POVERTY IN PAKISTAN: WHOSE NUMBERS ARE RIGHT?

UNCLAS SECTION 01 OF 02 ISLAMABAD 001705

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PREL PK
SUBJECT: POVERTY IN PAKISTAN: WHOSE NUMBERS ARE RIGHT?



1. (SBU) Summary: Pakistani government officials frequently cite
poverty alleviation as one of President Musharraf's key economic
legacies. However, economic analysts frequently dispute the
Government of Pakistan's (GOP) statistics. Separate studies
conducted by the GOP and the World Bank indicate different
estimations of the decline in poverty in Pakistan from 2000 to 2005,
from which the most recent comprehensive poverty data dates. While
both studies conclude that poverty decreased during the period in
question, World Bank estimates point to a decline in poverty from
34.46 percent of the population to 28 percent, less than the GOP's
estimation of a decrease in poverty from 34.46 to 23.94 percent.
World Bank data is likely more accurate and paints a more balanced
view of the GOP's track record on poverty alleviation.


2. (SBU) Summary continued: A real concern is that approximately 50
percent of Pakistan's population (80 million people) is clustered
around the poverty line. Income inequality has risen during the
period and, coupled with gender disparity in employment and access
to education, will continue to represent a significant challenge to
the GOP's poverty alleviation campaign. End Summary.

Poverty alleviation under previous government
--------------


3. (SBU) Officials and representatives of President Pervez
Musharraf's government frequently cite poverty alleviation as one of
the President's most successful economic legacies. However,
economic analysts dispute GOP findings on the issue. The most
recent comprehensive poverty estimates date to the 2004-05 time
period. Separate calculations by the World Bank and the GOP both
point to decreasing levels of absolute poverty, although at
differing rates. The GOP's Federal Bureau of Statistics estimates
that the percentage of Pakistanis living below the poverty line
decreased from 34.46 percent in 2000-01 to 23.94 percent in 2004-05.


Differences between World Bank and GOP numbers
-------------- -


4. (SBU) During the same period, urban poverty declined by 34
percent and rural poverty by 28 percent. According to GOP
estimates, 36.45 million Pakistanis lived below the poverty line in

2005. World Bank data analysis also indicated a decrease in
absolute poverty, dropping from 34.46 percent of the population
living below the poverty line in 2000-01 to 29 percent in 2004-05,
less of a decline than the GOP's estimate of 23.94 percent. The GOP
currently has no plans to examine more recent data on poverty levels
this year.


5. (SBU) Dr. A.R. Kemal, former Director of the Pakistan Institute
of Development Economics, cites the use of differing consumer price
indices as one reason for the discrepancy between GOP and World Bank
estimates. The GOP's Federal Bureau of Statistics used a primarily
urban price-based consumer price index (CPI) to adjust the poverty
line for inflation. Dr. Kemal believes that the use of an urban
price-based CPI cannot be applied to rural areas due to differences
in consumption patterns and price differentials. The World Bank, on
the other hand, constructed its own CPI, incorporating the prices
for goods in rural areas. World Bank estimates show that absolute
national poverty declined by only five percent versus the GOP's
estimate of over ten percent.


6. (SBU) The GOP set the poverty line for the 2000-05 period at Rs
878.64 (USD 14.9) of personal consumption per month. The GOP
defines "extremely poor" as individuals whose monthly consumption is
less than 50 percent of the poverty line, or below Rs 439 (roughly
USD 7.44 at an average rupee/dollar exchange rate in the 2004-05
time period).


7. (SBU) Both GOP and World Bank poverty researchers concede that
the use of 2000-01 as a base year, which incidentally was also a
drought year, led to an overestimation of the poverty decline.
World Bank Senior Economist Kasper Richter considers that because 70
percent of Pakistan's population lives in rural areas, the use of
2000-01 as a base year overestimates the decline in poverty. 43.37
percent of Pakistanis work in the agriculture, forestry and fishing
sectors and are particularly vulnerable to changes in agricultural
production rates. Much of Pakistan experienced drought-like
conditions in 2000-01, increasing the number of Pakistanis
technically considered below the poverty line. Richter also
observed that if 1998-99 was used as a base year instead of 2000-01,
poverty would not have decreased as much as the GOP estimates.

ISLAMABAD 00001705 002 OF 002




8. (SBU) Former Director of the Pakistan Institute of Development
Economics Dr. A.R Kemal also remains skeptical of official poverty
reduction figures, citing different sampling methods used in 2000-01
and 2004-05 as a cause for concern. He believes that data was not
taken randomly and that the Federal Bureau of Statistics was not
transparent in its calculations, despite repeated requests from NGOs
to clarify data analysis procedures. Many analysts estimate that
around fifty percent of Pakistan's population is clustered around
the poverty line; even a small decline in monthly income would push
the majority of this group below the poverty line. A threshold of
2350 calories has been set as the minimum nutritional requirement;
in Pakistan, cereals account for 50 percent of this requirement.

Increased remittances decrease poverty
--------------


9. (SBU) From 2001 until today, remittances increased dramatically,
rising an average of over 40 percent per year to USD 5.49 billion in
2006-2007. While some of this increase was remittances being
captured in the formal banking system, most experts consider that
they increased dramatically during this period, playing a pivotal
part in poverty reduction. Studies in Pakistan show a statistically
significant correlation between remittance levels and the overall
decline in poverty. Where government poverty alleviation programs
provide indirect support to Pakistan's poor, remittances serve as
direct budgetary support to recipients.

Women at greater risk
--------------


10. (SBU) Women and children are most vulnerable to falling below
the poverty line. Pakistan ranks relatively low in the UN's Gender
Development Index, scoring 0.468 versus 0.545 for India and 0.664
for Indonesia. The World Economic Forum's 2007 Global Gender Gap
report scores Pakistan 126 out of 128 countries. Roughly half of
all women perform work unpaid in the home. Of the women that do
work outside of the home, 97.2 percent work in the low-income
informal sector, concentrated in the agriculture, light
manufacturing and domestic services sectors. Young women continue
to be at a disadvantage in access to education; only 20 percent of
low-income women complete school up to the fifth grade.

Comment
--------------


11. (SBU) Comment: While World Bank poverty reduction estimates are
probably more valid, both institutions indicate that poverty
declined in the 2000-01 to 2004-05 period. The choice of 2000-01 as
a base year likely overestimated poverty reduction, a fact that both
sides agree on. The decline in poverty should come as little
surprise as the country benefited from sound macroeconomic policies,
high rates of sustained growth, continued investment inflows, world
economic conditions generally favorable to developing countries in
the 2001-2005 period, increased foreign assistance and investment
inflows and a dramatic rise in worker remittances. End Comment.

PATTERSON