By Dr. Nayyer Ali

How Poor is Poor?

July 21, 2006

The Economic Survey of Pakistan released last month stated that there has been a massive plunge in poverty over the last five years. Poverty rate has declined from 34% to 24% of the population, and the absolute number of the poor has dropped from about 50 million to about 40 million people. But this leads to an obvious question: what is poverty, and if the rest of Pakistanis are not in it, then where are they?
Defining poverty is in fact a very difficult task. Should it be a relative standard only? Can we just say that the bottom 10% are in poverty in every society? Or should there be objective standards? And what would make sense in all countries?
In the United States, the Federal government has a poverty definition that relies on objective standards. For a family of four, poverty is present if the household income is less than 20,000 dollars annually. But 20,000 dollars annually would be enough to live like a king in most Third World countries, including Pakistan. Using the US government standard, the poverty rate in Pakistan would probably be above 85%.
Pakistan, and most Third World countries, along with the World Bank, uses an objective, but very low standard of poverty. This is the income required to obtain 2350 calories per day of food. In Pakistan, that amounts to an income of 10,000 rupees per person annually. This is not much at all, and comes to about 160 dollars per person at market exchange rates.
Clearly, just the fact that you are not in poverty in Pakistan hardly implies an acceptable standard of living. The Pakistani government in its surveys of the population should collect more complete data so that we can get a better picture of the society.
I would suggest that we divide Pakistani society into five different economic classes. Those in deep poverty meet the current definition of poverty, and have insufficient income to even afford an adequate diet. They live very difficult and hard lives, and have high rates of infant mortality and illiteracy.
I would then delineate a group just above poverty; let’s call them the poor. The poor are those who have adequate food resources, but are living lives of significant limitation. They do not own their own home, or if they do it is a one- or two-room hovel, they are unable to afford education for all their children, they lack the resources to seek medical help when needed, and they have little or no wealth saved. They also lack discretionary income for modern appliances such as air conditioners or motorcycles or for entertainment such as movies or concerts. Some of this group do however obtain cell phones as their first major purchase.
The next group, the lower middle-class, has the resources to afford basic education, healthcare access, clean water, and discretionary spending money to buy gadgets and appliances. Some can afford to own a home, even if modest. They cannot afford expensive luxuries, although they enjoy recreational and entertainment opportunities within Pakistan. They aspire to own at least a motorcycle in the family.
The fourth group, the upper middle-class, has lives that are similar to Western standards of living. They can afford university for their children, medical specialist care, own a Pakistani-made small car, and can occasionally travel abroad to England or the Middle East. They often have both an adequate income, and some savings of note.
The final group are the rich. They have very abundant lives with multiple properties, servants, fancy foreign travel, and expensive imported automobiles. They live in large houses and can send their children to study in Europe or America and pay the cost themselves.
It would be very interesting to see how the Pakistani population breaks down along these lines. Based on soaring sales of cars, motorbikes, cell phones, and air conditioners, it is clear that the ranks of the upper and lower middle classes are expanding rapidly.
While the rich make up no more than 1% of Pakistan’s population (perhaps 300,000 families at most), the middle classes are now reaching 25% of the population. While the poverty-stricken are declining, many of those are merely rising into the ranks of the poor. To become a developed society, this huge bulk of the population must be pushed all the way into the upper middle-class. This can be achieved, but not overnight. It will take another 20-25 years of 7% annual GDP growth to get there. Given that when Pakistan was born 59 years ago, there was no middle class at all, it is remarkable that we are now less than 25 years from such a great achievement. Comments can reach me at



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