Poverty and Income Distribution

As Pakistan’s economy entered the fourth year (FY 2006-07) of above 7.0 percent growth, its poverty headcount had fallen from one-third to less than one-fourth of the population. The confluence of growth accelerating government policies, nature’s blessings and annual growth of 21% in pro-poor expenditures during the period contributed to approximately 13 million people moving out of poverty. In the immediate to short-run the challenge is to maintain the hard won improvement in poverty levels and even improve upon it through sustained growth (a necessary condition) in the range of 6-8 percent per annum. However growth alone does not suffice to reduce poverty levels. It has to be reinforced by job creation. Since FY 02, the economy created 10.62 million jobs, thereby reducing the open unemployment rate to 6.2 percent by FY 05-06. Foreign inflows in the form of remittances also have salutary impact on poverty. Development expenditure as a ratio of GDP, increase in human capital base, and openness of the economy are some of the other important factors that reduce the absolute poverty levels in Pakistan. On the debit side, food inflation increases poverty levels. The economy has witnessed a gradual increase in all the former set of determinants, while food inflation remained benign till 2004-05.