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Economic activity and poverty circumstances

The devastating economic fallout of the pandemic is being felt across the globe but for poor people in Pakistan who are already struggling to survive there are almost no safety nets to stop them falling into poverty. Over 50 million people in Pakistan live under poverty line. This tragic waste of human potential is caused by unemployment, underemployment and low productivity in existing jobs, particularly in agriculture and in the urban informal economy – the main source of employment in Pakistan’s economy. The performance of economy has gradually deteriorated in last two years and now due to COVID 19, it is at the verge of collapse. Before COVID-19 outbreak, independent economists emphasized the Ministry of Finance to cover the current account deficit and other related matters through focusing on economic growth but the Ministry of Finance was too much focused on hot money with high interest rates, which actually forced small-medium enterprises to scale down their activities.

It is now becoming clear that a high rate of economic growth is not enough to reduce poverty unless it is supported by the public welfare projects. Economic growth can reduce poverty if it takes place in an environment of poverty with employment sensitive macroeconomic policies. At present, the poverty reducing potential of employment is not fully realized in Pakistan because: the productivity of the working poor, including those operating in smallholder agriculture and the informal economy, is not sufficient to generate a surplus for domestic savings, consumption or investment; agri producers are unable to move up the value chain which would enable them to compete internationally and to retain a higher share of the value added within the country.

In recent months, Pakistan has seen highest rate of unemployment specially youth unemployment. Women’s unemployment in all categories is significantly higher. Women suffer from poverty of opportunities throughout their life cycle. In particular, women’s access in the labor market in Pakistan is determined by rigid gender role, ideologies, social and cultural restriction on women’s mobility and integration in the work place.

A large number of active population is either unemployed or engaged in informal economy where they engage in undocumented economic activities, without any social protection and even often in an unsafe working environment. The fact of the matter is that a large portion of women and men are obliged to do any work they can get, no matter how insecure, no matter how badly paid, to be able to feed their families. Low productivity, underemployment and low levels of income and wages are all major factors that determine those working in poverty, i.e. those unable to earn a decent living and have access to basic social needs for themselves and their families.

Poverty in Pakistan has historically been higher in rural than urban areas. Besides poverty, inequality has also increased in Pakistan in recent years. While agriculture is the predominant activity in rural society, a substantial proportion of the rural labor force, estimated at more than 40 percent, depends entirely on non-farm activities. The growth of non-farm activities appears to have been severely affected by low economic growth, decline in public sector development spending, and lower worker remittances. Poor governance is one of the key underlying causes of poverty, as it not only enhances vulnerability but is the cause of low business confidence which translates into lower investment levels; reduced efficiency in provision of services which has serious implications for human development. It is suspected that due to very high unemployment rate and increasing poverty; there is a high risk of increase in street crimes and thefts which will affect both the economic activity and the quality of life eventually.

 

Employment is at the core of Pakistan’s development challenge. There can be no sustainable development unless people have productive jobs, whereas productive employment will only create socially secure, stable and equitable society in the country. It is therefore, essential to create new jobs through employment intensive growth; systematically reduce the informal economy, improve the productivity of the working poor; and pay greater attention to poverty eradication measures.

The biggest development challenge Pakistan is facing is how to meet the millennium development goal of bringing down the incidence of poverty from its current high level. Growth has to be accompanied by many other complementary measures and policy actions. The second element of the strategy should be to improve the living standards and incomes of the rural population, to which most of the poor belong. The most effective way to do is to enhance agriculture productivity, including livestock. The main instrument that has been used for this purpose is the easing of credit constraint and extending commercial bank loans to small farmers.

It is important for the banks to lend to agriculture particularly to small farmers. This will enable the farmers to purchase fertilizers, improved seeds, agrochemical, implements, hire tractors and equipment with the resultant increase in yields per acre and incomes. Microfinance institutions in Pakistan are quite impressive.

The problem of poverty and how to reduce it remains the most pressing dilemma. COVID-19 is taking its toll, causing deaths, illnesses and economic despair. It has already pushed about 40-60 million people into poverty in Pakistan. The virus is taking its toll is highly dependent on two factors: 1) the impact of the virus on the economic activity and 2) the number of people living close to the poverty line. The economic fallout from the coronavirus pandemic in Pakistan could push millions of people into miserable condition unless urgent action is taken to bail out small trading ventures and businesses.

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