Poverty despite productivity: Part I
The News on Sunday, Rawalpindi/Islamabad
July 29, 2007
By Karin Astrid Siegmann

Pakistan's economic engine is fuelled by cotton, yet the people in the cotton sector belong to the poorest segments of society

Cotton is grown on more than three million hectares (ha) in Pakistan, that is about one sixth of the total cultivated area. Annual production surpassed 2.4 million tonnes in the 2004/05 harvest, Pakistan's highest ever cotton production. It made the country the fourth largest producer world--wide. Directly, the 'white gold' accounts for a tenth of the value added in agriculture. Through its use in the textile and clothing industry, Pakistan's industrial backbone, it is indirectly responsible for another tenth of the GDP and about two thirds of total merchandise exports. Pakistan's productivity fares well in international comparison (Table 1). Although, for example, Pakistani cotton is sown on about a third of the acreage that is covered by Indian cotton fields, its harvest is not substantially less.

The most important cotton--growing districts in Punjab are located in the Seraiki belt of Southern Punjab and include Rahim Yar Khan, Bahawalpur, Vehari, Muzzafargarh, Lodhran, Khanewal, Rajanpur, Multan, Bahalwalnagar and Dera Ghazi Khan. Sixteen cotton--growing districts of Punjab account for about 80 per cent of the national area under cotton, whereas the remaining share of fields are almost entirely found in Sindh. The hot and dry climate, especially in the districts of Sanghar, Ghotki, Khairpur, Nawabshah, Hyderabad, Mirpurkhas, Nowshero Feroze, and Sukkur, is conducive to cotton-farming. In terms of acreage and harvest, cotton production is larger in Punjab as compared to Sindh, though average yields are higher in the main cotton--cultivating districts of Sindh.

Paradoxically, the productivity of its cotton-based agriculture hasn't made the cotton belt itself rich. Access to food in cotton growing districts of Pakistan is low to -- mostly -- extremely low.

Amongst the poor, women and girls are further marginalised. Women of rural Pakistan including the cotton belt play a major role in agricultural production, livestock raising and cottage industries. A majority of women, working as unpaid family helpers, are not paid for their crucial economic contribution. They participate in operations related to crop production such as sowing, transplanting, weeding and harvesting, as well as in post-harvest operations. They carry out these tasks in addition to their domestic chores of cooking, taking care of children, elderly and disabled, fetching water and fuel and cleaning and maintaining the house. Obviously, these women work longer than men do. Surveys have revealed that a woman works 12 to 15 hours a day on various economic activities and household chores.

Despite their involvement in the rural economy, women have hardly any ownership of nor control over resources. Women work and produce on land they commonly do not own. Due to the societal perception of men as the household's main 'breadwinners' and women as supplementary income-earners, they are prevented from searching for paid employment and, consequently, have limited access to and control over financial resources. Where women do earn an income it is often rather the stick of poverty rather than the carrot of gainful employment, which persuades them to join the labour force. Patriarchal gender norms reinforce this economic subordination. Girls are taught not to value themselves when it comes to equality with males in the family. This is expressed in the distribution of food between female and male household members as well as in the lack of decision--making power regarding, education, health, marriage, family-planning etc. Significant gender gaps in education and health indicators are the result. For instance, in rural Punjab and Sindh, female adult literacy is 30 per cent and 14 per cent, respectively, on average as compared to 56 per cent for men in both provinces. The cotton--growing districts of Punjab are at the bottom of the provincial ranking of female literacy.

More than one and a half million farmers produce cotton, that means the

'white gold' contributes to the income of every tenth household in the country. Of these, more than two--thirds own some or all of their land, whereas one fifth are share--croppers with no fields of their own. Earnings from cotton sales accounts for 40 per cent and 45 per cent of household income of landowners and sharecroppers, respectively. Rather than making them rich, this high degree of dependence on one crop makes them vulnerable. As compared to wheat farmers, for example, who use their produce for household consumption as well, cotton-producers are entirely at the mercy of market fluctuations. Resultantly, among cotton farmers, 40 per cent of landowners and two thirds of sharecroppers are in the lowest two fifths of the consumption distribution. Households depending on sharecropping and selling labour for their livelihoods include about one fifth of the rural population and have the highest incidence of poverty.

