National Human Development Report 2020

The three Ps of inequality: Power, People, and Policy Pakistan National Human Development Report 2020

The NHDR 2020 highlights inequality in its various forms. The front cover of this report represents two critical measures of % 49.6 The three Ps of inequality: inequality, that of income and human development. Power, People, and Policy This is done by showing income and human development values for each of Pakistan’s five income quintiles (equal Share of total income population groups categorized from richest to poorest). This 20.7 by quintiles (2018-2019) is because while a country may perform relatively well overall

12.6 in terms of HDI or income equality, it could still be home to 10.1 huge inequalities between its richest and poorest groups. 7

The five lines at the top represent the difference in income across quintiles after adjusting for underreporting of income, from the richest group (dark blue) to the poorest (yellow). This Human Development Index shows that the richest quintile has almost 50 percent of the by quintiles (2019) country’s total income, while the poorest quintile only has seven percent of it.

0.419 0.495 Similarly, the five lines at the bottom represent the difference 0.552 in human development across quintiles, from the poorest 0.617 group (yellow) to the richest (dark blue). While human develop- 0.698 HDI ment for the poorest quintile is as low as 0.419, falling in the low human development category, the corresponding value Q1 Q2 Q3 Q4 Q5 for the country’s richest is 0.698, falling in the high human development category.

Source These stark differences show the huge divisions cleaving the UNDP calculations based on latest data of the Pakistan Economic Survey, 2016- country into two different , and highlight the 2017; Labour Force Survey, 2017-2018; and multiple years of the Household Integrated Economic Survey data. urgency of addressing these disparities to create a more equal Pakistan.

Published for the Development Programme (UNDP) Human Development Reports: In 1990, Dr. produced the first Human Develop- ment Report, introducing a new concept of human development focusing on expanding people’s opportunities and choices, and measuring a country’s development progress though the richness of human life rather than simply the wealth of its economy. The report featured a Human Devel- opment Index (HDI) created to assess the people’s capabilities. The HDI measures achievements in key dimensions of human development: individuals enabled to live long and healthy lives, to be knowledgeable, and have a decent standard of living. Subsequent Human Development Reports (HDRs) released most years have explored different themes using the human development ap- proach. These Reports, produced by the UNDP’s Human Development Report Office and ensured editorial independence by UNGA, have extensively influenced the development debate worldwide.

National Human Development Reports: Since the first national Human Development Reports (NHDRs) were released in 1992, local editorial teams in 135 countries have produced over 700 NHDRs with UNDP support. These reports bring a human development perspective to national policy concerns through local consultations and research. National HDRs have covered key devel- opment issues ranging from climate change to youth employment, to inequalities driven by gender or ethnicity. Pakistan’s third National Human Development Report is on the topic of inequality. The first, in 2003, was on the topic of Poverty, Growth, and Governance, and the second, in 2018, focused on Unleashing the Potential of a Young Pakistan. Pakistan National Human Development Report 2020 team

Lead author Dr. Hafiz A. Pasha

Research and writing team Umer Akhlaq Malik (coordinator), Sana Ehsan, Meeran Jamal, Aroub Farooq, Hafsa Tanveer (researchers), Momina Sohail (communication), and Muhammad Ali Raza (statistician)

Editorial team Beena Sarwar and Ruya Leghari

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UNDP has copyrights to all photographs used in the report taken during the NHDR 2020 Focus Group Discussions.

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PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 iii socio-economic development. I warmly congratulate UNDP for this Special message The Report is also in line with the glob- incredible effort at deconstructing inequal- al commitments espoused by Sustainable ity and creating evidence-based, contex- Social and economic inequality threatens precedented challenge for the Government Development Goal 10, ‘Reduce inequality tual, and actionable recommendations to the foundations of a just society. It hinders of Pakistan, and one that we are working within and between countries’. The topics improve human development in Pakistan. progress by restricting the opportunities tirelessly to overcome. However, it can also discussed in the following chapters, and I have no doubt that the insights of this re- available to its citizens. Bridging the gap be seen as an opportunity for us to rebuild the recommendations emanating from this port will help many of the country’s most between the two different Pakistans – the better than before, and to alleviate inequal- discussion, chart out a roadmap for address- vulnerable communities, and move us to- country’s richest and poorest people – is ities between the two extremes of Pakistan ing critical human development challenges wards a more equal Pakistan. one of the key priorities of our Govern- – one that caters only to the privileged, and – such as eliminating poverty, mitigating ment. This has always been an important the other that relates to the country’s poor, gender-based discrimination, bridging the element of our manifesto, for which we downtrodden, and vulnerable groups. It is digital divide, and limiting the risks of cli- have been actively advocating. After as- for this reason that the insights of this re- mate change. suming charge, our Government has made port are extremely meaningful to us at this It has been a privilege to be part of the meaningful efforts towards this goal by critical juncture. Advisory Council for the Pakistan NHDR launching initiatives to uplift the poor, Inequality is a complex phenomenon; 2020, and to have benefited from the feed- develop rural areas, empower women, en- it spans diverse groups of people who are back and insight of our fastidious council able our youth to thrive, and ensure the vulnerable because of their income, gen- members. They include some of the coun- Minister, Ministry of Planning, Develop- universal delivery of essential services to der, religion, region of residence, and oth- try’s most celebrated academics, technical ment & Special Initiatives, the public. The Prime Minister’s Ehsaas er characteristics. This report addresses experts, development practitioners, and Pakistan. programme, a multisectoral initiative to the complexity of inequality by unpacking policy makers – both from across and with- Chair, NHDR 2020 Advisory Council provide social services and protection to the nuances and engaging in an insightful in party lines. the most vulnerable groups in Pakistan, is discussion with precision and clarity. Dr. a testament to our commitment and resolve Hafiz A. Pasha’s expertise in translating in this context. Against this backdrop, the Pakistan’s HDI scores into the human im- Pakistan National Human Development pact on the ground is extremely valuable to Report on inequality (NHDR 2020) is a readers looking to understand the current welcome contribution to our work in this situation. The framework of the ‘three Ps’ domain, as it highlights challenges, outlines of inequality – Power, People, and Poli- progress, and identifies high-impact areas. cy – is also a useful tool for deconstruct- Over the years, Pakistan has seen prog- ing challenges and carefully analysing in- ress on its Human Development Index equality in detail. The report is aligned (HDI) value, which increased from 0.400 with Government’s national agenda, which in 1990 to 0.560 in 2018. This means a seeks to reduce inequality in all its forms higher life expectancy at birth for Paki- and manifestations. Prime Minister Imran stani children, more years of schooling, and Khan’s Government is committed to build- higher income for families. However, there ing a ‘welfare state’ where rule of law, meri- remains much to be done, as Pakistan’s tocracy and transparency are guaranteed to HDI value is lower than both the average all citizens and a social safety net is provid- HDI value of countries in the medium hu- ed to the marginalized segments. It is also man development group (0.630), as well as committed to ensure equal opportunities our neighbours in South Asia (0.640). The for all citizens in all fields – from health COVID-19 pandemic has further aggra- to education to security of life and proper- vated this challenge by threatening to undo ty. The Government also seeks to address past progress, and further widen the eco- disparities between different regions of the nomic and social inequalities in the country country, by introducing integrated region- through its disproportionate effect on the al development initiatives for regions and poorest segments of society. This is an un- areas which have lagged behind in terms of

iv PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special message v al and provincial levels, while spanning the In handling this crucial issue of inequal- Foreword country’s rural and urban divide. ity, lead author Dr. Hafiz A. Pasha and his The NHDR 2020 adds to the conver- team have crafted a report that is inclusive, sation on inequality with several new mea- collaborative, meticulously researched, and Towards expanding choices sures and indices that are crucial to address- extremely comprehensive. We would like to ing inequality in Pakistan. They include: recognize the efforts of the NHDR team Inequality, in its essence, is about con- poles apart. for their tireless work on the stories of in- strained choices. A low-income young per- In pursuit of this difference, the author • a first-time quantification of privi- equality contained in these pages. son from may have to choose to earn of the report identifies three primary driv- leges; The report has also benefited from the an income over attending school. A person ers of inequality in Pakistan: Power, People, • a new Macroeconomic Model for skills and expertise of an Advisory Coun- with disabilities may have to choose a job and Policy. Pakistan that focuses on the relation- cil, comprising academics, policy makers, that he or she is overqualified for, over un- The author argues that Power, the first ship between growth and inequality; technical experts, and others. We are grate- employment. A woman may have to choose driver of inequality, relates to groups who ful for their guidance and feedback on the • the Pashum ratio, a new, more nuanced safety over freedom. take advantage of loopholes, networks, and report. measure of inequality; The question that the National Hu- policies. This highlights the need to recog- With the Pakistan NHDR 2020, we man Development Report on inequality nize and account for privileges and redress • a first-time quintile-wise Human De- dare to dream of a world where no one dies (NHDR 2020) attempts to answer is this: the imbalances of power. velopment Index and region-wise In- because they are unable to afford health How do we increase and expand the choic- People, the second driver of inequality, equality-adjusted Human Develop- care, where families educate their daugh- es, avenues, possibilities, and opportunities refers to the deeply embedded belief sys- ment Index; ters because girls’ schools are not an hour’s for Pakistan’s marginalized communities? tems that encourage bias against margin- • three new development and inequality walk away, and where youth are not disen- Focusing on the vulnerable is a core as- alized groups. For the country to be more indices for children, youth, labour, and franchised or radicalized. Mahbub ul Haq pect of this report – that is, on those expe- equal, a culture of empathy wherein people their gender-based indices; and wanted to create a context where people riencing the extremes of inequality. are not discriminated against just for being • an assessment of COVID-19’s econom- could live long, healthy, and creative lives, In 1990, Pakistani economist Mahbub ‘different’ needs to be created. ic impact on growth, employment, in- full of opportunity and potential. The Pa- ul Haq had said, Policy, the third driver of inequality, “People are the real wealth equality, and poverty. kistan NHDR on inequality has similar of a nation”. With these words, he drastical- speaks to the systems and strategies that are goals, with the hope that the people of Pa- ly shifted the axes of global development either ineffective, or at odds with the prin- In keeping with the traditional empha- kistan can live, and choose, as they please. discourse. His Human Development Index ciples of social justice. In addressing this, sis of UNDP’s National Human Develop- (HDI) measures the success of a nation not the report lays out a reform agenda to guide ment Reports on the grassroots level, the in terms of economic growth, but based on Pakistan’s laws and policies towards a more Pakistan NHDR 2020 team held 38 con- social justice, opportunity, and potential. equitable path. sultations around the country with mar- This is extremely relevant to conversations The overwhelming takeaway of this re- ginalized communities. These engaged the on inequality. port is the need to advocate for Pakistan’s transgender community, refugees, persons Traditionally, the development narra- vulnerable communities, and to unravel the with disabilities, religious and ethnic mi- tive has been dominated by income-level Gordian knot of Power, People, and Policy norities, women in marginalized jobs, in- analyses of inequality. However, inequality to alleviate inequality in the country. formal workers, farmers, youth, and many Aliona Niculita is as much a product of access to services, The complexity of this task demands a others. The report, therefore, gives voice Resident Representative a.i., United social capital and inclusion, peace and secu- well-rounded, evidence-based, and contex- to the hopes, perceptions, and lived experi- Nations Development Programme, rity, as it is the result of poverty and a lack tual analysis of the problem of inequality. ences of Pakistan’s vulnerable communities. Pakistan of resources. Therefore, the NHDR 2020 looks at this The NHDR 2020 takes precisely this issue from a multidimensional perspective, approach to deconstructing inequality in examining aspects that run the gamut from Pakistan. It shows, for example, that the wealth and income to education, health, richest 1 percent of Pakistanis have access and social mobility in the context of in- to 9 percent of the country’s income, and equalities across Pakistan. The report also that this inequality goes far beyond income focuses on climate change, technology, tax- and wealth. The poorest and richest Paki- ation, access to – and the quality of – pub- stanis effectively live in completely differ- lic services, and much more, to get a holis- ent countries, with literacy levels, health tic picture of inequality in Pakistan. This outcomes, and living standards that are analysis has been undertaken at the nation-

