Macroeconomic Policies and their Impact on Poverty Alleviation in Pakistan

Abstract

The paper provides a consistent time-series of poverty estimates for the period 1963- 64 to 1992-93 for both the rural as well as the urban areas, examines the influence of macroeconomic policies on the poverty levels, analyses the impact of Structural Adjustment Programmes on the levels of poverty, and suggests a strategy for poverty alleviation in Pakistan. The paper explores in particular the influence on poverty of such factors as economic growth, agricultural growth, terms of trade for the agriculture sector, industrial production, rate of inflation, employment, wages, remittances, and the tax structure. While the paper cautions that on account of the limited number of observations the results of the study should be interpreted cautiously, the study does suggest that the growth above a threshold level of about 5 percent, increase in employment, and remittances are the most important variables explaining the change in poverty over time. The paper also comes to the conclusion that the policies pursued under the Structural Adjustment Programme have tended to increase the poverty levels mainly because of decline in growth rates, withdrawal of subsidies on agricultural inputs and consumption, decline in employment, increase in indirect taxes, and decline in public expenditure on social services. The paper also outlines a strategy for poverty eradication and argues that besides the safety nets, the employment programmes, as well as promotion of informal sector enterprises, are essential.