Alleviating poverty-fixing economy

Written by The Frontier Post

Muhammad Ali Alvi

Poverty is the manifestation of prevalent social injustice in society. Higher the social injustice higher will be the poverty. It is not confined to one state as it is a global dilemma. According to Oxfam, the world’s richest 1% has twice the wealth of the rest of the world.
On the contrary, nearly half of the world lived on less than 5.50$ a day as of the World Bank report in 2018. While around 9% of the world population still lives in extreme poverty earning less than 1.90$ a day-a figure that is expected to rise as an aftermath of the pandemic.
Pakistan is a multi-ethnic, multi-linguistic state. Its unity is in its diversity. It is home to people belonging to different casts, ethnicities, sects and religions.
Social injustice is like a menace to it. And, it is in the best interest of the state to provide equal access to opportunities, facilities, education, health and other essentials.
Otherwise, poverty as a result of social injustice can hamper the progress of the society, create resentment in different factions and lead to disturbance in the socio-political fabric of the society. A couple of days back, I was sitting with my friend who hails from a village in South Punjab. Debating on a topic, he pointed out the lack of facilities and opportunities in his area and compared it with someone living in a rather developed area. I could feel the anger and frustration in his voice.
Here, it is pertinent to mention that he is literate and belongs to a well off family. Multiply this anger and resentment for uneducated and underprivileged people and factions.
Poverty has nothing to do with caste, creed, ethnicity, locality or language but if not addressed properly and dealt with generosity, it creates a division in the form of different classes based on these identities.
Analysts describe the economy of the state as the blood in a human body. For a healthy body, blood needs to be circulated without any disturbance. When blood accumulates at a point it forms clots which can turn into cancer. Accumulation of wealth in the hands of few is the cancer of society. The circulation of capital leads to poverty which in turn leads to other social evils.
According to World Bank estimates, the poverty in Pakistan increased from 4.4% to 5.4 % in 2020. While around 39% of the total population lives in poverty when measured using a lower-middle-income poverty line of 3.20$ a day.
The most important cause of poverty in Pakistan is economic instability. Pakistan’s chronic economic problem and lack of political stability has led to social injustice and ultimately poverty.
Social poverty alleviation programmes can only aid the poverty alleviation process but cannot be a long term initiative unless basic issues in the economy are resolved.
According to government estimates, the poverty level is decreasing in Pakistan. For example, the poverty level in the country declined from 36.8 % in 2010-11 to 21.9 % in 2018-19 according to the HIES survey. But, without economic stability and removal of flaws in our economy, we cannot root out poverty given the amount of increase in the population.
Pakistan is the fifth most populous country in the world now with a population of 220 million and a growth rate of 2.4%. According to the UN estimates, Pakistan’s population is estimated to reach 403 million in 2050. Given the amount of population growth only a sustained approach can help in the eradication of poverty.
Both the Trade surplus and revenue collected in the form of different taxes are very important for a state.
Pakistan is an agrarian country. Its major exports to the world are agricultural products, textiles, sports and Leather goods. Pakistan’s exports as the percentages of GDP in 2019 was 10.1% while the average for lower-middle-income countries is 24.7 % and for South Asian countries is 17.5%. Furthermore, as these exports are lower value-added products, it results in a negative balance of trade or trade deficit.
Similarly, for taxation, Pakistan relies on indirect taxes which adds to the burden of the vulnerable section of the society. According to the FBR data, the share of indirect taxes increased from 61.3% in 2010-11 to 67.9% in 2019-20. On the contrary, the direct tax collection decreased from 38.7% in 2010-11 to 32.1 % in 2019-20, reported the Business Recorder.
The higher indirect to direct tax ratio creates imbalance and adds to the woes of the poor and leaves behind those who need to be taxed. Inflation as a result surges which creates problems for the unprivileged and depreciates the living standard of a common man.
Pakistan, because of its economic vulnerability, reached out to the IMF 22 times since its inception. Almost every government reached out to the IMF for assistance but still, no worthwhile progress is visible. The cost of reaching out to the IMF is paid by the poor in the form of taxes. The current petrol price hike is a recent example. The price was increased per the IMF demands which insisted on a collection of 610 billion from the petroleum development levy during the current fiscal year.
Other than that, Pakistan’s Tax-to-GDP ratio is around 10% percent which is one of the lowest in the entire region. The low Tax-to-GDP ratio also results in indirect taxation. For example, the revenue target for the current fiscal year is 5.8 trillion and 3.6 trillion will be collected through indirect taxes.
If poverty is to be elevated completely and the living standard of the people is to be raised, Pakistan has to solve its economic woes.
It needs to diversify its exports by focusing on high-Tech products that will result in a positive trade balance and trade surplus. It needs to focus on direct taxes by improving its tax collection and by involving more people to pay income tax and avoid tax evasion rather than relying on indirect taxes. And with that, it needs to increase its spending on education and health to make sure all have access to quality education and health facilities.

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The Frontier Post

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