vi PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Foreword vii of the Pakistan NHDR Advisory Council, the vibrant photographs contained in this Acknowledgements including Daniel Valenghi, Julien Harneis, report. Sanaullah Baloch, Khawar Mumtaz, Musta- We wish to acknowledge the contribu- This report is the sum of the efforts and ex- report and passionately advocated for Paki- fa Talpur, Dr. Ali Cheema, Kishwer Zehra, tion of government representatives, devel- pertise of hundreds of individuals and insti- stan’s marginalized groups. First, we must Dr. Akmal Hussain, and Luis Gorjon Fer- opment partners, civil society organizations, tutions, and particularly of the insights of thank the Council Chair, , nandez. UN agencies, academic institutions and in- Pakistanis who face relentless inequalities former Federal Minister for Planning, De- We are especially grateful to the hun- dividuals who helped us shape the report in in their lives. velopment, Reform & Special Initiatives, dreds of Pakistanis who participated in the meaningful ways. Special thanks are due to It is the product of the United Nations and his successor, Asad Umer, for allowing 38 focus group discussions conducted with everyone who was part of the advocacy and Development Programme (UNDP) in Pa- us access to their time and expertise. The marginalized communities, to those who communication activities related to this re- kistan, with financial contributions from Advisory Council members included Dr. filled out our Inequality Perception Survey, port, including Nadeem Khurshid, urban the Swiss Agency for Development and Fahmida , Federal Minister for In- and who spoke to us so sincerely about their development specialist; Hasaan Khawar, Cooperation (SDC) and the United Na- ter-Provincial Coordination; , lives and experiences. Their inputs provide development consultant; Dr. Nausheen H. tions Children’s Fund (UNICEF). I truly Member of the National Assembly of Pa- depth and nuance to our report. These fo- Anwar, Director of the Urban Lab value UNDP’s support and facilitation, es- kistan; Kishwer Zehra, Member of the Na- cus groups were made possible by the sup- (KUL); Hina Shaikh, development expert; pecially in the selection of the NHDR team tional Assembly of Pakistan; Munir Khan port of UN agencies, civil society, and pri- Maliha Shah and Hamza Swati of UNES- and in setting up processes that allowed the Orakzai (late), Member of the National vate sector organizations. Thanks are due CO Pakistan; Jamshed Kazi, former Coun- in-depth analysis used to craft this report. Assembly of Pakistan; Nafisa Shah, Mem- to the following institutions and individu- try Representative of UN Women Pakistan; I am, therefore, sincerely grateful to all our ber of the National Assembly of Pakistan; als for helping us to organize these consul- and Dr. Nida Kirmani, Associate Professor collaborators and facilitators for this col- Shandana Gulzar Khan, Member of the Na- tations: Qamar Naseem at Blue Veins; Dr. of Sociology at the Mushtaq Ahmad Gur- lective effort. tional Assembly of Pakistan; Sanaullah Ba- Zia Ur Rehman of the National Integrated mani School of Humanities and Social Sci- In particular, I would like to thank loch, Member of the Provincial Assembly Development Association (NIDA-Paki- ences, LUMS. Aliona Niculita, Resident Representative of Balochistan; Daniel Valenghi, Head of stan); Akbar Zeb of the Environmental We would like to express our appreci- a.i. at UNDP Pakistan, as well as Ignacio Cooperation at the Embassy of Switzerland Protection Society (EPS); of ation to UNDP’s Human Development Artaza, former Resident Representative, in Pakistan; Hamid Raza Afridi, former Khwendo Kor; the UNDP sub-offices in Report Office, especially Admir Jahic, who lent their expertise and guidance to Policy Advisor of the Swiss Agency for De- Peshawar, especially Nadir Khan, Tanya Jonathan Hall, Yumna Rathore, and Anna the project. We also owe a debt of gratitude velopment and Cooperation (SDC) at the Rzehak, and Muhammad Rohail, and in Ortubia for their help with the report. We to Julien Harneis, UN Resident and Hu- Embassy of Switzerland; Luis Gorjon Fer- Quetta, especially Zulfiqar Durrani, Saman must also extend our gratitude to Bishwa manitarian Coordinator, as well as to his nandez, Head of Social Policy at UNICEF Bakhtawar, Tanveer Ahmed, Zahoor Taran, Nath Tiwari at the UNDP Regional Bu- predecessor, Knut Ostby, for their support Pakistan; Khawar Mumtaz, former Chair- Muhammad Marri, Habibullah Nasar, Shu- reau for Asia and the Pacific. In addition, and contributions to the report. Shakeel person of the National Commission on the maila Kamil, Sohail Khan, and Dawood we would like to thank Ayesha Babar of Ahmed, former Assistant Resident Repre- Status of Women; Mustafa Talpur, Asia Nangyal; Islamic Relief; Zehrish Khan of UNDP Pakistan for her editorial oversight. sentative of the Development Policy Unit Regional Lead with Oxfam International; the Gender Interactive Alliance (GIA); Ir- A special note of gratitude is due to Umer at UNDP Pakistan deserves special thanks Dr. Akmal Hussain, Dean of the School of fan Abdullah of Rajby Industries; Naheen Akhlaq Malik, Policy Analyst and Offi- for his useful observations and comments. Social Sciences and Humanities at the In- Syed of HomeNet; Javed Raees of the Dis- cer in Charge (OIC) at the Development We acknowledge the ingenuity of our statis- formation Technology University (ITU); abled Welfare Association; UNICEF Pa- Policy Unit, for his oversight, guidance, tician, Muhammad Ali Raza, in successfully Dr. Ali Cheema, Associate Professor of kistan, especially Muhammad Asim Khan; and focus on the specificities and details. accessing the micro-data of Pakistan’s La- Economics and Political Science at the La- Dr. Ashok Bakhtani of the Thar Founda- Thanks to the dedicated team that worked bour Force Survey, the Pakistan Social and hore University of Management Sciences tion; Zulfiqar Shah of PILER; the SDGs on the report, including Sana Ehsan, Meer- Living Standards Measurement Survey, the (LUMS); and Dr. Faisal Bari, Director and Unit of the Planning & Development De- an Jamal, Aroub Farooq, Momina Sohail, Household Integrated Economic Survey, Senior Research Fellow at the Institute of partment of Azad Jammu and Kashmir, Muhammad Ali Raza, and Hafsa Tanveer. and the Pakistan Demographic and Health Development and Economic Alternatives especially Syed Ali Husnain Gillani. Moin Thanks are also due to the editorial prowess Survey from 2004–2005 onward. We also (IDEAS). Zaidi, Fahad Khan, Amrozia Khan, Usman of Beena Sarwar and Ruya Leghari, and the greatly appreciate the special efforts of our For their special contributions, partic- Manzoor, Shahzad Khalil, and Fahim Raza ingenuity of designer Nida Salman, who Communications Expert, Momina Sohail, ular appreciation is extended to Dr. Sham- also provided invaluable help with the fo- shaped this report into one that is widely to make the contents of the report more shad Akhtar, former Under Secretary-Gen- cus group discussions, as did Alauddin accessible. accessible and publicize its major findings. eral of the United Nations; Shoaib Sultan Maqbool of Sudhaar. We must also thank It has been an honour to work on this Special thanks are due to the Advisory Khan, Chairman of the Rural Support Shuja Hakim for capturing the stories of report with a vibrant and dynamic team of Council, who provided great depth to the Programmes Network; as well as members these communities across Pakistan through young people, and attempt to contribute, in

viii PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Acknowledgements ix small part, to alleviating the disparities and inequalities that are such a distinct feature Contents of Pakistani life today. I hope the insights contained in this report can be used to shape a Pakistan that is more equitable for Special message iv Pakistan’s taxation system 116 all of its people, regardless of their ethnici- Foreword vi The incidence of taxes 117 ty, gender, or social class. Acknowledgements viii Level and composition of public expenditure 118 Access to public services 123 PART I Who benefits from public expenditure? 127 Understanding inequality CHAPTER 6 CHAPTER 1 Governance and institutional capacity 139 Why study inequality in Pakistan? 1 Governance in Pakistan 139 The Constitution of Pakistan: Enshrining the right to equality 2 The institutional process 140 Sustainable Development Goals: A focus on reducing inequalities 3 Performance of state-owned enterprises 140 Pakistan’s performance: More reasons to study inequality 4 Project planning and implementation 141 The three Ps: Drivers of inequality 7 Dr. Hafiz A. Pasha Quality of tax administration 142 Lead author of the Pakistan National CHAPTER 2 Role of regulatory authorities and monopolies 144 Human Development Report 2020 Measuring inequality in Pakistan 11 Transparency and accountability 155 Measuring inequality: Conventional and new measures 11 Public financial management 158 National inequality based on economic outcomes 13 Rule of law 160 Trends in national inequality 18 Managing natural disasters 164 National inequality in human development 24 Comparing South Asian countries 28 PART 3 CHAPTER 3 People Measures of regional inequality 35 CHAPTER 7 Inequality between provinces 35 People’s perception of inequality 175 Inequality within provinces 45 People as drivers of inequality 175 The urban-rural divide 53 The NHDR’s qualitative research 176 Inequality in Pakistan’s special regions 57 The five axes of inequality 176 CHAPTER 4 Social markers and inequality 184 Inequality and cross-cutting themes Special measures of inequality 71 191 People’s perception of inequality: Optimism or fatalism? Child development and inequality 71 193 Youth development and inequality 75 Labour development and inequality 78 PART 4 Gender development and inequality 86 Policy CHAPTER 8 PART 2 Growth and inequality: The impact of COVID-19 201 Power Pakistan’s experience 202 CHAPTER 5 Macroeconomic Model for Pakistan 202 The political economy of inequality 105 Implications for development policy 205 Power as a driver of inequality 105 Macroeconomic impact of COVID-19 205 The powerful and their privileges 105 COVID-19’s impact on inequality 212 The total cost of privileges 115 Impact on education 213

x PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Contents xi Impact on employment 213 BOXES 2.12 Growth rate of the real per capita income of the middle class over the years, (2006–2019) 49 Impact on poverty 216 and total population (%), (2001–2019) 21 3.16 Khyber Pakhtunkhwa’s richest quintiles enjoy higher human 1.1 SDG 10: Reduce inequality within and among countries 4 Proposed relief, incentive and development package 217 2.13 Property ownership-based inequality shows no significant development compared to the poorest, (2018–2019) 49 2.1 The story behind the Pashum ratio 12 improvement over time, (2001–2019) 22 3.17 Balochistan’s richest quintile has almost 4 times more GDP CHAPTER 9 3.1 7th National Finance Commission Award: Fiscal equalization 36 2.14 The distribution of bank deposits: Increasingly skewed in per capita (PPP $) than the poorest, (2018–2019) 50 Tackling inequality 225 3.2 The buoyancy of Khyber Pakhtunkhwa’s economy 40 favour of the richest, (2001–2018) 23 3.18 Income inequality in Balochistan has seen no substantial Reducing the privileges of the elite 225 3.3 Balochistan falls behind 41 2.15 Inequality in the ownership of farmland measured by the Gini change over the years, (2006–2019) 50 Spending more on human development and social protection 226 3.4 Karachi: Plight of the primate city 54 coefficient, (1972–2010) 23 3.19 Balochistan’s richest quintiles enjoy higher human develop- Improving conditions of work and providing employment 227 3.5 Implications of the merger with Khyber Pakhtunkhwa 63 2.16 Farm area in Pakistan, (1972–2010) 24 ment compared to the poorest, (2018–2019) 50 Moving forward 227 4.1 Inequality in wages in the labour market 82 2.17 Pakistan ranks 2nd last among South Asian countries in its 3.20 Sindh’s initially high income inequality has fallen to Punjab’s HDI value, (2019) 24 income inequality level, (2006–2019) 51 4.2 Marginalization of the female labour force 96 2.18 Loss in human development due to inequality has not 3.21 Khyber Pakhtunkhwa’s income inequality has improved REFERENCES 230 5.1 Social protection: A potential lever for tackling inequality 121 reduced substantially over time, (2006–2019) 26 significantly compared to other provinces, (2006–2019) 52 6.1 Pakistan’s sugar industry: A bitter reality 149 STATISTICAL ANNEX 2.19 Inequality in income distribution between quintiles is the 3.22 Education drives the inequality in human development 6.2 The circular debt monster: A self-inflicted punishment 151 Readers’ guide 239 major contributor to loss in human development, (2018– among the quintiles in all provinces (ratio of top to bottom 6.3 OGRA pricing formula for products 153 2019) 26 quintile), (2018–2019) 53 Statistical tables 241 8.1 Inequalities and types of government 203 2.20 HDI by quintiles at the national level and by inequality 3.23 The loss of human development due to inequality is highest Technical notes 262 measures, (2006–2019) 27 in Sindh, (2018–2019) 53 Data sources 277 MAPS 2.21 CRI index 2018: South Asia, country rankings out of 157 3.24 Inequality within rural and urban areas both is highest in Regional classification 278 4.1 Pakistan Child Development Index, (2018–2019) 74 countries 30 Punjab followed closely by Khyber Pakhtunkhwa, (2018– Statistical annex references 2019) 279 4.2 Pakistan Youth Development Index, (2017–2018) 77 3.1 Share of provinces in the national GDP, (2018–2019) and 54 total population, (2017) 3.25 Share of provinces in the urban and rural GDP and total 4.3 Pakistan Labour Development Index, (2017–2018) 83 36 ACRONYMS AND ABBREVIATIONS 281 3.2 Growth rates of provincial gross regional product at constant population, (2015–2016) 55 4.4 Pakistan Gender Inequality Index, (2018–2019) 91 2005–2006 prices, (1999–2019) 38 3.26 Both urban and rural GDP per capita (PPP$) is highest in SPECIAL CONTRIBUTIONS FIGURES 3.3 The per capita GRP of all provinces has increased, except for Sindh amongst all provinces, (2018–2019) 55 “Leave no one behind”: How a focus on the SDGs can help alleviate Balochistan, (1999–2019) 39 3.27 Income inequality between urban and rural areas is highest in 1.1 Annual growth rate of real per capita income: Poorest 40 inequality – Daniel Valenghi 3 3.4 The ratio of Sindh’s-to-Balochistan’s per capita income is Balochistan, (2015–2016) 56 percent compared to the total population 5 Why is inequality so central to peace, development, and human increasing, (1999–2018) 39 3.28 The gap between rural and urban HDIs is highest in Sindh and 2.1 Relative shares of income held by the richest and poorest rights? – Julien Harneis 6 3.5 Trend in interprovincial income inequality, (1999–2000 and lowest in Khyber Pakhtunkhwa, (2018–2019) 57 Pakistanis, (2018–2019) 13 How economic equality leads to sustained economic growth 2016–2017) 41 3.29 Key facts: Gilgit-Baltistan 57 2.2 Robin Hood Ratio: Take from the rich, give to the poor 13 – Dr. Akmal Hussain 29 3.6 Provincial Human Development Index, (2018–2019) 43 3.30 Human development trend in Gilgit-Baltistan, (2006–2016) 58 2.3 Comparison of key measures of income inequality, 7th National Finance Commission Award: Fiscal equalization 3.7 The HDI of all provinces improved minimally after 2016, 3.31 Key facts: Azad Jammu and Kashmir (2018–2019) 14 60 – Sanaullah Baloch 37 (2006–2019) 44 2.4 The Pashum ratio indicates that the income distribution gap 3.32 Human development trend in Azad Jammu and Kashmir, The process approach: Use the ‘institutions of the rural poor’ to rises sharply in the two richest quintiles 14 3.8 Punjab’s richest quintile has over 5.2 times more GDP per (2006–2019) 61 alleviate problems – Shoaib Sultan Khan capita (PPP $) than the poorest, (2018–2019) 45 56 2.5 Share of the richest 1 percent of Pakistan’s population 14 3.33 Net enrolment rate, Azad Jammu and Kashmir, (2015) 61 How gender and poverty are intertwined in Pakistan 3.9 Income inequality in Punjab has increased over the years, 2.6 Income inequality in different sources of income (modified 3.34 Key facts: Newly Merged Districts 63 – Khawar Mumtaz 89 (2006–2019) 46 Palma ratio), (2018–2019) 16 3.35 Human Development Index trends in Pakistan, (2006–2016) 66 3.10 Punjab’s richest quintiles enjoy higher human development How power structures affect inequality – Mustafa Talpur 107 2.7 Income share of the quintiles after adjusting for underreport- 3.36 Ranking of human development dimensions across Pakistan, compared to the poorest, (2018–2019) 46 Financial inclusion: Adopting innovative mechanisms geared towards ing, (2018–2019) 17 (2006–2015) 67 3.11 Sindh’s richest quintile has 5.3 times more GDP per capita Pakistan’s poorest – Dr. Shamshad Akhtar 146 2.8 The difference between adjusted and unadjusted measures of 4.1 Trends in the national Youth Development Index and its inequality reflecting underreporting, (2018–2019) 17 (PPP $) than the poorest, (2018–2019) 47 How important is trust in the state when it comes to economic sub-indices*, (2001–2018) 76 3.12 Income inequality in Sindh has decreased over the years, growth? – Dr. Ali Cheema 158 2.9 Income inequality between income quintiles (not adjusted for 4.2 Number of ‘idle’ or unemployed male and female youth in underreporting), (2006–2019) 18 (2006–2019) 47 Creating inclusive policies for students with special education needs millions, (2017–2018) 78 2.10 Long-term trend in income inequality in Pakistan, (1990– 3.13 Sindh’s richest quintiles enjoy higher human development – Kishwer Zehra 186 4.3 Dimensions of the Labour Development Index 79 2019) 19 compared to the poorest, (2018–2019) 48 How COVID-19 is likely to affect life outcomes for Pakistan’s vulnera- 4.4 Over the years labour development is improving with regards 2.11 Change in economic variables in different political epochs, 3.14 Khyber Pakhtunkhwa’s richest quintile has almost 4 times ble children – Luis Gorjon Fernandez 214 to decent working conditions, (2012–2018) 80 (1990–2019) more GDP per capita (PPP $) than the poorest, (2018–2019) 48 20 4.5 Changes in the dimensions of the national Labour Develop- 3.15 Income inequality in Khyber Pakhtunkhwa has decreased ment Index, (2012–2018) 81

