Broad-Basing of Growth for Poverty Reduction

A high rate of economic growth is necessary but not a sufficient condition for the alleviation of poverty. With the population growth of 3 percent, there is need to achieve, on a sustained basis, a growth rate of at least 7-8 percent per annum. The means with which economic growth is achieved, the quality of that growth, and distribution of the fruits of growth are equally important from the point of view of poverty alleviation. In the past, investment was largely financed from the savings done by the poor but its gains were reaped largely by the rich. The bulk of the savings in the country has been generated by the lower-income households in the form of small-size deposits in the banking sector. On the other hand, few sectors and a small proportion of borrowers have accounted for the bulk of credit from commercial banks and DFIs, and most of the investments have been in large-scale manufacturing and large economic projects. The concentration of income, wealth and credit in a few hands, a few sectors and a few cities, in the context of ownership of deposits and savings mainly by the “small man”, implies that while investment was financed by the poor, investment income mostly accrued to the rich. In addition, the high rate of loan defaults, financial suppression and inflation that led to a lower rate return to savers, implicitly transferred resources from the poor to the rich.

This pattern of savings, investment and growth, and the sharing of the fruits of development needs to be changed substantially. Geographical and crop-wise broadening of the base of agricultural growth, changes in the land tenure system, more equitable sharing arrangement of the input cost and crop output between the land-owning class and tenants, and better provision of health and educational facilities in the rural areas would be helpful in addressing the poverty problems in the agriculture sector. In the industrial sector, greater emphasis on small and medium-scale industries, use of labour-intensive technology and better provision of social security, health and retirement benefits to; working class are required for an improvement in their living conditions, Moreover, a major restructuring of the institutional setup for financial management to reduce defaults, corruption and high administrative costs will go a long way to improve the earnings of the low-income savers.

Source: Poverty Alleviation in Pakistan: Present Scenario and Future Strategy, Mohibul Haq Sahibzada. Republished with permission.