Daily Times

Globally, 1.2 billion People living in abject poverty on less than $1 a day — 65 percent of them in Asia and 25 percent in Africa, where most live on less than 60 cents a day. Worldwide, about half the world’s population (3 billion people) live on less than $2 a day. The worst affected are children, women, and old people. More than 800 million people suffer from hunger and malnutrition. Global poverty is shockingly deep and widespread. The population increase, from 6 to about 8 billion by 2020-2025, with more than 95 percent of the increase coming in the developing countries, will increase the world poverty numbers. Beside monetary or material possessions to social organization, the multidimensional feature of poverty encompasses the evolution of distinct culture, political engagement, health care and education. The Human Development Index shows that Pakistan is positioned at 147th place out of 188 countries on indigence and deprivation. This is a matter of alarming concern, indicating that the country’s most of the population is falling in a poverty trap.

A poverty trap refers to a situation in which people get stuck in a cyclical pattern of poverty.Unless some effective economic measures are taken to change the situation, the cycle cannot be broken, leaving generation after generation ‘trapped’ in a constant state of poverty. It is most frequently described as a self-reinforcing mechanism that causes poverty to persist. Poverty traps create a cycle within an area that becomes almost impossible to fix without some sort of aid. Without people earning a living wage, they cannot invest in products within an area. Due to lack of money spent in businesses, the businesses fail and become bankrupt. Ultimately, people lose work and money, the area becomes even more oppressed than before.

The concept of poverty trap and the strategy to break this trap is illustrated in the Fig. Among the poorest of the poor, a subsistence threshold likely exists. If household asset levels fall below this threshold, the path dynamics suggest that the household would not be expected to generate sufficient income to meet the most basic needs, thereby collapsing into a poverty trap. The low level of income of a household reflects as low saving which in turn lowers the opportunities for investment and resultantly the economic growth suffers and as a cyclic negative effect, the income still remains low. On the other hand, low income causes lack of health care and inability to pay for education which creates scarcity of the human capital which in turns lowers the productivity and as a cyclic negative effect, the income again remains low. Thus this cyclic self-reinforcing trap causes poverty to persist.

A poverty trap refers to a situation in which people get stuck in a cyclical pattern of poverty. Unless some effective economic measures are taken to change the situation, the cycle cannot be broken, leaving generation after generation ‘trapped’ in a constant state of poverty. It is most frequently described as a self-reinforcing mechanism that causes poverty to persist

Although low wages certainly contribute to poor financial situations, there are many other factors (as shown if Fig,) in an economy that can cause poverty traps like poor work opportunities, lack of industrial growth, lack of health care, inability to pay for education, expense of goods and services, poor sanitation and violence.

Unfortunately, Pakistan’s current economic situation is entrapped by almost all of these factors and the nation needs a rescue from this poverty trap. Pakistan is an agricultural country and agriculture generates nearly 60 percent of the country’s GDP and 65.9 percent of the population living in rural areas is directly or indirectly dependent on agriculture for their livelihood. As shown in Fig. (Strategy to break Poverty Trap), without focusing on impoverished households(through a sustainable added-value agricultural reforms), it is merely impossible for the country to escape from the poverty trap. Many of the factors that contribute to poverty traps at the household level (e.g., barriers that create scale economies and limited access to insurance or credit) can also exist at more aggregate levels of analysis.

Poverty traps at higher levels of aggregation necessarily constrain economic opportunities at lower levels of aggregation and thus, accentuate poverty traps at the household level. In rural areas, where most of the population live below the poverty line, households often face disruption in their growth path due to various shocks that push people below the threshold knock them back into poverty trap. Rural households mostly employ various methods to self-insure against adverse shocks and formal insurance markets are typically incomplete and often nonexistent in rural areas of the country. This is particularly true for insurance that protects against crop production shortfalls or livestock mortality. A common reason for insurance market failure is the lack of effective legal systems to enforce insurance contracts. But even when effective contract enforcement mechanisms are in place, insurance markets often fail due to strong covariate risk exposure, asymmetric information problems, and high transaction costs.

Government of Pakistan must assure an effective and easy access to insurance and credit for the impoverished households to service against the adverse shocks. It is argued that agriculture will continue to be one of the most important sectors of Pakistan’s economy for years to come. To alleviate poverty, it is suggested that Pakistan enhance the productivity of the agriculture sector through the provision of a series of inputs including provision of easy credit to the small farmer, availability of quality fertilizers and pesticides, tractor and harvester services, improvement in the effectiveness of the vast irrigation system and, finally, farmer education. It is imperative that the high rate of population growth needs to be curbed for increased agricultural productivity to have any significant effect on poverty in rural areas of Pakistan.

It is evident from the Fig. (The Poverty Trap-Right hand cycle) that the only point in the cycle to interrupt the self-informing poverty cycle is “education and health care”. Investing in education and health care is vital to improve the level of human capital and productivity. Which will enhance the level of income with a positive shifting effect to growth (Left hand cycle).

Education (more importantly women education) is powerful instrument that helps to reduce the people’s deprivation. It is actually a way to inculcate an accepted sense of citizenship which may assist in creating a literate community. The unaffordable fee restricts the parents to send their children to school and as a result, the children are exploited.

According to a survey conducted by the Federal Bureau of Statistics, out of the estimated 40 million children in Pakistan, approximately 19 million are working as child laborers. It should be the government’s responsibility to ensure that all children go to school. The policy-makers are responsible to formulate the policies to secure the economic growth as well as the future of innocent souls.

Furthermore, China Pakistan Economic Corridor (CPEC) is a good attempt to cure the poverty of the nation. Pakistan must grab this opportunity in the way best fitted with national interests keeping in view the cost of the lost opportunities in the past like South Asian Trade Corridors (1990s)lost due to response from official channels in Pakistan which was completely overshadowed by the aggressive enthusiasm of competing interests.

The dilemma of Poverty Trap is a Catch-22 for the country, however the hope still stays alive with the new government that escape from the plight would become a reality and crippling economy will stands on its own.

The writer is an Associate Professor in COMSATS. He can be reached at engr_abazmi@hotmail.com

Published in Daily Times, November 7^th 2018.