xii PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 202 Contents xiii 4.6 Provincial Labour Development Index rankings by indicator and social protection as % of GDP tend have a higher HDI 120 ratio, (2001–2019) 201 4.6 Time use: Numbers of men and women, and mean minutes values, (2017–2018) 84 5.16 Expenditure on social protection, (2017–2018) 121 8.2 Economic growth and change in level of inequality in different per day spent on activities, (2009) 92 4.7 Gender wage ratios, (2012–2018) 85 5.17 Education dominates the total expenditure on social services, epochs, (1958–2019) 202 4.7 Trends in the gender-based Child Development Index, 4.8 Pakistan’s performance on the Global Gender Gap Index, (2001-2002 to 2018-2019). 122 8.3 Modules of the Macroeconomic Model 203 (2007–2019) 93 (2006–2018) 86 5.18 Health facilities and preventive measures have been given 8.4 Impact of change in policy and exogenous variables on GDP 4.8 Gender-based Youth Development Index, (2001–2018) 94 4.9 Pakistan Gender Development Index, (2006–2019) 87 increased priority in health expenditure over the years, growth, inequality and poverty 206 5.1 Pakistan’s tax-to-GDP ratio in percentage, (2012–2019) 117 4.10 Wider gap in female and male earnings, (2006–2019) 88 (2001–2019) 122 8.5 Projected index of quarterly GDP (average quarterly GDP, 5.2 Contribution of different items and services to indirect tax 4.11 Pakistan’s Gender Inequality Index over the years, 5.19 Richest households have higher access to health services as 2019–2021 = 100), (2019–2020 and 2020–2021) 207 revenues (PKR billion), (2017–2018) 117 (2006–2019) 89 compared to poorest (%), (2017–2018) 124 8.6 Projected food and non-food rate of inflation, (2019–2020 5.3 Public expenditure priorities: Federal and provincial govern- 4.12 Gender-based Child Development Index, (2018–2019) 94 5.20 A clear bias towards highways and mass transit has only and 2020–2021) 209 ments combined (PKR billion), (2009–2010 to 2018–2019) 119 recently changed, (2000–2018) 4.13 The male YDI is twice the female YDI, (2018) 95 126 8.7 Projections of the change in corporate profitability over the 5.4 Net enrolment rates at different levels of schooling (%), 5.21 Ownership of mobile phones and access to the internet (% of previous quarter (%), (2019–2020 to 2020–2021) 213 (2013–2014) 123 4.14 Labour Development Index with decent work inclusion, the population), (2018–2019) (2012–2018) 95 126 8.8 Projections of the change in inequality over the previous 5.5 Types of expenditure covered in the NHDR 2020 128 6.1 Completion status of ongoing projects and funding alloca- quarter (%), (2019–2020 to 2020–2021) 213 4.15 Dimensions of the Labour Development Index revealing 96 5.6 Allocators of benefits among quintiles 129 tions for new projects, (2019–2020) 142 gender discrimination in the labour market, (2012–2018) 8.9 Index of National Employment and by sector (employment 5.7 Benefit of public expenditure per capita by quintile (PKR 6.2 Income tax collection as a percentage of value added by base, 2018-2019 = 100), (2019-2020 and 2020-2021) 215 4.16 Marginalization of the female labour force 96 yearly/per capita), (2018–2019) 130 sector, (2018–2019) 143 8.10 Skill distribution of job losses by sector (%), (2019–2020) 216 4.17 Gender-based public education expenditures, (2015–2016 5.8 Percentage share of benefits under different types of expen- 6.3 The average interest earned by big banks is over 10 times and 2017–2018) 97 8.11 Distribution of jobs lost by work location (%), (2019–2020) 216 diture, by income quintile, (2018–2019) 131 higher than small banks, (2018) 145 4.18 Gender-based public health expenditures, (2015–2016 and 8.12 Projections of number of households living below the poverty 6.1 World Bank governance indicators for Pakistan, values and 6.4 Distribution of bank credit by size of borrower, (2019) 145 2017–2018) 98 line (million), (2019–2020 and 2020–2021) 217 ranking, (2006–2019) 139 6.5 Capital market profits accrue to only 0.11 percent of the 5.1 Sources of privileges of different vested interests 106 6.2 Statutory regulatory orders enabling the build-up of the sugar population, (2019) 147 TABLES mafia 149 5.2 Distribution of privileges granted to the feudal class, worth 6.6 Number of times various industries were identified as PKR 370 billion, (2017–2018) 108 6.3 Court cases pile up to more than 1.7 million, (2019) 161 potential cartels, (2007–2018) 148 2.1 Inequality per capita consumption spending among quintiles, 5.3 Distribution of privileges granted to industry, worth PKR 528 (2001–2019) 15 8.1 Inequalities and types of government in Pakistan, (1977– 6.7 Payment flow in the energy sector 151 2018) 203 billion, (2017–2018) 110 2.2 Inequality in different types of consumption spending per 6.8 Tariff components at various stages of power supply chain 152 5.4 Distribution of privileges granted to banks, worth PKR 196 capita by quintiles (Palma ratio), (2001–2019) 15 8.2 Annual simulations of the Macroeconomic Model and predict- 6.9 Losses in the power sector, (2005–2018) 152 ed levels of inequality, (2016–2019) 205 billion, (2017–2018) 110 2.3 Measures of inequality in South Asian countries, (2010– 5.5 Distribution of privileges granted to exporters, worth PKR 248 6.10 Prices of petroleum products, (2018) 154 2016) 28 8.3 Projected magnitude of external and domestic shocks, (2019–2020 and 2020–2021) 206 billion, (2017–2018) 111 6.11 Asia Pacific–South Asia Corruption Perception Index ranking, 3.1 Provincial distribution of population in national income 5.6 Distribution of privileges granted to larger traders, worth PKR (2012–2018) 157 quintiles, (2018–2019) 40 8.4 Projected growth rate in relation to the pre-COVID-19 level in 2019 (%), (in calendar years, 2020 and 2021) 207 348 billion, (2017–2018) 112 6.12 Pakistan’s ranking in dimensions of the Rule of Law Index is 3.2 Share of provinces in annual national income by sources (%), 5.7 Distribution of privileges granted to high net worth individu- low regionally and globally, (2019) 161 (2018–2019) 41 8.5 Projected GDP by expenditure (PKR billion at 2005–2006 prices), (2019–2020 and 2020–2021) 208 als, worth PKR 368 billion, (2017–2018) 113 6.13 No substantial change in Pakistan’s Rule of Law Index over 3.3 Extent of regional inequality, (2018–2019) 43 time, (2015–2019) 161 8.6 Projected sectoral growth rates, (2019–2020 and 2020– 5.8 Distribution of privileges granted to the military establish- 3.4 Difference between provincial HDI values and the national HDI 2021) 209 ment, worth PKR 257 billion, (2017–2018) 114 6.14 Incidence by type of legal problems, (2019) 163 value, (2018–2019) 45 8.7 Projection of the balance of payments (US$ million), 5.9 Distribution of privileges granted to state-owned enterprises, 7.1 The five axes of inequality of NHDR 2020 176 3.5 Pakistan Federal Government financial support to Special (2019–2020 and 2020–2021) 210 worth PKR 345 billion, (2017–2018) 115 7.2 Educational attainment of different social groups, (2020) 178 Regions (PKR billion), (2018–2019 and 2019–2020) 58 8.8 Government budgetary projections (PKR billion) and growth 5.10 Ranking of vested interests in terms of the magnitude of 7.3 Wealth of different social groups, (2020) 179 4.1 Trends in the national Child Development Index and in sub- benefits and privileges enjoyed by each, out of total PKR rate (%), (2019–2020 and 2020–2021) 211 7.4 Car ownership of different social groups, (2020) 180 indices, (2001–2009) 72 2,660 billion, (2017-2018) 115 8.9 Government budgetary projections as % of GDP, (2019–2020 4.2 Magnitude of Child Development Index and sub-indices by 7.5 The perception of inequality of different social groups, (2020) 182 and 2020–2021) 212 5.11 Distribution of privileges granted to vested interests, worth province, (2018–2019) 73 PKR 2,660 billion, (2017–2018) 116 7.6 Access to a laptop or computer among different social 8.10 Trends in employment, end of year figures (000), (2018–2019 4.3 Factors contributing to deviation from the national level of groups, (2020) 185 to 2020–2021) 216 5.12 Incidence of taxes by quintile, (2017–2018) 118 CDI (%) 75 7.7 Monthly income levels of different social groups, (2020) 188 8.11 Fiscal cost of relief, incentive and development package (PKR 5.13 Tax revenues: The richest contribute more than half of 4.4 Impact of different factors on deviation from the national YDI 7.8 Access to mobile banking in different social groups, (2020) 189 billion), (2020–2021) 220 Pakistan’s total tax revenues 118 value 77 7.9 House ownership of different social groups, (2020) 190 5.14 Expenditure on public services, in real per capita and as 4.5 Impact of different dimensions on deviation from the national percentage of GDP, (2001–2019) 120 7.10 Access to the internet in different social groups, (2020) 192 Labour Development Index 86 5.15 Countries with higher investment in education, health 8.1 Growth incidence curves in Pakistan measured by the Palma

xiv PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Contents xv PART 1 Understanding inequality CHAPTER 1 Why study inequality in Pakistan? CHAPTER 1 Why study inequality in Pakistan?

Eight-year-old Fatima* has tangled hair and a shy smile. She lives with her family in Bin Qasim Town, Karachi. Her father drives a donkey cart for a living and her mother cleans people’s houses in more affluent neighbourhoods. Their locality has no access to clean water. To obtain drinking water, Fatima, her mother and older sister have to walk a long way. Fatima also sells vegetables door-to-door, carrying the produce in a woven basket. Making her way through the neighbourhood in worn-out shoes, she sells what she can to people who, like her family, are very poor. Fatima and other children in the area gather at an NGO-run evening school for a few hours every day to learn basic English, Urdu, and mathematics. The standard of education is low. The students can offer up a few words in broken English, but they do not know the names of Pakistan’s neighbouring countries. Even so, Fatima’s limited exposure to the world of education has had an impact on her. She wants to be a teacher. But will Fatima be able to reach her potential and fulfil her dreams? Or will poverty force her out of school and into an early marriage like so many other girls like her? Fatima is one of 80 million Pakistanis who live in poverty.1 Their lives are characterized by poor access to services, greater vulnerability to disease and climate change, and a low quality of life – factors that are both a consequence of inequality, and a cause of it.

