Pakistan is presently faced with a large-scale human displacement in the North Western part of the country. This is the largest in its history since the time of its creation in 1947. Under the circumstances, the country is witnessing an extraordinary political, social and economic situation that will have a serious impact on its longer-term social and economic development including increased incidence of chronic poverty in some areas.
SDPI Research and News Bulletin, Vol. 16, No. 2, April-June 2009
While the current unrest in the Federally Administered Tribal Areas (FATA) and NWFP has already increased both the direct and indirect costs of running the economy, the massive outflow of internally displaces persons (IDPs) is a much bigger challenge for the country than is being estimated at the moment.
In this situation, Pakistan has to stretch its scarce resources an extra mile for a civil-military surge to fill the vacuum of governance-related infrastructure in the Taliban-infected areas. In addition, it is pursuing a disinfecting operation against fundamentalist toxicity, which consumes a sizable proportion of available resources for the maintenance of law and order. Presuming that maintenance of law and order is a necessary condition for socio-economic development and entrepreneurial activities, the insurgency has increased the cost of doing business in almost every part of Pakistan. It has been reported in the media that during the last six years, around $35 billion had been eaten by counter-insurgency measures, while $5 to $8 billion might be consumed annually on this account without an immediate end in sight. This is an enormous cost for a state that has shown sub-optimal performance in governing both growth and poverty in a pro-poor fashion, let alone in a poor-centered way.
The latest economic survey of Pakistan 2008-09 shows contraction in the economy with growth being only 2% and a very marginal increase of around 0.3% in per capita income. The projected revised growth rate was 4.5%. Large scale manufacturing sector which constitutes around 70% of the total manufacturing has shown a negative 7.7% growth and predictions for the next financial year are also not very encouraging. However, at the same time, the state has committed to a number of measures under the International Monetary Fund (IMF)-sponsored (read monitored) structural adjustment of the economy, which includes contractional monetary policy, withdrawal of subsidies from electricity and cut in public sector development expenditure. Directly or indirectly, these measures will reduce growth, and increase unemployment and poverty. Allowing a slight increase in the budget deficit is the only measure of relaxation granted by the IMF for the fiscal year 2009-10 (FY10).
Standing between the devil and the deep sea, Pakistan's economy needs an extraordinary response by the leadership, which needs to make correct estimates of human misery, escalation in transaction costs due to increase in insurance premiums and other input factors. It also needs to pay heed to the requirements and management of diversion of public finance from development to maintenance of law and order.
While the current unrest in the Federally Administered Tribal Areas (FATA) and NWFP has already increased both the direct and indirect costs of running the economy, the massive outflow of internally displaced persons (IDPs) is a much bigger challenge for the country than is being estimated at the moment. Most of the reports on the financial outlay for FATA show disparity in the development budget allocation in comparison with the rest of the country. It has been reported that Pakistan spends about Rs. 900 per capita in FATA, while the average for the rest of the country is around Rs. 2,000.
Beyond immediate relief and early recovery, rehabilitation of the IDPs in their areas or elsewhere in Pakistan is an issue that would become, if not tackled with a long-term vision, monstrous sooner or later. It is feared that most of the IDPs would slide into chronic and persistent poverty because they will lose vital forms of their capital stock. Some of them would lose human capital, especially breadwinners; while others would lose financial capital because their savings will be spent on transportation to escape the death traps of the war zone. Still, other IDPs would have less social capital left with them, mainly due to social dispersion. Many of them would also lose physical capital, such as households, and access to natural capital, which could have been available in their usual habitat.
Leaving aside disparities in development expenditures between the terrorism-infected areas and the rest of Pakistan, the loss of capital stock or assets is actually a destruction of whatever developmental gains were achieved in those areas. As argued by Prof. David Hulme, an expert on chronic poverty, during and post-conflict situation, the disaster-affected persons perforce look at themselves more critically in a diachronic way -- comparing their past and present -- and also synchronically while looking at others who remain affluent. This situation increases the sense of deprivation and loss of capability to build assets. The situation requires deliberate and well thought-out public action backed by social protection and vulnerability reduction policies of the state.
Under the new Public Sector Development Programme (PSDP), an encouraging step has been taken to allocate around Rs. 3 billion for Reconstruction Opportunity Zones (ROZs) in the North Western Frontier Province and Balochistan while around 33% of the total PSDP has been allocated to revamping the energy sector in Pakistan.
At the beginning of this article, it was argued that the state is trapped in the type of economic management that assumes monetarists' vision of containing inflation and fiscal deficit. This orientation does not adequately look at the developmental needs of an economy, as well as social efficiencies of public sector investments. Interestingly, for such a management, poverty reduction strategy is more about targeting the 'transient poor', rather than the 'chronic poor'. Hence, the approach emphasizes the building of social safety nets.
It has been argued by experts that social safety net approach does not compensate for the absence of a well-structured social policy, and social protection mechanisms that can ensure that both the markets and public action care for the poor. In fact, such detailed mechanisms revolve around a different set of socio-economic values. Such arrangements realize that there are different types of poverties to be attacked with different policies. The point is, with the business as usual approach, Pakistan's development orientation will fail to effectively respond to the socio-economic and political challenges it currently faces.
It is believed that a sizable number of the IDPs may lapse into 'chronic poverty' due to the destruction of their capital stock. What is needed, therefore, is a different type of social development policy framework, not only for the terror-infected areas but also for the other parts of Pakistan. Trying to control the situation with money-supply related relief will be insufficient and risk-prone because it will not respond to the central question of socio-economic vulnerabilities and livelihood option in a long-term perspective.
In this direction of development for the eradication of chronic poverty, renowned economists Prof. David Hulme and Amartya Sen both emphasize the importance of poor-centered asset-building, especially those assets that are resilient and show high economic returns. Admittedly, the unit cost of such a poverty eradication strategy along with targeting is high, but it is worth pursuing a goal. Under the new Public Sector Development Programme (PSDP), an encouraging step has been taken to allocate around Rs. 3 billion for Reconstruction Opportunity Zones (ROZs) in the North Western Frontier Province and Balochistan while around 33% of the total PSDP has been allocated to revamping the energy sector in Pakistan. These monetary allocations are important and timely, however, the implementation, which critically depends on the capacity of the public administration as well as political will has a determining role to play. In implementing the PSDP for ROZs, care should be taken that the production and employment generation facilities show sectoral articulation with the rest of the domestic economy as well. This measure is especially relevant in the wake of the global recession of the economy, which may not provide vent for exportable items.
Last but not least, the controversial statistics on poverty out aside, it must be emphasized that the unfolding spiral of poverty and inequality especially in insurgency areas needs serious attention from the state. It is very important that while responding to emergencies, the central question of capability deprivation is also answered with longer terms social protection strategy design. The democratic government must have something to offer so that at least the first step in this direction could be taken.
SDPI is a strategic Partner of Heinrich-Böll-Stiftung Pakistan.