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Poverty

Trends , Causes and Solutions

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Indicator of Wellbeing

Monetary indicator; i.e. consumption expenditure of households

5 sub consumption aggregates:1. food items2. fuel and utilities3. housing4. frequent non food expenses5. other non food expenses

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Poverty Line

Absolute Poverty Line

Food Energy Intake (FEI)/Caloric Approach

(a monetary expenditure necessary to reach the minimum calorie intake, and it also includes a minimum expenditure of non-food items)

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At least three steps required in adopting the calorie approach:

• minimum calorie intake per day (2350 calories per adult per day set by Government of Pakistan);

• transformation of the calorie intake in monetary terms

• inclusion of other non food minimum expenditure in relation to the minimum food expenditure.

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Poverty Index

Most common and preferred measure: Headcount Ratio (Incidence of Poverty)

• Head-count:

Where z is the poverty line, wi is the per adult equivalent consumption expenditure of the individual i, and N is the total population

zw

zwwpP

i

iii if 0

if 100

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0 300 600 900 1200 1500

real per capita ae monthly consumption

0.0

0.2

0.4

0.6

0.8

1.0

cum

ula

tive

% o

f p

op

ula

tio

n in

po

vert

y

Rural

Urban

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using less than 2350 calories Food Deficient Population = 69.69%

(i.e. population daily)

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The Situation in Pakistan:

• 20% increase in wheat prices between November 2007 and February 2008.

• Food and beverage prices had risen 14.7% from October 2006 to October 2007

• One-half of Pakistan’s population is considered to be “food insecure,” according to the World Food Programme

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Causes: DEMAND SIDE

• Rising demand for food in India and China (especially meat, requiring large quantities of grain to raise)

• Bio-fuel initiatives in developed countries

• Speculation in commodities markets

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Causes: SUPPLY SIDE

• High petroleum prices (affecting the price of fertilizer and transport costs)

• Disruptive weather patterns negatively affecting harvests in several regions

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Causes: SUPPLY SIDE

• High petroleum prices (affecting the price of fertilizer and transport costs)

• Disruptive weather patterns negatively affecting harvests in several regions

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Impacts on the poor:

• Large negative impacts on poor net consumers of food, because food is a large part of household budget.

• Potentially positive impact on net producers of food, if farmers have access to agricultural inputs and markets.

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Data Sources

The data is taken from two different sources:

• Household level data from the Pakistan Social and Living Standards Measurement Survey (PLSM), 2004-2005 (using data on 14,100 households and 96,833 people)

• Household level data from the Punjab Multiple Indicators

Cluster Survey (MICS), 2003-2004 (using data on 29,342 households and 192,398 people)

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Poverty Line and Head Count Ratio

• For PSLM data, poverty line used was Rs. 878.64 per person.

• For MICS data, the poverty line used was Rs. 750 per person.

• A household was characterized as poor if the average income of its members was below the poverty line.

• The poverty head count was calculated as the number of

people as a proportion on the population that had incomes below the poverty line. So a poverty head count of 0.30 implies that 30% of the population lies below the poverty line.

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Various Categories of Expenditures and Budget Shares

Analysis looked at five categories of expenditures of each household, which were used to determine the budget share of each category of expenditure:

• (1) Food Expenditures • (2) Energy Expenditures (containing expenditures

on gas, electricity, cooking and heating oil and other fuel related expenditures)

• (3) Educational Expenditures • (4) Medical Expenditures• (5) Other Expenditures

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Figure 3: Expenditure Shares on Major Budget Items by Income Per Capita Deciles in Pakistan (PSLM)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

FOOD

MEDICAL

EDUC

ENERGY

• Majority of household expenditures in Pakistan are made up of food expenditures which fall as a proportion of total expenditures as the income level increases.

• After food, the second most major expenditure category across households was energy expenditures

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Simulated Price Shocks

• In the first part of our analysis, we adjust per capita incomes given in the PSLM and MICS data sets for shocks to the price of food and energy.

• Given that the price rises will reduce real incomes, the price shocks bring additional households below the poverty line.

• We then recalculate what the new poverty head-count

ratio would be after each price shock. • Price shocks of 1%, 5%, 10%, and 20% on the price of

food and energy are simulated and the impact on the poverty head count is analyzed.

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Simulated Poverty Head Counts (by Province) after increases in FOOD prices

(PSLM Data)

1% Increase

5% Increase

10% Increase

20% Increase

PUNJAB Base Poverty Head Count = 0.364

0.368

0.379

0.395

0.427

SINDH Base Poverty Head Count = 0.371

0.376

0.392

0.411

0.453

NWFP Base Poverty Head Count = 0.392

0.394

0.409

0.434

0.476

BALOCHISTAN Base Poverty Head Count = 0.312

0.392

0.395

0.399

0.411