This is a highly unequal world. More than companied by an equitable distribution of 734 million people around the globe live income as the most effective path towards in extreme poverty, surviving on less than sustained human development. US$1.90 a day, while a handful of billion- This forms the basis of the United Na- aires get richer by the day.2 The wealth of tions Development Programme’s Human global billionaires reached US$8.5 tril- Development Reports. The global Hu- lion by 2018, marking an increase of 34.5 man Development Report (HDR) 2019 percent since 2013.3 Growing awareness focused on inequality, a concept that is of inequality is catalysing resistance, with especially central to Pakistan’s sustainable millions taking to the streets worldwide to development agenda and growth. protest against extreme poverty, the scrap- Realizing the need to address inequal- ping of fuel subsidies, and rising transport ities, the Prime Minister of Pakistan, Im- costs.4 Inequality has, therefore, acquired a ran Khan, launched the Ehsaas strategy in major global focus in recent years. 2019 – an overarching umbrella to create The concept of inequality is based on a welfare state by lifting up marginalized Inequality is based on disparities in assets, income, status, edu- communities and areas that are lagging be- disparities in terms of cation, health, rights, and other opportu- hind. As the COVID-19 pandemic wreaks assets, income, status, nities, either due to discrimination at the a heavy toll on vulnerable groups, the Eh- education, health, and other social level on the basis of gender, religion, saas initiative has become increasingly im- opportunities. caste, or other characteristics, or the ma- portant. nipulation of policies by powerful groups In line with these global and national or individuals. This notion lies at the heart concerns, the Pakistan National Human of the social justice paradigm and the con- Development Report (NHDR) 2020 fo- cept of human development coined by cuses on inequality. A major motivation Pakistani economist Dr. Mahbub ul Haq, behind studying this theme lies in Paki- who advocated for economic growth ac- stan’s Constitution of 1973, which affirms

Why study inequality in Pakistan? 1 the equal rights of all citizens. Another age or sex, and for maternity benefits creased or increased over the years. agenda enshrined in the Millennium De- A major motivation for Sustainable Development Goal motivation is the 2030 Agenda for Sustain- for women in employment. velopment Goals (MDGs). The most rele- studying inequality lies in able Development, which Pakistan has ad- vant goal for this report is SDG 10, which (SDG) 10 aims to ‘Reduce Pakistan’s Constitution of inequality within and among opted, especially Sustainable Development The Constitution also identifies concrete Sustainable Development Goals: aims to ‘Reduce inequality within and 1973, which affirms the Goal (SDG) 10 on reducing inequality. among countries’.6 Its first four targets con- countries’. equal rights of all citizens. steps to prevent high and/or rising inequal- A focus on reducing inequalities ity. Article 38 highlights the need to raise cern reducing inequality within individual standards of living, ensure equitable rights, countries. The next four focus on global in- At the heart of the 2030 Agenda for Sus- equality, especially the greater representa- The Constitution of Pakistan: and reduce income disparities. It commits tainable Development, adopted by all the State to: tion of developing countries in global insti- Enshrining the right to equality Member States of the United Nations in tutions. They also centre on the principle 2015, lie 17 Sustainable Development of the special and differential treatment of [38] (a) secure the well-being of the peo- The vision of a functioning democracy and Goals established by UN General Assem- developing countries, especially the world’s ple, irrespective of sex, cast, creed or a social welfare state is enshrined in the bly Resolution 70/1. The SDGs are: least developed countries, in global trade race, by raising their standard of living by Constitution of Pakistan of 1973. Article agreements (box 1.1). preventing the concentration of wealth 25 is the first section of the Constitution Other SDGs also seek to reduce in- and means of production and distribu- an urgent call for action by all countries which explicitly recognizes the equality of equality in multiple forms, such as ending tion in the hands of a few to the detri- developed and developing – in a global citizens: deprivations caused by poverty (SDG 1) ment of general interest and by ensuring partnership. They recognize that ending and hunger (SDG 2). They seek to advance equitable adjustment of rights between poverty and other deprivations must go [25] (1) All citizens are equal before law equality by ensuring basic opportunities and are entitled to equal protection of employer and employees, and landlords hand-in-hand with strategies that im- prove health and education, reduce in- for all, enabling people to live healthy lives law. and tenants; equality, and spur economic growth – all (SDG 3), enjoy gender equality (SDG 5), attain quality education and lifelong (b) provide for all citizens, within the while tackling climate change and work- Other articles strongly affirm the need to 5 learning opportunities (SDG 4), access available resources of the country, facil- ing to preserve our oceans and forests. reduce inequality by upholding social jus- sustainable water and sanitation facilities tice, eradicating social ills, and promoting ities for work and adequate livelihood (SDG 6), obtain sustainable, reliable ener- people’s social and economic well-being. with reasonable rest and leisure; Reducing inequality is a central, cross-cut- gy (SDG 7), get decent jobs (SDG 8), and Article 37, for instance, asserts that the ting issue for the 2030 Agenda, and one exercise equal access to justice (SDG 16). State must: (c) provide for all persons employed in which was neglected by the previous global the service of Pakistan or otherwise, so- [37] (a) promote, with social care, the cial security by compulsory social insur- SPECIAL CONTRIBUTION Daniel Valenghi educational and economic interests of ance or other means; backward classes or areas; “Leave no one behind”: How a focus on the SDGs can help alleviate inequality (d) provide basic necessities of life, such The 2030 Agenda for Sustainable Development recognizes that The Swiss Agency for Development and Cooperation (SDC) is (b) remove illiteracy and provide free as food, clothing, housing, education and medical relief, for all such citizens, irre- “eradicating poverty in all its forms and dimensions, including ex- committed to paying more attention to the excluded and the poor- and compulsory secondary education treme poverty, is the greatest global challenge and an indispensable est of the poor, and to catalyse social transformation. The aim is to within minimum possible period; spective of sex, cast, creed or race, as are permanently or temporarily unable to requirement for sustainable development.” In adopting the 2030 overcome existing inequalities and contribute to disaggregated data earn their livelihood on account of infir- Agenda, the international community pledged to leave no one behind, production that reveals the challenges faced by those who are left (c) make technical and professional ed- to ensure that all nations meet the goals and targets for all peoples behind. Switzerland has adopted the 2030 Agenda and is commit- mity, sickness or unemployment; [and] ucation generally available and higher and all segments of society, and to endeavour to reach those furthest ted to its 17 Sustainable Development Goals. Achieving these goals education equally accessible on the ba- behind, first. and implementing the ‘leave no one behind’ imperative are tangible sis of merit. (e) reduce disparity in the income and Leaving no one behind is a universal and an aspirational challenge contributions to peace and stability in the world, and critical to Swit- earnings of individuals, including per- that affects every society. It is a new paradigm in development, rec- zerland’s security and prosperity. (d) ensure inexpensive and expeditious sons in the various classes of the service ognizing that trickle-down economics have not kept their promises, “The strength of a people is measured by the well-being of its and that inequalities are increasing instead of decreasing. Concrete weakest members,” the Swiss Constitution declares. Sustainable justice; [and] of Pakistan. measures are needed to ensure that populations who are left behind, and equitable development is not possible if certain communities Clearly, Pakistan’s Constitution espouses a or who are at risk of being left behind, are identified, understood, and are excluded from economic well-being. We will continue to build our (e) make provision for securing just and enabled to fully participate in economic, social, and political activi- engagement on respect for human rights and human dignity, the rule strong commitment to reducing inequality. humane conditions of work, ensuring ties in their societies. of law, justice, equality, and non-discrimination. that children and women are not em- This makes it imperative to study the issue. ployed in vocations unsuited to their In fact, it is high time that we determine Daniel Valenghi is Head of International Cooperation at the Embassy of Switzerland in Islamabad, Pakistan. whether inequality in Pakistan has de-

2 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Why study inequality in Pakistan? 3 BOX 1.1 experience, and rectify the mistakes of the pacts on their nutrition, as well as FIGURE 1.1 SDG 10: Reduce inequality within and among countries past. their prospects for quality educa- To this end, the NHDR 2020 examines tion and future employment. This Annual growth rate of real Targets Indicators per capita income: Poorest developments in income distribution since also has important implications for 40 percent compared to the 10.1 By 2030, progressively achieve and sustain income growth of the 10.1.1 Growth rates of household expenditure or income per capita the turn of the century, divided into four social protection programmes total population bottom 40 percent of the population at a rate higher than the national among the bottom 40 percent of the population and the total popu- periods: 2001–2008, 2008–2012, 2012– aimed at children. 7 % Bottom 40% population average lation 2016, and 2016–2019. Total population Between 2001 and 2012, the growth (ii) The poorest 20 percent of Pakistan’s 6 10.2 By 2030, empower and promote the social, economic and polit- 10.2.1 Proportion of people living below 50 percent of median in- rate of per capita income of the poorest 40 population includes a relatively 5 ical inclusion of all, irrespective of age, sex, disability, race, ethnicity, come, by sex, age and persons with disabilities percent was lower than that of Pakistan’s low number of employed workers 4 origin, religion or economic or other status total population. The gap was larger during (18 percent). They support house 3 the first part of this period (2001–2008), holds whose earnings are below 2 10.3 Ensure equal opportunity and reduce inequalities of outcome, 10.3.1 Proportion of population reporting having personally felt dis- a time of relatively rapid growth in gross 50 percent of the median income. 1 including by eliminating discriminatory laws, policies and practices criminated against or harassed in the previous 12 months on the basis national product (GDP). Between 2011 This implies that the unemploy- 0 and promoting appropriate legislation, policies and action in this re- of a ground of discrimination prohibited under international human and 2019, the poorest 40 percent saw their ment rate is higher among the gard rights law per capita income grow at a faster rate than country’s poorest families. More the overall population, while the econ- over, more than 32 percent of 10.4 Adopt policies, especially fiscal, wage and social protection poli- 10.4.1 Labour share of GDP, comprising wages and social protection omy witnessed relatively low growth, at women workers live in relatively 2001-02 to 2007-08 2001-02 to 2011-12 2007-08 2011-12 to 2015-16 cies, and progressively achieve greater equality transfers just above 4 percent. From 2015–2016 to poor households, indicating that 2015-16 to 2018-19 Source: UNDP calculations based on HIES, 2018–2019, the incomes of the poorest 40 their labour force participation is multiple years, 2018-2019. 10.5 Improve the regulation and monitoring of global financial mar- 10.5.1 Financial soundness indicators percent of Pakistanis increased, while the primarily motivated by the need to kets and institutions and strengthen the implementation of such reg- annual growth of the total population’s in- supplement household income. ulations come decreased. 10.6 Ensure enhanced representation and voice for developing coun- 10.6.1 Proportion of members and voting rights of developing coun- The NHDR 2020 tentatively draws two (iii) Over one-quarter (27 percent) of tries in decision-making in global international economic and finan- tries in international organizations conclusions from these findings. First, in- Pakistan’s agricultural workers be- cial institutions in order to deliver more effective, credible, account- come distribution may tend to deteriorate long to the poorest 20 percent of able and legitimate institutions during periods of relatively fast economic the population, suggesting that growth. The real test will be if Pakistan there is greater poverty in rural aeas. 10.7 Facilitate orderly, safe, regular and responsible migration and 10.7.1 Recruitment cost borne by employee as a proportion of yearly can simultaneously achieve both higher mobility of people, including through the implementation of planned income earned in country of destination and more inclusive growth. Second, an au- The third target of SDG 10 (10.3) relates and well-managed migration policies 10.7.2 Number of countries that have implemented well-managed thoritarian government may focus more on to providing equal opportunities and re- achieving higher growth, and have less con- ducing income inequalities by eliminating migration policies cern for how the additional income gener- discriminatory laws, policies, and practic- 10.8. Implement the principle of special and differential treatment for 10.8.1 Proportion of tariff lines applied to imports from least devel- ated by this growth is shared. es. Pakistan has three powerful indicators developing countries, in particular least developed countries, in accor- oped countries and developing countries with zero-tariff The second indicator of SDG 10 in this context: dance with World Trade Organization agreements (10.2.1) concerns the characteristics of people living on less than 50 percent of the (i) Among children who are between median income. Analysing data from Pa- 10 and 15 years old, 9.9 percent kistan’s latest Household Integrated Eco- are engaged in labour.8 They of- Pakistan’s performance: More percent of the population – that is, the poorest 40 percent, who are at the bottom nomic Survey (HIES) 2018–2019 enables ten work in difficult conditions, A key target of SDG 10 is to the following observations about this seg- with extremely low remuneration. achieve income growth of reasons to study inequality of the national income distribution – with this rate for the total population (figure ment, which encompasses about 20 percent The existing federal law against the poorest 40 percent of the of the country’s population: child labour is seldom applied. population at a rate higher Analysing trends at the national level, spe- 1.1). than the national average. cifically on the first four indicators of SDG To reduce inequality, the real per capita 10, reinforces the urgent need to study in- income of the poorest 40 percent of Paki- (i) Low-income households have (ii) A high percentage of women, al- equality in Pakistan and to devise solutions stanis must grow at a rate that exceeds the larger families. Over 20 percent most 60 percent, are engaged in to tackle it. For instance, the first indica- income growth rate of the total population. of Pakistan’s children live in house marginal occupations, including as tor on inequality within a country (SDG Achieving this target requires an assess- holds whose earnings are below 50 domestic helpers. Furthermore, 10.1.1) compares the growth rate of real ment of Pakistan’s historical performance percent of the median income. The although the National Assembly per capita income among the ‘bottom’ 40 on this indicator, so that we can learn from concentration of children in rela- has approved a law against sexual tively poor families has adverse im- harassment in the workplace,