Small and marginal farmers face risks due to the high incidence of pest infestation -- and equally great financial and health hazards resulting from the use and overuse of pesticides for 'plant protection.' About eighty percent of all pesticides consumed in Pakistan are used on cotton fields. The so--called 'pesticide treadmill', i.e. the necessity to use more and more pesticides due to resistances developed in pests as well as the fact that pesticide prices have dropped since imports were liberalised in 1995, have raised consumption considerably. During the same period, yields have not risen significantly, though, raising questions regarding the effectiveness of increased pesticide consumption. The effects on their own, their workers and communities' health are disastrous. Pesticide poisoning with symptoms ranging from mild headache via skin allergy to cancer of internal organs is chronic among cotton pickers, especially in the post-harvest period.

Pesticides and fertilizer alone represent about a third of the costs incurred in cotton cultivation. Lacking storage facilities and the money to hold on to the produce for better prices, forces farmers to sell their produce immediately after the harvest in order to meet cash requirements for the purchase of inputs. Often, they would even sell their standing crop. The high rate of inflation during the past years has aggravated the situation. Resultantly, many farmers get trapped in a spiral of indebtedness. The resulting enormous pressure to produce higher yields especially on low--income small farms and for tenants also induces a lack of concern for health risks, degradation of water and soil, and, thus, future productivity.

The dramatic growth rates in cotton production have generated high demand for women's labour as harvesting cotton is an almost exclusively female task. Million tonnes of cotton are hand-picked by women and girls every year between August and February in Pakistan's cotton belt. In an environment characterised by poverty, cotton pickers are socially and economically even more disadvantaged. As compared to other agricultural workers, their wages are low. Their precarious status as seasonal, contract and piece rate workers as well as their poverty and poor bargaining power contribute to suppress their earnings. Their health is at risk by the chronic exposure to poisonous pesticides - but they lack the means for medical treatment.

A recent study undertaken by the Washington-based International Food Policy Research Institute (IFPRI) identifies close ties between global cotton markets and poverty in Pakistan's cotton belt. It shows that lower cotton prices in Pakistan resulting from the decline in world prices in the second half of the 1990s contributed to the rising levels of poverty among cotton--producing households. A simulated increase of low cotton prices in 2001/02 back towards the higher levels of earlier years is assumed to move a substantial number of cotton farmers out of poverty. At the national level, a 20 per cent increase in cotton prices is estimated to reduce poverty among all cotton-producing households from 40 per cent to 28 per cent. According to the simulation, almost two million people would thus be pulled out of poverty. The findings stress the case for a reduction of subsidies for cotton farmers, especially in the USA, which artificially increase global prices for the 'white gold' by 10-25 per cent.

Yet, in practice, it is questionable, whether global price increases would trickle down to those at the beginning of the cotton chain as smoothly as assumed in model simulations. Power differentials between different players in Pakistan's 'cotton league' has a crucial role to play. The substantial market power of yarn manufacturers in particular obviously has helped them to ensure low input costs and thus their competitiveness and economic gain. The picture that emerges here rather displays economic and export growth that is based on the weak bargaining power and, resultantly the poor earnings of the most labour--intensive part of cotton and cotton-based T&C production. It is time to acknowledge that national economic successes are based on exploitation of the marginalised -- and to change this situation.

Karin Astrid Siegmann works as a Research Fellow at the Sustainable Development Policy Institute (SDPI), Islamabad. This article series on Pakistan's cotton sector is based on the SDPI study 'Weakest link in the textile chain. Pakistani cotton pickers after the quota expiry'.

(View part II of this articles)

Wrong framework
The News on Sunday, Rawalpindi/Islamabad
July 15, 2007
Dr. Abid Qaiyum Suleri

Only fiscally strong provinces and local governments would be able to chalk out a bottom-up process of development that is closer to the aspirations of common masses

A select group of people used to think that it was not only the allocations, but a quality spending of those allocated funds that mattered in the public sector development game. It was a pleasant surprise when the minister of state for Finance followed the same line of argument during his budget speech last month.

