The Government of Pakistan is currently finalizing its Poverty Reduction Strategy Paper (PRSP) to set the stage for integrating its attempt to reduce poverty with the process of economic growth. To facilitate a contribution to Government policy in this area by independent economists, the Pakistan Institute of Development Economics and the UNDP organized a symposium last Monday. This is the first of a series of articles briefly outlining the policy paper that I presented at the symposium.

Designing a policy for pro poor growth involves addressing the structural features of Pakistan's growth process, which constrain its capacity at the macro level for poverty reduction. At the same time it is necessary to come to grips with the nature of the poverty process at the local level. Poverty occurs when the individual is isolated from the community and is locked into a nexus of power, which deprives the poor of their actual and potential income. The poor face a structure of markets, State and institutions, which discriminate against their access over resources, public services and government decision-making. In this context overcoming poverty means empowering the poor at the local level. The challenge of pro poor growth therefore is to re-orient both the structure of the economy as well as the local structures of power in favour of the poor.

Five major structural features of the economy and the poverty process need to be addressed in a policy for pro poor growth. In this week's article we will summarize the first three.

1 Governance, Poverty and Unemployment

Poverty and inequality have increased during the 1990s. This is due to the fact that while GDP growth declined during the 1990s, there has also been a decline in employment generation capability of growth, labour productivity and real wages in both agriculture and industry. At the same time three aspects of governance during the 1990s intensified the economic burden on the poor: (i) Due to poor financial management of successive governments particularly during the 1990s, both the level of development expenditure and efficiency of its use declined. This contributed to the decay in the already inadequate social infrastructure, a slow down in GDP growth and rising poverty. (ii) The failure to control budget deficits combined with the attempt to finance them through indirect taxation also contributed to increasing poverty, since the adverse impact of such taxation has a relatively greater impact on the poor. (iii) During the 1990s there was unprecedented level of corruption in government, which had a significant adverse impact on economic growth and poverty. For example according to a reliable estimate the cost of such corruption to the banking sector alone was 10 to 15 percent of the GDP in 1996-1997. It has been estimated that the overall cost to the country of corruption at the highest level of government was 20% to 25% of the GDP in 1996-1997, or approximately US $ 15 billion.

Widespread corruption in government may have contributed to increasing poverty in three ways: (a) The changing magnitude of corruption over time and at different levels of decision making in government may have been a major factor in the uncertain policy environment and a constraint to estimating accurate project feasibilities. This could be expected to slow down investment growth and employment. (b) The transfer of some of the domestic savings of the private sector to corrupt politicians and government officials rather than into investment could be a factor in slowing down GDP growth. (c) The financial cost of individual projects increased, thereby simultaneously slowing down GDP growth for given levels of investment and also reducing the employment generated by given levels of investment.

2 Health and Poverty

Our research for the National Human Development Report suggests that the high prevalence of disease amongst those who are slightly above the poverty line is a major factor in pushing them into poverty. Those who are already poor get pushed into deeper poverty as the result of loss of income and high medical costs resulting from illness. The data show that on average 65% of the extremely poor were ill at the time of the survey and they had on average suffered from their illness for 95 days. Our survey data show that the poor predominantly go to private allopathic practitioners rather than to basic health units or government hospitals. Consequently when the poor fall ill they suffer for a protracted period and get locked into a higher cost source of medical treatment, which erodes whatever few assets they have and push them into indebtedness and deeper poverty.

The curative health care system has expanded substantially during the last decade (for example, the population per doctor has fallen from 2082 in 1990 to 1529 in the year 2000). The fact that inspite of this expansion the incidence of disease remains high points to both inadequate coverage and poor quality of the health care system in Pakistan.

3 Asymmetric Markets, Local Power Structures and Poverty

As the NHDR/PIDE survey data shows, poor peasants face input and output markets where they have to pay a relatively higher price for their inputs and get a relatively lower price for their outputs compared to large farmers. At the same time, due to lack of access over the formal credit markets the poor peasant often has to borrow from the landlord and as a consequence is obliged to work on the landlord's farm at less than market wage rates. The NHDR study shows that the poor peasants could be losing one third of their income due to asymmetric markets for inputs and outputs.

Our research for the National Human Development Report for the first time shows that health is a major factor that pushes people into poverty. Improved nutrition and health of the poor would enable them to become more productive. Therefore an integral part of a pro poor growth strategy should be improving the provision of preventive hygiene, safe drinking water, service delivery of basic health units and hospitals at the Tehsil and District levels.

Our research has also shown that poverty in Pakistan is systemic to the local power structure as a result of which the poor are losing a large proportion of their income as they face asymmetric markets, institutions and the State. Overcoming poverty therefore means changing the balance of power in favour of the poor at the local level. This requires facilitating the emergence of autonomous organizations of the poor, particularly poor women at the village, Union Council, Tehsil and District levels.