4 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Why study inequality in Pakistan? 5 crimes like sexual harassment, rape, The fourth indicator of inequality within The three Ps: Drivers of inequality full potential, and policies are often unsuc- and torture appear to be increasing a country is the share of labour income as cessful at addressing the resulting inequity. The three primary drivers of exponentially. This may be because a proportion of the total income earned by The overwhelming takeaway of the inequality in Pakistan are such crimes are more frequently re- labour and capital (SDG 10.4.1). Accord- The NHDR 2020 builds on a new frame- NHDR 2020 is that, to alleviate inequality Power, People, and Policy. ported than they were in the past. ing to national estimates, Pakistan’s labour work of analysis that identifies three prima- in Pakistan, especially for vulnerable com- Whether or not this is the reason income share improved from 32 percent to ry drivers of inequality in Pakistan: Power, munities, there is a need to understand and for this increase, it is clear that 42 percent between 2008 and 2018.10 This People, and Policy. unravel the Gordian knot of Power, Peo- gender-based violence is a wide- counters the global trend of a declining la- Power relates to groups who exploit ple, and Policy, before determining ways to spread challenge across Pakistan. bour share, revealing some improvement in loopholes, networks, and policies for their tackle these issues. benefit. As this ensures the accumulation Pakistan’s performance on this indicator. of wealth in fewer hands, it enhances in- (iii) Pakistan’s provincial governments However, its share is still low compared to equality. To redress this imbalance, there is have passed laws on minimum the average of 50 percent for countries in a clear need to recognize and account for wages, which are set annually. At Asia and the Pacific, according to the In- the mechanisms and privileges of Pakistan’s Notes present, workers’ minimum wages ternational Labour Organization (ILO).11 most influential groups. are around US$104 per month Overall, Pakistan’s performance over Pakistan’s performance in People, the second driver of inequal- * Name changed to protect the informant’s identity. This in most parts of Pakistan.9 Despite the past two decades has been mixed in the past two decades has ity, refers to the deeply embedded belief story was shared during the NHDR focus group discus- this relatively low rate, almost 53 terms of the targets of inequality indica- been mixed in terms of systems that encourage bias against social sion in Karachi, Sindh, on 19 June 2019. The language percent of full-time workers are tors. This is another motivation for the inequality indicators. identities like race, gender, religion, or used was primarily Urdu. not even paid the minimum wage. NHDR 2020’s study of the different levels caste, among others. These biases prevent 1 2016. This is yet another manifestation and dimensions of inequality, with a view people who are discriminated against from 2 World Bank 2018b. of the weak implementation of to understanding its depth and determin- 3 UBS and PwC 2019. realizing their full potential or improv- laws against discriminatory labour ing potential solutions. 4 Such protests have been reported over the past years in ing their well-being, thus exacerbating practices. countries including Ecuador, Bolivia, Chile, and Lebanon. inequality. To increase equality in a coun- UN 2016. try, therefore, it is vital to create a culture 5 The Inter-Agency and Expert Group on SDG Indicators de- SPECIAL CONTRIBUTION Julien Harneis of empathy where no one is discriminated veloped the indicator framework for SDG 10 on inequality, Why is inequality so central to peace, development, and human rights? against just for being different. which was adopted at the 47th session of the UN Statisti- Policy, the third driver of inequality, cal Commission in March 2016. When I started working for the UN, much of my motivation was the three pillars of the UN Charter, aptly quoted by Kofi Annan and other speaks to the systems and strategies that are 6 Based on data from Household Integrated Economic Sur- possibility of addressing some of the inequality and unfairness we UN Secretary-Generals, make it very clear that peace, development, either ineffective, or at odds with the prin- veys between 2001–2002 and 2018–2019. See Govern- see around us. Inequality is a backdrop to, and core issue in, many and human rights are the indivisible dimensions of equality. We can- ciples of social justice. In addressing this ment of Pakistan 2003a, 2006a, 2012b, 2016c, and of the world’s problems today: climate change, conflict, migration, not achieve one without the others. Hence, inequality not only holds driver, the NHDR 2020 lays out a reform 2020d. persistent poverty, and many others. The incredible human progress back development, but also triggers and nurtures conflict and migra- agenda to guide Pakistan’s laws and policies 7 Government of Pakistan 2018c. made across the globe, including in Pakistan, is stymied by rising tion. towards more equitable path. 8 Based on the exchange rate at the end of June 2020, of inequality. How can we address inequality? The UN’s global Human Develop- The drivers of Power, People, and Poli- US$1= PKR 167.64, and the minimum wage of PKR The fundamental issue of climate change is that we share global ment Report 2019 and the Pakistan NHDR 2020 address some av- 17,500 per month. cy combine to perpetuate inequality in Pa- resources, such as the atmosphere and the earth, and we all bear enues, and there are many dimensions and options to be pursued. 9 Calculations based on Labour Force Surveys for multiple the consequence of imbalances. A few vested interests profit from But in my view the key dimensions are: (i) making it possible for all kistan. The powerful use their privilege to years. For a detailed explanation of the methodology overexploiting the environment and fossil fuels. These few also ben- people, everywhere, to exercise their human rights, and (ii) creating capture more than their fair share, the mar- used, see technical note 8 on the Labour Development efit from less attention to and less action on the problems of climate a more level playing field – one where all people, everywhere, have ginalized experience structural discrimina- Index. change. similar opportunities. tion that keeps them from reaching their 10 ILO 2018. An old but dramatically faulty theory says that when the rich get But for this to happen, some policy choices need to be made. We richer, their gains will automatically and indirectly ‘trickle-down’ and must make a concerted effort to come up with a fairer economic re- be shared with the poor. This is one of the biggest inequality traps. gime and political system that offers everyone a fair opportunity in As Thomas Piketty argues, this notion has, in fact, led to increased life. inequality and persistent poverty. Together we can achieve equality, if we prioritize the needs of all of Conflict and migration are also strongly driven by inequality. The humanity above the wants of a few privileged people.

Julien Harneis is the United Nations Resident and Humanitarian Coordinator in Pakistan.

6 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Why study inequality in Pakistan? 7 CHAPTER 2 Measuring inequality in Pakistan CHAPTER 2 Measuring inequality in Pakistan

Padma* was engaged by the time she was six years old. Married off just ten years later, she had children of her own while still in her teens. This is how things are for girls where she lives, in Mithi, in Sindh’s district of Tharparkar. As in most parts of Pakistan, women here are responsible for domestic chores, looking after children, cooking, cleaning, doing the laundry, and catering to their in-laws. Living in seclusion, the only domestic chore Padma doesn’t do is grocery shopping. Her husband, the family’s main breadwinner, takes care of this. To make extra money, Padma embroiders sleeves and neckpieces to be sewed on to kur- tas worn by both men and women. She stitches clothes incessantly; sometimes she embroi- ders for up to five hours a day. Since many other women in Mithi also do this, competition keeps the profits low. Padma may spend days making an embroidered neckpiece that sells for just PKR 300 (US$1.79). “Our hands often hurt, but we need the extra income,” she says, speaking for women like herself. Padma went to primary school but, like most girls in Mithi, she was not allowed to study further. This is something she still regrets. Now, both of her daughters attend primary school. Padma wants them to be able to study as long as they choose. Eleven million women like Padma work in Pakistan’s informal sector. They have low in- comes, limited access to labour welfare services, and poor prospects for the future. All this, combined with the fact that around 60 percent of are in marginalized jobs, contributes even further to gender inequality in the country.1

This chapter begins by highlighting dif- The NHDR 2020 uses several methods to ferent measures of inequality, including a measure inequality in the distribution of new approach to quantifying inequality income, wealth, and public resources (ed- developed by the Pakistan NHDR 2020. ucation and health). One of the simplest, It also uses various conventional measures most revealing measures of income and to determine levels and trends in income wealth inequality is to calculate the share and wealth inequality, before estimating of national income, or wealth, held by the Human Development Index (HDI) levels ‘top’ – that is, the richest – 1 percent of the for different income quintiles, and the im- population. pact of inequality on the national HDI, es- Another common measure compares timated as the Inequality-adjusted Human the different shares of income or wealth Development Index. The chapter then ex- owned by a country’s poorest (quintile amines the relationship between inequali- 1) and richest (quintile 5) groups. This is ty and poverty in Pakistan. an extension of the original Palma ratio, which focuses on the share of income or wealth held by the richest 10 percent and Measuring inequality: the poorest 40 percent of a population.2 Another version of the Palma ratio is the Conventional and new measures 10/10 ratio, which focuses on the extreme ends of income distribution to calculate Conventional methods the share of income or wealth of the rich- est 10 percent compared to the poorest 10

Measuring inequality in Pakistan 11 percent of the population. An intermedi- The Pashum ratio: A new measure of it is more sensitive to distributional chang- FIGURE 2.1 ate measure is the modified Palma ratio, inequality es in income. The richest 20 percent of Relative shares of income held by the richest Pakistanis have almost five which measures the ratio between the rich- and poorest Pakistanis, (2018-2019) est 20 percent and the poorest 20 percent In the process of quantifying inequality in times the income of the poorest 20 percent. of the population. These ratios are sensi- Pakistan, the NHDR 2020 team identified Richest Poorest National inequality based on Original Palma ratio tive to the extreme ends of income distri- two problems with the two most common- Ratio, richest 10% Equality bution. ly used measures of inequality, the Palma economic outcomes to poorest 40% The Gini coefficient, another com- ratio and the Gini coefficient. The Gini 1.31:1 monly used method to measure inequali- coefficient is a less sensitive measure, with Using multiple methods to measure in- ty, compares the cumulative proportions a maximum value of 1, while the Palma equality based on economic outcomes, the Ratio, richest 10% to poorest 10% of the population with their cumulative ratio completely ignores developments in NHDR 2020 examines trends in inequali- proportions of income or wealth. It ranges the middle class. Moreover, the Palma ra- ty levels in Pakistan over the years. 9.42:1 from 0 to 1. A Gini coefficient of 0 means tio can only be quantified if information is Equality perfect equality, where each person re- available by deciles (10 equal population Income inequality ceives the same share of national income. groups) or quintiles (five equal population Source: UNDP calculations based on HIES, 2018-2019. At the other extreme, a Gini coefficient of groups). The stark reality of inequality in Pakistan 1 represents maximum inequality – a sce- To bridge this gap, the NHDR 2020 is revealed when you look at the poorest 1 The NHDR 2020 develops a similar to the 2016 World Development nario where only one person takes home team has developed a new measure of in- percent of the population, who hold only new measure of inequality: Indicators’ (WDI) calculation of 4.78. the entire national income, while the rest equality: the Pashum ratio. Its underlying 0.15 percent of the national income, com- the Pashum ratio. It also looks The Gini coefficient estimates the level of have nothing. It can be calculated for any concept is that what happens in the mid- pared to the richest 1 percent, whose share at the middle of the income income inequality at 30 percent, varying distribution of the population if data is dle part of the population distribution also of national income exceeded 9 percent in distribution, and not just slightly from the WDI database for 2016 available on the shares of each population plays a role in determining the extent of 2018–2019.4 the extremes. group. inequality (box 2.1). The Pashum ratio is a Figure 2.1 illustrates the depth of in- FIGURE 2.2 The Robin Hood ratio is a fourth mea- more inclusive measure, as it also considers equality at either end of the income dis- sure of inequality. As the name suggests, distributional changes in middle-income tribution. The original Palma ratio of 1.31 Robin Hood Ratio: Take from the rich, give to the poor its catchy title is inspired by the English reveals that the income of the richest 10 groups, including values like income or Take away from the rich Redistribute to the poor folktale about redistributing income from wealth between each successive part of the percent of Pakistan’s population is over 30 50 the haves to the have-nots. This measure distribution, and not necessarily only in percent more than that of the total income attempts to quantify the proportion of in- the form of quintiles or deciles. Therefore, of the poorest 40 percent of the popula- come in the richest quintiles that must be it captures the extent of inequality across tion. The 10/10 ratio of 9.42 shows com- Current 40 income redistributed and transferred to poor quin- the entire population distribution, includ- paratively higher levels of inequality at inequality tiles to ensure perfectly egalitarian income ing middle-income groups.3 the extreme ends of this distribution. This distribution between all five wealth quin- Unlike the Palma ratio, the Pashum ra- indicates that the richest 10 percent have tiles. This is, of course, an utopian ideal. tio has a range from 0 to infinity. However, 9.42 times the income of the poorest 10 30 percent. 23.0 22.5

BOX 2.1 The Robin Hood ratio reveals that Pa- 0.5 The story behind the Pashum ratio kistan would need to transfer 23 percent 20 Perfect of the income of the richest two quintiles income equality The NHDR 2020 team was excited to have formulated a new mea- lead author, uncomfortable with having a new measure named solely to the poorer three quintiles to ensure the sure of inequality which also captures middle-income groups. But after himself, wanted a name that would reflect this team effort. equal distribution of income across all 10 they faced a dilemma: what should they call this new measure, devel- The idea of using the research team’s initials found favour. After quintiles (figure 2.2). While this utopian oped by the report’s lead author? trying out different arrangements with their names, the team agreed ideal is impossible in the real world, the 9.0 12.6 15.4 20.5 42.5 New measures of inequality are traditionally named after the per- on a name for the new method: Pashum. Starting with the last name ratio can provide useful guidance about son who developed them. The method developed for this report was of the lead author, Pasha, it incorporates the first initials of the re- redistributive taxation and public expendi- 0 motivated by team discussions and the frustration of not being able search team members: Aroub, Ali, Sana, Hafsa, Umer, Momina, and ture policies. Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 to capture the experiences of middle-income groups. The NHDR’s Meeran, without duplicating names starting with the same letter. Poorest Richest The modified Palma ratio (20/20) of 4.7 indicates that the richest 20 percent Note: To have an equal level of income in all quintiles, need to take additional income above 20% from Q5 and Q4 Note: The acronym uses an initial capital followed by lower case letters so that it can be pronounced as a word, while avoiding the cluttered look of to transfer to Q1, Q2, and Q3. of Pakistanis have 4.7 times the income of In this case Transfer (42.5-20)(20.5-20) 23.0 of the income The Robin Hood Ratio abbreviations written out entirely in capital letters. the poorest 20 percent (figure 2.3). This is Source: UNDP calculations based on HIES, 2018-2019.

