’s grip on power, political instability caused by the upcoming elections and the sacking of the chief justice. The positive economic outlook had dwindled due to the global financial crisis, food and fuel inflation, political uncertainty and the ‘war against terror’.

PRSP-II therefore aimed to steer Pakistan back onto the path of achieving sustained and broad-based economic growth, creating jobs and reducing poverty. Macroeconomic and structural reforms of the previous strategies gave way to macroeconomic sustainability, financial discipline and transparent policies around the core goal of poverty reduction. And while the PRSP secretariat had worked hard to solicit inputs from various stakeholders, the strategy lacked political ownership since it was devised during a period of transition and uncertainty. The result was a jumble of technical solutions lacking overall direction and focus.

Perhaps it is too early to judge PRSP-II’s outcomes, but recent trends and anecdotal evidence suggest that poverty in Pakistan is on the rise again. Pro-poor expenditures increased at steady rates of over 20 per cent from 2000-2001 to 2006-2007 before declining by 6 per cent in 2008-2009. Outlays on agriculture, rural development and population planning were slashed by over
25 per cent that year. These spending cuts suggest that the PRSPs have failed to fundamentally change basic public expenditure practices. When push comes to shove, spending on the voiceless, rural poor is still one of the first items to be cut. And while the PRSPs can boast of having funneled public expenditures toward poverty reduction, the extent to which these expenditures reached their target groups is hard to establish. Impacts and outcomes remain elusive too.

While the government claimed positive changes in social and economic indicators, others including the World Bank have argued that poverty headcount has declined less than the government claimed it had (29 per cent rather than 24 per cent in 2004-2005 versus 34 per cent in 2000-2001). Yet even that is no longer the case, as there are widespread concerns that poverty has started to rise again from 2007-2008 and several economists have argued that the poverty headcount ratio has surpassed 40 per cent in 2010. It is also obvious that the improvements during PRSP-I had little to do with the strategies themselves and were more a consequence of the country’s overall economic growth, the global macroeconomic environment and geopolitical events. What is needed, instead, are plans that continue to focus on pro-poor policies and on reducing inequality through the vagaries economic and political cycles.

First Published in The Herald

Aadil Mansoor is a scholar of Public Policy and Management at Carnegie Mellon University Heinz College, Australia Campus. He can be reached at aadilmansoor@yahoo.com.

2 Comments

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2 responses to “Poverty Reduction Strategies in Pakistan: What Worked, What Didn’t?

  1. Maryanne Khan

    Excellent analysis.

    To what extent do the floods further impact on this situation?

  2. Hira Mir

    Poverty remains a main issue in Pakistan which gives ground to recruitment of terrorists. We must curtail this menace as well for calm to prevail in the country.