After informing that the government had allocated an unprecedented amount of Rs520 billion under Public Sector Development Plan (PSDP), he lamented on the low utilisation of PSDP by previous governments (ignoring the fact that current regimes' record of spending the allocated PSDP does not differ much from previous governments) and said that misdeeds and wrong policies of previous regimes had made the people hostage and the country in fact had defaulted.

He also mentioned that 96 per cent of the PSDP had been utilised during 2006-2007: a claim that does not seem to be supported by the Planning Department which reports that during the first nine months of 2006-07, the government could only spend 60 per cent of the proposed development funds amounting to Rs150 billion.

What exactly is the composition of unprecedented allocation of PSDP for 2007-08? Out of Rs520 billion, the federal share is Rs335 billion while the provincial governments are expected to receive Rs150 billion; Rs 35 billion are allocated for earthquake reconstruction. The PSDP/GDP ratio is 4.8 per cent compared to last year's 4.3 per cent. Public sector corporations will invest Rs 204 billion outside the budget increasing the volume of the overall PSDP to Rs724 billion.

Looking at the breakdown of Rs520 billion, one finds that 52 per cent will be spent on infrastructure development and 48 per cent on welfare of people and on social sector. This seems impressive and one hopes that all of this amount is effectively utilised. However, the actual PSDP amount is reduced to Rs427 billion when foreign loans totalling Rs58.6 billion and Rs35 billion earmarked for earthquake reconstruction are deducted (if earthquake related expenses can be deducted while calculating current account deficit then why not deduct them from PSDP as well).

Interestingly education and health continue to be neglected in PSDP and got an embarrassingly low allocation of Rs24 billion and 5 billion respectively. The water and power sector receive the maximum amount of Rs84 billion compared to last year's Rs70 billion. Power sector allocations have been reduced from last year's Rs26 billion to Rs20 billion while the water sector allocation have increased from Rs44 billion to Rs63 billion.

Now the second question arises: Whether this allocation brings any change in the lives of common masses? A layperson's guess would be that the allocation is not bringing much change for common masses. Going by the current PSDP allocations, only 14 per cent is reserved for new high priority projects while 86 per cent of it will be consumed by ongoing development projects (whose cost increases manifold due to inflation and various other factors). It is evident that the government has either been allocating very little amount or the allocated funds lapsed due to non-execution of the projects. It should be kept in mind that Planning Department, in its official documents, states that one of the reasons for non-execution of projects is slow release of funds by the Finance division.

The governance of PSDP is also poor as quite a few projects sponsored by Asian Development Bank got cancelled due to poor delivery. Similarly, governance of spending 'outside the budget' by public sector corporations is not very exemplary and the first audit of the National Commission for Human Development (NCHD) made public recently is a clear example of bad governance. This audit exposes misuse of the Pakistan Human Development Fund (PHDF) to the tune of nearly Rs1.3 billion and a missing Rs338 million from the bank accounts of the NCHD and PHDF.

About the criteria of allocations between centre and provinces. To me, political decentralisation without financial devolution leads to a risky situation where central government shuns its responsibilities and obligations to lower tiers of governments. A classical example is post-rain situation in Karachi, where central government, provincial government, city government, and defence housing authority kept shifting the blame for citizens' miseries on each other.

Is not it strange that the current regime which takes pride in its efforts to strengthen local governments allocates more than double the amount of PSDP funds for central government compared to provincial governments. Can federating governments be strengthened in a federal state where public sector corporations are allocated 25 per cent more amount than the total provincial allocation?

Let us try probing these questions differently. Are allocations and spending the only issues pertaining to PSDP? Perhaps not. There is a major issue of planning paradigm. They say that budget is a planning tool that helps to achieve a vision in a stipulated time by closing the gaps between income and expenditures. This planning tool can't function in a vacuum so it should fit in with given socio-economic and socio-political framework. Unfortunately in our case planning tool (budget) in itself becomes a goal and instead of working within socio-political framework, it tailors its own framework. This new framework is very often far from ground realities. Thus instead of helping us to achieve our broader vision, the budget (the way it is prepared in Pakistan) narrows downs the vision and leads to a situation where one cannot think out of box.

There is another dimension of this issue, which is very rarely discussed in the context of budget and PSDP. To me the fundamental problem with public sector development is the way assignments and the funds to carry out those assignments are distributed between federal and provincial governments.