12 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measuring inequality in Pakistan 13 FIGURE 2.3 FIGURE 2.4 Q4 (the upper middle class) and Q5 (the goods and services. The Palma ratio is cal- upper class) than there is between poorer culated for different categories, including The Pashum ratio indicates that the income Comparison of key measures of income quintiles (Q1 to Q3). food, clothing and footwear, housing-re- inequality, (2018-2019) distribution gap rises sharply in the two richest quintiles lated utilities, and ‘other’ types of good Inequality in consumption spending and services. The last category consists of 20% 20% % Modified Palma ratio Richest Poorest 140 a household’s combined expenditure on Upper middle class 4.7:1 Inequality in per capita consumption health, transport, communication, recre- and beyond spending among income quintiles is a re- ation, culture, and education. Table 2.2 Equality 120 vealing indicator from two viewpoints. presents these inequality estimates. First, consumption expenditure is a proxy As the table shows, inequality in con- 100 Gini coefficient for permanent income expectations. sumption expenditure on food, and on 2018-2019 30 Therefore, it adjusts inequality for fluc- clothing and footwear has decreased, while 80 % 0 20 40 60 80 100 2012-2013 tuations in income. Second, households, simultaneously increasing in terms of Equality Inequality especially those with relatively high and housing rent, the cost of utilities, and ‘oth- 60 taxable income, are less likely to understate er’ expenditures. Pashum ratio 2001-2002 their consumption expenditure than their 40 Wealth inequality 0.50 income. ∞ The NHDR 2020 computes the three 0 0.5 1 1.5 Equality Inequality 20 measures of inequality at the national level Measuring wealth inequality based on the for the earliest year, 2001–2002, and the magnitude of cash, assets, farmland, and Source: UNDP calculations based on HIES, 2018-2019. 0 latest year, 2018–2019, using data from other property reveals an even greater di- Q2/Q1 Q3/Q2 Q4/Q3 Q5/Q4 Pakistan’s Household Integrated Econom- vide between Pakistan’s rich and poor than (33.5 percent). Pakistan’s relatively low ic Surveys. Estimates are also calculated for Note: The percentage difference between successive quintiles is income inequality alone. Thus, the NHDR Gini coefficient – indicating low levels of plotted to represent the extent of disparity between them. an intermediate year, 2010–2011. The re- 2020 also incorporates these sources to as- inequality – contradicts the finding about Source: UNDP calculations based on multiple years of HIES data. sulting magnitudes are presented in table sess wealth-based inequality. the share of wealth of the richest 1 percent 2.1. Figure 2.5 presents estimates of the high of the population (figure 2.5). This is due FIGURE 2.5 There appears to be a long-term trend level of wealth inequality in Pakistan. Few- to considerable underreporting of income of increasing inequality in per capita con- Share of the richest 1 percent of Pakistan’s er than half a million (about 0.460 mil- by the richest households in Pakistan in population sumption spending. This is in contrast to lion) of Pakistan’s richest households own the Household Integrated Economic Sur- the inverted U-shaped trend in income in- almost 16 percent of the country’s residen- vey, an issue examined below. equality. A likely explanation is that the ex- tial property. The average value of prop- The new inequality measure, the tent of income underreporting by the rich- erty owned by each household is almost Pashum ratio, indicates that inequality in est quintiles has been rising, or that their PKR 25 million (about US$149,000). Pakistan stands at 0.50, given the overall savings rate has been falling proportionate- income distribution between each succes- 9.0 37.5 ly more than that of poorer quintiles. TABLE 2.2 sive income quintile. It reveals that the National income Bank advanvces (Personal) The NHDR 2020 attempts to decom- disparity in income distribution increases pose consumption inequality by types of Inequality in different types of consumption drastically after the middle-income group spending per capita by quintiles (Palma (Q3), a finding that other inequality mea- ratio), (2001-2019) sures leave out. This is evident in figure TABLE 2.1 2.4, which shows a sharp increase in the 29.8 26.4 2001-02 2007-08 2018-19 Income tax payments Bank deposits (Personal) Inequality in per capita consumption Food 2.88 2.83 2.71 income gap between the upper middle-in- spending among quintiles, (2001-2019) come group and the richest 20 percent of Clothing and footwear 3.20 3.41 3.18 Pakistan’s population. This difference has Housing and utilities 6.23 6.54 7.21 only increased over the years. The figure 2001-02 2010-11 2018-19 also reveals comparatively little difference Palma Ratio 3.701 4.252 4.610 Other* 4.77 7.03 7.37 20.3 15.8 Total 3.70 4.25 4.61 in income distribution between successive Farm area Property Gini Coefficient 0.252 0.279 0.294 quintiles at the lower income levels, com- Pashum Ratio 0.401 0.458 0.489 Note: *Includes expenditure on health, transport, communication, pared to higher income levels. Thus, there Source: UNDP calculation based on HIES, 2018-2019; Agricultural recreation and culture and education. Census, 2010; FBR Tax Directory, 2018; and SBP, 2018. Source: UNDP calculations based on multiple years of HIES data. Source: UNDP calculations based on multiple years of HIES data. is a far more drastic gap in income between

14 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measuring inequality in Pakistan 15 This is particularly alarming for a country from a high Gini coefficient of 91.9 per- the richest 20 percent of the population FIGURE 2.7 with an average annual per capita income cent and a Pashum ratio of 2.2. compared to the poorest 20 percent. The of US$1,355. results reveal that the most skewed distri- Income share of the quintiles after adjusting for underreporting, (2018-2019) The unequal distribution in the owner- Major sources of income and wealth bution is in foreign remittances, where the ship of agricultural land is also evident in inequality in Pakistan ratio approaches 15.6. As per HIES Adjusted figure 2.5. Just 1 percent of Pakistan’s pop- This means that foreign remittances Q5 ulation owns over 20 percent of its farm- The NHDR 2020 reviews the sources of contribute 15.6 times more to the house- Richest land; each of these farmland owners owns income and wealth together. Sources of hold income of the richest 20 percent of Q4 more than 400 acres of agricultural land. income include income earned through ag- the population than to the income of the This leads, first and foremost, to the accu- riculture, livestock, self-employment, wag- poorest 20 percent. As expected, the ra- Q3 mulation of farmland in very few hands. es and salaries, the transfer of remittances tio is also high for income from property, Q2 Second, this unequal distribution of land (internal and external), and rental income. which contributes 11.2 times more to the ownership leads to an uneven distribution Given the unequal distribution of wealth household income of the richest 20 per- Q1 of agricultural income, which, in turn, ad- in Pakistan, any income generated through cent compared to the poorest 20 percent. Poorest versely impacts inequality and poverty.5 wealth can also affect income inequality. Inequality in social protection transfers, % 0 10 20 30 40 50 60 After initial attempts towards land reform Among the sources of income in 2018– domestic remittances, and agricultural in- Source: UNDP calculations based on latest data of PES, 2018-2019; LFS, 2017-2018; and HIES, 2018-2019. in the 1970s fizzled out, there has been no 2019, social protection contributed more come are characterized by the lowest ratios attempt to redistribute land or to intro- to the national household income of the and, therefore, the lowest levels of inequal- duce a progressive system for taxing agri- poorest income quintiles, while foreign re- ity. rises from 30 percent to 38 percent, while cultural incomes. mittances and income from property con- the Pashum ratio rises from 0.50 to 0.68. The greatest inequality is visible in tributed most to the national household Adjusting for the underreporting of in- the distribution of personal bank advanc- income of the richest quintile.6 The Palma come Inequality and poverty es. Just 1 percent of individual borrowers ratio by source of income is presented in The Macroeconomic Model built by the obtain almost 37.5 percent of the total figure 2.6. It is the highest, at almost 16, The Household Integrated Economic Sur- NHDR 2020, described in chapter 8, re- credit, while 1 percent of those with bank in the case of foreign remittances, followed vey tends to underreport data related to veals that between 2001–2002 and 2015– accounts hold 26.4 percent of the total de- by over 11 for property income. The ratio inequality in incomes among population 2016, changes in income inequality strong- posits. is lowest for social protection. It is also rel- quintiles. In 2018–2019, the HIES only ly impacted poverty levels. Other variables Income tax payments also imply high atively low for crop production, livestock, captured 41 percent of household income levels of wealth inequality, with 1 per- and domestic remittances. estimated from Pakistan’s GDP. Labour cent of the population possessing enough These sources of income impact in- income is underreported by 12 percent, FIGURE 2.8 wealth and income to pay 29.8 percent of equality differently, depending on the while foreign remittances are underreport- the total personal income tax collected in household they accrue to. For instance, The difference between adjusted and ed by almost 67 percent. While property unadjusted measures of inequality reflecting Pakistan. The extent of wealth inequality, figure 2.6 shows how different sources of income is, more or less, fully reported, the underreporting, (2018-2019) based on income tax payments, is evident income contribute to the total income of HIES does not report the large component of capital income at all. 10% : 40% % 50% FIGURE 2.6 Richest Poorest Adjusting for the underreporting of in- Palma ratio Income inequality in different sources of income (modified Palma ratio), (2018-2019) come reveals a significantly different pic- Unadjusted 4.7:1 Adjusting for the underreporting ture of the distribution of income (figure Adjusted 7.08:1 7 of income raises the ratio of the Modified Palma ratio Ratio, richest 20% to poorest 20% 2.7). 0 1 2 3 4 5 6 7 8 richest quintile’s income share Wages and salaries 4.2 Consequently, the measures of income Gini coefficient % 28% to the poorest quintile’s to Crop production and livestock 2.9 inequality adjusted for underreporting 30 Unadjusted over seven-to-one. 38 Self-employment 7.0 in 2018–2019 have higher values (figure Adjusted 2.8). The adjustment for other years, by % 0 20 40 60 80 100 Income from property 11.2 Equality Inequality and large, mirrors this trend. In 2015– Foreign remittances 15.6 2016, the adjustment for underreporting Pashum ratio % 33% Domestic remittances 2.4 revealed an even higher level of inequality 0.50 Unadjusted Social protection 0.8 0.68 Adjusted ∞ than in 2018–2019. The modified Palma 0 0.5 1 1.5 Ratio 0 2 4 6 8 10 12 14 16 ratio based on unadjusted income is esti- Equality Inequality Source: UNDP calculations based on HIES, 2018-2019. mated at 4.7, compared to 7.08 for adjust- Source: UNDP calculations based on latest data of PES, 2018-2019; ed income. Similarly, the Gini coefficient LFS, 2017-2018; and HIES, 2018-2019.

