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Posted on: Monday, March 17, 2014
Tuesday March 11, 2014

CPS organized a Roundtable on “Poverty Trends in Pakistan” on March 11, 2014

THE NEWS 

‘Poverty figures based on flawed estimation method’

Saturday, March 15, 2014 
From Print Edition

ISLAMABAD: No official statistics on poverty have been available for Pakistan since 2006, experts said on Thursday while censuring the official methodology used by the government to determine the poverty line.

In a recent speech, Finance Minister Ishaq Dar said 50 percent of the country’s population is living below the poverty line irrespective of the $1 a day or ‘$2 a day’ poverty line definition.

To discuss the prevalence of poverty in the country, the COMSATS Institute of Technology organised a roundtable discussion on “Poverty Trends in Pakistan” this week. COMSATS Director Khalid Saeed said the official poverty headcount – an essential tool for the evaluation of the government’s policies and programme donors – has not been announced by the government since 2006.

Dr Sajjad Akhtar, an expert on poverty, said the poverty line is updated by using the consumer price index (CPI) under the official methodology. Poverty estimates based on the official methodology indicate a decline in poverty from 34.5 per cent in 2001-02 to 23.9 per cent in 2004-05, 17.2 per cent in 2007-08 and 12.4 per cent in 2010-11.

Akhtar said factors that contributed to a decline in poverty between 2001 and 2005 included economic growth combined with low inflation and a stable exchange rate, increased FDI and expanding international trade.

Similarly, reasons for a decline in poverty between 2007 and 2011 included higher increase in real consumption of the poorest quintile, substantial increase in allocation under the Benazir Income Support Program (BISP) to the poor and vulnerable sections of the population, reduction in consumption inequality, 140 percent increase in remittances in rupee terms, and sizeable increase in national support prices of agricultural commodities.

However, Dr. Talat Anwar, Senior Research Fellow at COMSATS said official methods to determine poverty line are flawed since CPI is used to the update poverty line, undervaluing inflation. Earlier, a panel of economists appointed by the former prime minister under the leadership of Dr Hafeez Pasha also rejected poverty estimates based on the official methodology.

Anwar said the CPI does not reflect the consumption pattern of the underprivileged as they spend almost 60 per cent of their income on food, whereas the CPI gives 40 per cent weight to food in the estimation of CPI. The government further reduced the weight of food in the CPI to 34 per cent which reduced the inflation rate, and consequently the poverty line and poverty level to 12.4 per cent in 2011 despite deteriorating economic conditions.

Anwar also highlighted the manipulation of the CPI, saying the rate of CPI has been going down continuously since 2005 against food inflation and the sensitive price index (SPI).

Further, he pointed out, changes in the CPI were much lower against food inflation and SPI particularly in years when it was required to gauge official poverty estimates, whereas in other years the differences between CPI and food inflation and SPI were nominal. “This means that rate of CPI has been manipulated to indicate a higher decline in poverty,” said Anwar.

“These observations raise serious doubts about the validity of CPI data and poverty estimates based on the official methodology and reinforces the serious concerns raised by analysts and experts in the Technical Committee of the Planning Commission on the validity of data collected and compiled by the main statistical authority — Pakistan Bureau of Statistics.”

Anwar said inflation as measured by CPI remained lower at 21.5 per cent compared to estimates based on household survey inflation rate of 28.9 per cent between 2001 and 2005. Likewise, the CPI also understates the inflation rate between 2005 and 2008 since inflation as measured by CPI remained at 30 per cent against 41 per cent measured by him from the household survey price data during this period.

He said that the underestimation of the CPI has resulted in the persistent decline in poverty from 34 per cent to 12.4 per cent in 2011. On the other hand, his derived poverty lines from household survey data suggest a decline of poverty from 34 per cent in 2001 to 29.3 per cent in 2005 and 28.5 per cent in 2008. “My poverty estimates clearly capture the impact of the food price crisis in 2007-2008 while official poverty estimates don’t take into account these ground realties.”

According to Anwar’s poverty estimates, rural poverty remained stagnant while urban poverty increased by 0.5 percent in 2008. In contrast, official estimates indicate a substantial decline by 7.5 per cent in rural and 4.9 per cent in urban areas. “Ironically, the official methodology may indicate a decline in poverty in Tharparkar where kids are currently dying due to malnutrition.”

He went on to conclude that poverty increased in Pakistan in 2011 as inflation remained high and economic growth declined after economic mismanagement and adopting IMF recommended policies.

Farzana Noshab from ADB said the government did not accept the poverty estimate of 12.4 per cent for 2011 but it has published tentative estimates in its latest MDG report which are not consistent with the worsening of malnutrition published in the same report. —Mehtab Haider

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