The constitution of Pakistan defines the functions to be carried out by federal and provincial governments. The federal list functions exclusively belong to federal government and include foreign policy, currency, and defence. The concurrent list deals with subjects that can be dealt with both by federal and provincial governments. Anything that does not fall in either list automatically becomes the responsibility of provincial governments. Many subjects placed in concurrent list were to be handed over to provinces after 10 years of enactment of constitution of 1973. However, it could never happen and many provincial assignments are undertaken by the federal government because it has the fiscal capacity to do so and the latter does not.

No doubt, in Pakistan the federal government has more money as most of the revenue is collected by it. Owing to their peculiar development needs and revenue generation capacities, the provincial governments are dependent on fiscal transfers from federal government. These fiscal transfers are made under the guidance of National Finance Commission (NFC) that was established under Article 160 of the 1973 Constitution. NFC Award comprises of divisible pool (all major federally collected taxes), provincial origin revenue (such as gas or hydro-electric power royalty), and special transfers (grants or loans).

NFC follows article 161 of the 1973 Constitution while distributing provincial origin revenue. Article 161 explicitly stipulates that net proceeds from excise duty and royalties on natural gas collected by the federal government shall be paid to the province in which the well-head of the gas is situated. Likewise, it stipulates that net profit from hydro-power shall be paid to the province in which such power station is situated. This sounds good on paper, but what happens in reality is the opposite and and is perhaps the root cause of reduced fiscal capacity of provincial governments. (see related boxes on natural gas issue in Balochistan and hydro electric power in NWFP).

A related issue of resource distribution that has a direct effect on any development effort in Pakistan is that of inter-provincial (especially between Punjab and Sindh) dispute on water resources (despite the Indus Water Accord of 1991). In my opinion without addressing the resource distribution issues in Pakistan, mere allocation for PSDP by federal governments would not deliver the desired results.

It is about time that efforts are focused on building and strengthening the fiscal capacity of provinces by providing them their due share in resources. Fiscally strong provinces and local governments would be able to chalk out a bottom-up process of development that would be much closer to the aspirations of common masses.

Royalty issue
Balochistan produces almost 40 per cent of the natural gas in Pakistan since 1953. It is on record that Balochistan has received only 12.4 per cent of the royalties due to it from the federal government. The backlog dating back to 1953 runs into tens of billions of rupees. The federal government claims it does not have the funds to pay this back. Effect of nonpayment of royalty on public development in Balochistan might have been compensated by supplying gas to the province. It is an irony that Quetta, the capital city of Balochistan, did not receive gas until 1986 and partially then because a military cantonment had been established there. Even today just four out of 26 districts in Balochistan have gas supply.

Thus Balochistan consumes only 17 per cent of the gas it produces. The province neither receives the due share of gas it produces, nor the royalty. This situation provides the provincial government an excuse not to fulfill its obligations for public development in the province. Hence it is not a big surprise that for the third consecutive year the Balochistan development budget for 2007-08 does not carry any new scheme for want of funds. The Rs13.35 billion development plan for 2007-08 incorporates a foreign funding segment of Rs3.32 billion and an over Rs10 billion local currency component. The local currency component of the PSDP represents the budget deficit remains unfunded.

Balochistan government announced to meet this deficit by way of improving recovery of local taxes, cutting on expenditure and expecting federal straight transfers. In other words PSDP in Balochistan depends on payment of gas royalty.

Power matters
The story is not very different for hydro-electric power royalty and its crucial role in public development. Most of the hydel power is generated in NWFP. Until 1991, NWFP did not receive any royalty for the hydel power generated in the province. In 1991-92 NWFP government received Rs5.99 billion as net profit for hydro power royalty from federal government. Later on, federal government imposed an annual cap of Rs6 billion on this payment. Now there is a dispute on interpretation of net profit and on the amount of arrears.

More recently an attempt to resolve the dispute between NWFP Government and WAPDA through an arbitration tribunal did not yield any success. As a consequence, NWFP Government is not able to claim and subsequently spend on public development, what is termed in the constitution as provincial origin revenue. Even current NWFP provincial budget has a deficit of almost Rs5.49 billion that provincial government is planning to meet through World Bank funding and expected hydro-power profit payment from federal government.