16 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measuring inequality in Pakistan 17 that affected poverty were the growth rate Trends in national inequality From 2006 to 2008, income inequality Between 1990 and 2019, income inequal- of real per capita income, changes in rel- increased. This was caused, in part, by the ity changed significantly. It decreased in Income inequality rose sharply ative food prices, and the growth of real boom in property values and an ensuing the 1990s, rose until the mid-2000s, then from 2001–2002 to 2007–2008, Alongside the magnitude of inequality pro-poor expenditure. Poverty estimates rise in rental income in a buoyant econo- fell again until the middle of the next de- before falling up to 2018–2019. discussed above, it is equally important to for 2018–2019 are not available. my. The period also saw a major increase cade. To understand this long-term trend, understand long-term trends in inequality Between 2001–2002 and 2007–2008, in foreign remittances, which increase in- the NHDR 2020 reviews changes in mac- to inform meaningful policy recommenda- Pakistan experienced relatively high, rap- equality. Meanwhile, agricultural income roeconomic variables in different politi- tions. id annual growth in real per capita income – with its dual effect on income inequality cal eras. The analysis reveals that changes (4 percent). Nevertheless, the incidence Trends in income inequality – could not play an equalizing role because in inequality correspond with Pakistan’s of poverty remained virtually unchanged of its relatively slow growth and the highly according to a study on sporadic poverty unequal nature of land ownership. FIGURE 2.10 Overall, income inequality in Pakistan and inequality in Pakistan between 1985 The second period, 2012–2016, saw Long-term trend in income inequality in Pakistan, (1990-2019) and 2016.8 The impact of rising income decreased between 2007 and 2019 (figure declining inequality due to the reduction was neutralized by an increase of over 4 2.9). However, considerable variations are in the share of income generated from evident in this period and it is important percent in the extent of income inequality, property (rental income). Rising income Ratio to explore the reasons underlying these measured by the original Palma ratio, cou- from wages and salaries, along with the 7 pled with a 10 percent rise in food prices trends. falling share in income from self-employ- relative to overall price levels, and limited ment, played an important equalizing role. Palma ratio (modified) FIGURE 2.9 growth in real pro-poor expenditure. Since social protection has an equalizing 6 5.93 The incidence of poverty increased effect, the increased scope of the Benazir Income inequality between income quintiles 5.41 5.39 from 33.2 percent in 2007–2008 to 37.9 (not adjusted for underreporting), (2006- Income Support Programme during these 5 5.10 percent in 2011–2012. This was due to 2019) years helped to decrease inequality. Never- 4.80 4.68 4.70 extremely limited annual growth (1.2 per- theless, foreign remittances still favoured 4.42 4.32 Modified Palma ratio cent) in real per capita income. Simulta- 6 the richest quintile. 4 HIES neously, inequality increased somewhat, 5.6 The third period, between 2016 and 3.65 5.2 while food prices rose relatively quickly. In 5 5.1 2019, saw a minimal decrease in the Pashum 4.7 this context, increased expenditure on pov- ratio and the Gini coefficient, reflecting a 3 erty alleviation in the form of the Benazir 4 decrease in inequality between income Income Support Programme (BISP) was quintiles, as well as in overall inequali- 0 0 not adequate. 2006-07 2012-13 2015-16 2018-19 ty. The modified Palma ratio decreased, Trends between 2011–2012 and 2017– indicating a reduction in the difference 2018 are also revealing. The incidence of Gini coefficient between the incomes of the poorest 20 poverty declined to 31 percent during this 40 percent and the richest 20 percent of the 2001-02 2004-05 2007-08 2010-11 2013-14 2015-16 2018-19 1990-91 period, while per capita income increased population. The decline in the modified 1996-97 1998-99 32 33 32 at the fairly high rate of 2.9 percent. In- 30 30 Palma ratio may be explained by the fact equality declined during these years, and that income from foreign remittances and % food prices rose less rapidly. 0 property increased for the poorest quintile, 40 This analysis lends itself to the conclu- 2006-07 2012-13 2015-16 2018-19 while income from these sources decreased Gini coefficient 9 35 33 sion that the rapid growth of incomes is for all other quintiles (Q2 to Q5). 34 34 1 33 World Bank 33 33 33 33 33 not always enough to reduce poverty. Ef- For a longer-term analysis of income 31 32 34 31 31 31 forts must be made to ensure that inequali- inequality, the NHDR 2020 only used the 30 30 30 Pashum ratio 29 28 ty does not rise at the same time as incomes modified Palma ratio (20/20) and the Gini HIES 0.55 0.57 increase. It may be a more effective strategy 0.5 0.54 0.50 coefficient between 1990 and 2019 (figure 25 to aim for moderate growth which is inclu- 2.10). This is because data for computing 23 sive in character. the Pashum ratio for earlier years are not 20 available. The modified Palma ratio has a 0 2006-07 2012-13 2015-16 2018-19 downward bias, but is more sensitive than 0 the Gini coefficient in revealing long- Source: UNDP calculations based on multiple years of HIES. term trends in inequality. Even so, the two Source: World Bank 2019C and UNDP’s own calculations using multiple years of HIES data. sources reveal broadly similar trends.

18 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measuring inequality in Pakistan 19 tributed to reducing income inequality be- dards of the middle class. A large and ex- FIGURE 2.12 91 to 1998 00 to 200 09 to 201 19 -1 20 7-2 20 8-2 - 9 9- 0 8- 0 cause more workers were employed. With panding middle class is a key sign of a rap- 90 9 9 0 0 1 9 9 9 8 0 9 Growth rate of the real per 1 1 2 higher industrial growth in the second ep- idly growing economy. The middle class capita income of the middle och, inequality increased as industry flour- also plays an effective role in promoting so- class* and total population Democratically elected Authoritarian Democratically elected ished, employing fewer workers, but more cial and political change. Moreover, it can (%), (2001-2019) governments, PML-N government, General governments, PPP, skilled professionals at comparatively high- act as a force to counter the elite capture of and PPP Pervez Musharraf PML-N and PTI Total population er wages. state resources. Middle class The middle class has frequently been Hypothesis 3: The redistributive role of considered the population group in the 5.5 the taxation system is important in terms third (Q3) and fourth (Q4) income quin-

of containing an increase in inequality. Di- tiles. Based on this definition, figure 2.12 4.9 three distinct political epochs during these Hypothesis 2: A higher growth rate in the rect taxes in the first epoch redistributed illustrates the trend in real per capita in- A higher growth rate in the decades. agricultural sector promotes employment resources more aggressively. come among these quintiles, compared agriculture sector tends to Figure 2.11 presents the magnitude of that is less skill-intensive and is charac- with that of the overall population. 2001-02 to 2007-08 reduce inequality. key economic variables in these three polit- terized by low wages. This leads to work- Hypothesis 4: The corporate sector’s per- In the Musharraf era, the middle class’ 2.9 ical epochs. Four hypotheses can be drawn ers with lower levels of education being formance is important for determining real per capita income grew at a relatively from the direction of change in inequality absorbed into the labour force in larger the growth of capital owners’ incomes. A high rate, at almost 5 percent per annum. 2.6 and in these key variables. These hypothe- numbers, which reduces income inequality rise in corporate income increases income Thereafter, the growth rate has been far ses offer plausible explanations for trends overall. By contrast, industrial growth, es- inequality. Pakistan’s corporate sector pri- lower, falling to just 1.2 percent between 2007-08 to 2013-14

in inequality between 1990 and 2019. pecially in large units, is likely to increase marily comprises companies quoted in the 2013–2014 and 2018–2019. 1.8 the demand for more educated and skilled country’s stock exchanges. These compa- The principal reason for this decline 1.2

Hypothesis 1: The higher the GDP growth workers, who command higher wages. This nies represent 60 percent of value added in the buoyancy of middle class income is 2013-14 to 2018-19 rate, the greater the likelihood of an in- increases income inequality. The first ep- in the industrial sector, and all of the val- the rising unemployment rate of educated crease in income inequality. och was characterized by the former trend ue added in the banking sector. The own- workers, who form a key part of the mid- Note: *Third and fourth income quintiles of the population. of higher agricultural growth, which con- ership of shares is highly skewed; barely dle class. While in 2007–2008 the unem- Source: UNDP calculations based on 0.11 percent of Pakistanis are shareholders. ployment rate for workers with a degree multiple years of HIES data. FIGURE 2.11 Most capital gains and the dividends of or post-graduate qualifications was below Change in economic variables in different epochs, (1990-2019) the corporate sector are in the hands of big 5 percent, it rose to over 16 percent by corporations.10 During the second epoch, 2018–2019.

Epoch 1: 1990-1991 to 1998-1999 Epoch 2: 1999-2000 to 2007-2008 Epoch 3: 2008-2009 to 2018-2019 between 1998 and 2008, market capitaliza- In recent years, employment opportuni- tion ballooned by over 32 percent per year, ties for middle class workers in the formal Change in income inequality Decline Rise Decline The middle class has been % leading to a ‘boom’ period for the stock sector – including in large-scale manufac- 32.3 35 market. A new class of capitalists emerged turing, banking and finance, electricity and ‘squeezed’ due to the lack from a relatively small group of stockbro- gas, and public administration – grew far of adequate employment 21.4 kers. Unsurprisingly, income inequality more modestly than in the informal sector. opportunities for highly- 15 increased sharply between 1999 and 2008. The middle class has sometimes been educated workers. characterized as the group whose per cap-

10 Squeezing the middle class ita expenditure is in the range of 25 per- cent more or less than (plus or minus) the Most studies on inequality focus on the median per capita expenditure. In line with 5 richest and poorest income quintiles. But this definition, in 2007–2008, 42 percent what about those in the middle? Their ex- of Pakistan’s population was middle class. periences of inequality are important to By 2018–2019, this share declined to 36 0 Growth rate Growth rate Growth rate Growth rate Growth rate Rate of Change in Growth rate in Growth rate Average consider, yet all too often, these are over- percent, implying that the middle class is of GDP of agriculture of industry of services of employment inflation unemployment direct tax of market yield on looked. This is the reason why the NHDR increasingly being ‘squeezed’. rate revenues capitalization equity -5 2020 has developed the Pashum ratio, The most persuasive evidence of this Corporate sector which looks at inequality between succes- squeeze is the considerable decline in the developments sive income quintiles. middle class’ savings rates. In 2001–2002, Note: Adjusted for some overreporting of the number of unpaid family workers. There are several reasons for studying these were close to 3 percent, before ris- Source: UNDP calculations based on multiple years of PES, SBP and Handbook of Statistics on Pakistan’s Economy. developments in the size and living stan- ing to over 7 percent in 2007–2008. After

20 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measuring inequality in Pakistan 21 2008, their savings rates fell sharply, back households are finding it difficult to make property. This shows that property owner- FIGURE 2.14 to below 3 percent. ends meet. As COVID-19 prompts large- ship-based inequality shows no significant The regional distribution of the mid- scale layoffs and salary cuts, it is becoming improvement over time. The distribution of bank deposits: Increasingly skewed in favour of the richest, (2001-2018) dle class, if defined as the third and fourth increasingly hard for the middle class to Figure 2.14 presents long-term trends

income quintiles, is concentrated in Pa- sustain themselves. in wealth inequality measured by the dis- Gini coefficient kistan’s two largest provinces and in the Despite the pressure of inflation, un- tribution of bank deposits. Between 2001 100 92 92 country’s urban areas. Almost 80 percent employment, and decreasing purchasing and 2016, the unequal distribution of bank 87 89 91 of Pakistan’s middle class live in Punjab power parity (PPP $), the middle class do deposits became even more skewed in the 80 and Sindh, while urban centres are home not fall into the category of those eligible favour of Q5, that is, the richest quintile of to nearly 48 percent of middle class house- for social protection or most forms of so- Pakistan’s population. 0 2001-02 2007-08 2011-12 2015-16 2018 holds. cial assistance, unlike the poorest income This is evident in the Gini coefficient, The middle class has been squeezed group. As their means become more lim- which rose from 87 to 89 between 2001 Pashum ratio more intensely in recent years due to rel- ited, the middle class is largely on its own and 2008, and on to 92 between 2008 and 4.5 4.43 atively higher inflation in housing rents, while it is pushed to the bottom of pyra- 2016. By 2018, it decreased very mini- 4.21 and the unprecedented hike in domestic mid over time. mally, to 91. The weighted Pashum ratio, 4 4.02 tariffs on electricity and gas. Since 2013– a measure more sensitive to distributional 3.5 2014, rents cumulatively increased by 44 Trends in wealth inequality changes, shot up between 2001 and 2016, 3.21 percent, compared to an overall rise in the reflecting a sharp rise in wealth inequality 3 2.99 consumer price index of 38 percent. Simul- There is a critical lack of data to measure measured by the distribution of bank de- 2.5 taneously, the power tariff rose by over 60 wealth inequality in Pakistan. As such, posits. percent, while the gas tariff jumped up by the NHDR 2020 uses available data – on Another key measure of wealth inequal- 0.5 as much as 167 percent. property, bank deposits, and land owner- ity, the Gini coefficient, is calculated with 0 Today, Pakistan’s middle class is in dire ship – to assess long-term trends. Figure regard to the distribution of farmland own- 2001-02 2007-08 2011-12 2015-16 2018 straits. Like much of the rest of the pop- 2.13 illustrates the distributional disparity ership distribution. Inequality in farm- of income imputed and earned from rental Note: The Palma ratios for bank deposits could not be calculated due to unavailability of data. ulation, a large proportion of middle class land ownership increased between 1990 Source: UNDP calculations based on multiple years of PES, MOFA, SBP, Handbook of Statistics on Pakistan’s and 2010, with the Gini coefficient rising Economy. from 57 in 1990 to 62 in 2010. Figure 2.15 FIGURE 2.13 shows how the distribution of farmland FIGURE 2.15 Property ownership-based inequality shows no significant improvement over time, (2001- ownership has worsened over time. In the 2019) past 40 years, the total farm area in Paki- Inequality in the ownership of farmland Inequality in farmland ownership stan has not increased significantly, but measured by the Gini coefficient, (1972- Palma ratio has increased sharply since 20 more farm area has been accumulated in 2010) 1990. 13.3 14.4 fewer hands. Over the generations, it may 10.8 11.0 11.2 10 be expected that large landholdings would % Gini coefficient 70 0 be divided among inheritors, causing land 2001-02 2006-07 2012-13 2015-16 2018-19 62 fragmentation and the automatic redistri- 60 61 57 bution of ownership. This has not hap- 50 49 50 48 49 pened in Pakistan. 46 46 40 Increasing inequality in farmland own- 0 Gini coefficient ership is evident both overall, as well as in 1990 2000 2010 0 2001-02 2006-07 2012-13 2015-16 2018-19 the middle of the distribution of farmland. 1.5 1.50 1.5 This is illustrated by the weighted Pashum 1.27 Pashum ratio ratio, which rose from 0.412 in 1990 to 0 1 1 1.05 1.07 0.94 0.93 0.91 1.504 in 2010 (see Technical note 2 and Weighted Pashum ratio figure 2.15). The reason that the weight- 0.5 0.5 0.41 ed Pashum ratio is used here is because in- 0 formation on the distribution of farmland 0 2001-02 2006-07 2012-13 2015-16 2018-19 1990 2000 2010 ownership is not available by quintiles. Note: These values are based on imputed income from owner-occupied property and rental income. In 1972, 0.5 percent of the farms in Source: UNDP calculations based on multiple years of Agricultural Source: UNDP calculations based on multiple years of HIES data. Census of Pakistan. Pakistan accounted for 9 percent of its

22 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measuring inequality in Pakistan 23 total farm area. By 2010, this rose to 11 and health), and the education and em- particular group, in order to improve their for inequality, human development falls Just 1 percent of Pakistan’s percent.11 Instead of being redistributed, ployment of one’s parents, among others. well-being in terms of education, health, to 0.534, registering a 6.26 percent loss farms account for 20 percent farm areas have increased in size. Today, The Human Development Index (HDI), and income. Although inequality does caused by inequality in the distribution of of its farm area. the extent of inequality is such that just which goes beyond economic outcomes, matter to human development, the Hu- HDI dimensions (figure 2.18). The loss in 1 percent of farms account for 20 percent captures some of these factors.13 man Development Index does not capture human development is the difference be- of Pakistan’s farm area.12 This reflects the Pakistan’s performance on the Human inequality or unequal distribution across tween potential HDI – that is, equal dis- disenfranchisement and marginalization Development Index has improved some- entire populations. tribution across all human development of small-scale farmers, whose land is being what over the years, raising it to the medi- Using the human development ap- dimensions – and the actual HDI – that Pakistan lags behind all bought up by, and converted into part of, um human development category. Yet, Pa- proach to assess multidimensional inequal- is, the IHDI, which reflects the reality of South Asian countries, except large farms. Many small-scale farmers are kistan lags far behind all other South Asian ity that goes beyond economic outcomes, unequal distribution.15 Afghanistan, in terms of now tenants on the land they once owned, countries except Afghanistan in this be- income, and wealth, the NHDR 2020 has The IHDI values computed by the human development. effectively pushing them into servitude yond-income measure (figure 2.17). Over developed measures that calculate new NHDR 2020 differ from Pakistan’s IHDI (figure 2.16). the past 27 years, Pakistan’s HDI value indices for the first time in Pakistan. The value calculated by the global Human De- increased by 39 percent, considerably less Inequality-adjusted Human Development velopment Report 2019. This is because FIGURE 2.16 than the increases achieved by Bangladesh Index and a quintile-level Human Devel- these reports use a slightly different distri- Farm area in Pakistan, (1972-2010) (59 percent) and India (52 percent). opment Index enable us to understand the bution of indicators, while employing the A commitment to improving human depth of inequality across other dimen- same methodology. The NHDR 2020 as- % of farm development means a commitment to en- sions, including education and health. sesses the distribution of the education di- area 1972 hancing the choices of all people, not just a mension (measured by net enrolment and 100 National Inequality-adjusted Human adult literacy) and the health dimension 80 Development Index (measured by life expectancy) by income FIGURE 2.17 60 groups, unlike the HDR 2019. The lat- 40 Pakistan ranks 2nd last among South Asian The Inequality-adjusted Human Develop- ter analyses the distribution of education 20 countries in its HDI value, (2019) ment Index (IHDI) compensates for the (mean years of schooling) and health (life % gap in the human development approach, expectancy) by age intervals (0–1, 1–5, 0 20 40 60 80 100 of farms HDI which does not consider inequality in the 5–10, ..., and 100+ years), instead of by 1.000 % distribution of human development di- income groups. Second, the NHDR 2020 of farm 14 area 2010 mensions. The IHDI adjusts the HDI uses the living standard indicator, income 100 value for inequality in each component: per capita, based on data on income quin- 80 VERY HIGH health, education, and income. Although tiles from the Household Integrated Eco- 0.800 60 Sri Lanka the NHDR 2020 takes its IHDI meth- nomic Survey, while the global HDR 2019 40 HIGH odology from the global Human Devel- uses income per capita calculations based 0.700 Maldives on an asset index derived from the Pakistan 20 opment Report 2019, these values are not India comparable. Demographic and Health Survey (PDHS). % 0 20 40 60 80 100 of farms Bhuttan The IHDI takes inequality into account The global HDR 2019 reports 31 percent MEDIUM Bangladesh Source: UNDP calculations based on multiple years of Agricultural 0.550 Nepal when capturing a country’s achievements inequality in human development, whereas Census of Pakistan. LOW PAKISTAN in education, health, and income by con- the NHDR 2020 reports 7 percent. This Below Afghanistan 0.550 sidering how those achievements are dis- difference is largely explained by the re- tributed among the population. In other ports’ choice to use a different distribution National inequality in human words, the HDI measures ‘potential human of indicators. development development’ if there is equal distribution Pakistan’s IHDI value has improved in all these dimensions, while the IHDI very minimally over the years. The loss Inequality is popularly associated with in- measures ‘actual human development’. It incurred in human development due to in- come and wealth. Inequality of opportu- reflects the loss in well-being caused by the equality also improved minimally, falling nity is less often discussed, including the unequal distribution of attainments in dif- from 7.1 percent in 2006 to 7 percent in effects of factors beyond a person’s con- ferent dimensions of human development. 2016. Between 2006 and 2013, an increase trol: identity markers like gender, religion, The NHDR 2020’s calculations, in income and health inequality prompt- caste, race, and ethnicity, region of resi- 0 based on the latest available data, reveal ed a slight rise in losses in human devel- dence, access to public services (education that Pakistan’s HDI value was 0.570 in opment, from 7.1 to 7.2 percent. Between Source: UNDP 2019. 2018–2019. When this value is adjusted 2016 and 2019, losses in human develop-

24 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measuring inequality in Pakistan 25 FIGURE 2.18 ment caused by inequality declined to 6.3 for the IHDI’s limitations by looking at FIGURE 2.20 percent due to a minimal improvement in quintile-level data and constructing HDI Loss in human development due to inequality distribution in all three dimensions. values by quintiles. HDI by quintiles at the national level and by inequality measures, (2006- has not reduced substantially over time, 2019) (2006-2019) The consistent loss in human devel- opment can be explained by losses caused National Human Development Index HDI HDI/IHDI by inequality in education, health, and by quintiles 0.7 0.693 0.697 0.698 Quintile 5 0.600 income across different quintiles. The un- equal distribution of income remains the There is a need to understand the dif- 0.663 HDI greatest contributor to this decline (figure ference in human development among 0.617 Quintile 4 IHDI 0.6 0.500 2.19). In 2018–2019, income contributed different income groups. A country may 0.596 0.597 75 percent to the loss in human develop- perform relatively well in terms of its ag- 0.571 0.570 Pakistan 0.557 0.558 ment, while education contributed 24 per- gregate HDI value, but disaggregating 0.552 Quintile 3 0.529 0.534 0.535 cent. Health contributed least to the loss its performance by income quintiles may 0.506 0.400 0.5 0.495 Quintile 2 in human development. This implies that yield different results. The NHDR 2020 0.478 0.480 different income quintiles vary most in attempts, for the first time ever, to derive 0.453 terms of income per capita, followed by ed- the Human Development Index by income 0.413 0.419 Quintile 1 0.300 ucation, and then health indicators. This quintiles in Pakistan. The calculations for 0.4 0.405 trend has remained stable over the years. the country’s HDI value by quintile use the 0.383 Although health and education con- standard indicators used to construct the tribute comparatively less to the loss in hu- HDI.16 0.200 man development than income, this does Pakistan is a key example of a country 0.3 not mean that these sectors are doing well. where the benefits of development are un- Instead, it means that Pakistan performs evenly distributed, highly skewed in favour 0.100 comparatively poorly in the education and of a small segment of the population: the 0 health dimensions of human development richest. For instance, the HDI value of the 2006-07 2012-13 2015-16 2018-19 across all income groups; as such, their con- richest 20 percent of Pakistanis is 0.698,

0 tribution to inequality is low. The IHDI, indicating almost the same level of human Modified Palma ratio with its added advantage of accounting development as the average of countries 1.8

2006-07 2012-13 2015-16 2018-19 for inequality in human development, also like Egypt and China, both of which are 1.73 1.68 1.72 1.67 comes with certain limitations in its inter- in the high human development catego- 1.6 % pretation. The NHDR 2020 compensates ry. By contrast, the poorest 20 percent of 8 Pakistanis fall in the low human develop- 0 2006-07 2012-13 2015-16 2018-19 FIGURE 2.19 ment category, with an HDI value of just Loss in Human Development 0.419. This is below Ethiopia’s HDI value Inequality in income distribution between Pashum ratio 7.2 quintiles is the major contributor to loss in and comparable to that of Chad, which 7.1 0.2 7.0 7 human development, (2018-2019) ranks 186th of 189 countries in the global 0.15 0.14 0.15 0.14 HDI ranking.17 This reflects the extreme inequality in human development between Income Education 0 6.3 the richest and poorest Pakistanis. 75 24 The modified Palma ratio shows that 2006-07 2012-13 2015-16 2018-19 6 inequality between the richest and poorest Note: The inequality measures for HDI are approximate in character. Health quintiles decreased between 2006–2007 Source: UNDP calculations based on Pasha 2019 and multiple years of HIES and PDHS data. 1 and 2012–2013, falling from 1.73 to 1.68. It rose to 1.72 between 2012–2013 and mance across all dimensions of human de- The richest 20 percent of 0 2015–2016, before declining again to 1.67 velopment has improved. The dimension Pakistanis have an HDI value by 2018–2019. This minimal decline over of income registered the greatest improve- of 0.698, equal to the average 2006-07 2012-13 2015-16 2018-19 the past 10 years (figure 2.20) means that ment, while health experienced the least for China, but the poorest 20 the gap between rich and poor has de- improvement. Despite this, inequality has percent have an HDI value of Source: UNDP calculations based on Pasha 2019 and multiple years Source: UNDP calculations based on Pasha 2019 and multiple years creased insignificantly. remained fairly stagnant. The richest quin- of HIES and PDHS data. of HIES and PDHS data. 0.419, comparable to Sub- In the last decade, Pakistan’s perfor- tile’s performance on the health dimension Saharan African countries.

26 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measuring inequality in Pakistan 27 remained 1.3 times higher than that of the HDI indicators sheds further light on SPECIAL CONTRIBUTION Dr. Akmal Hussain poorest between 2007 and 2019. It was 2.4 inequality in Pakistan. This section first times higher for the dimension of educa- assesses the World Bank’s World Develop- How economic equality leads to sustained economic growth tion at the beginning of this period, before ment Indicators database to determine the Persistent inequality means that the actualization of a society’s hu- underlie the elite-based economic growth process. falling slightly to 2.3 times higher for the level of, and trends in, income inequality man potential is being systematically constrained. In this sense, an New research challenges the earlier view that inequality is good richest Pakistanis, compared to the poor- in these countries. Second, it discusses the unequal economy remains underdeveloped. Here, the opportunities for growth. It suggests that inequality, in fact, holds back long- est. As above, this persistent difference in Commitment to Reducing Inequality In- for high quality education, health care, access to productive assets term growth. For example, Galor and Ziera (1993), on the basis of performance on HDI dimensions between dex, a direct measure of steps taken in each and capital markets are restricted to a few, thereby narrowing the cross-country data, show that the narrow base of investment in hu- the richest and poorest reflects negligible country to contain inequality. base of savings, investment, and innovation. In such an economy, man and physical capital in unequal societies has a negative effect changes in inequality. growth is not only unequal, it is also unsustainable. on long-term growth. Berg and others (2012) show that inequality Overall, income inequality in Pakistan Levels of inequality in South Asia During the 1960s, when the mould of Pakistan’s economy was in low-income countries is a key constraint to long-term economic is moderately high, but has lessened be- fashioned, policy makers propounded the doctrine of ‘functional in- growth. The negative effect of inequality has been shown to be ac- equality’ – the belief that inequality initially could enable high rates of centuated by the socio-political instability it can induce (see for ex- tween 2007 and 2019. Wealth inequality, According to the latest available Gini co- GDP growth. This was in accordance with the work of Nobel Laureate ample: Alesina and Rodrik 1994, Perotti 1996, and Keefer and Knack by contrast, is even greater and has wors- efficient estimates (table 2.3), inequality is Simon Kuznets (1955), who argued that while inequality increases 2002). ened over the years. Inequality beyond eco- most pronounced in Sri Lanka, followed in the early stages, it would, in time, be reduced as growth proceeds So now we can turn the conventional wisdom on its head to sug- nomic outcomes – measured by the IHDI by India, while Nepal and Bangladesh have apace. Thomas Piketty, with work based on 140 years of growth data gest that, in fact, equality is good for economic growth. When there and the HDI by quintiles – is not very the lowest levels of inequality. The World from Europe and the United States of America, proved this view to be is equality of opportunity for all citizens to develop their human ca- high, although it is characterized by insig- Development Indicators database places invalid. Piketty (2014) shows that, far from decreasing as predicted pabilities, and individuals can attain forms of livelihood consistent nificant improvements in recent years. Pakistan in an intermediate position, with by Kuznets, inequality has in fact been increasing. with their capabilities, then sustained economic growth will be an a Gini coefficient of 34. However, when In Pakistan too, acute interpersonal and interregional econom- outcome. Indeed, when the development of society is based on the measured using data from the Household ic disparities have persisted over the last six decades. No serious talent and creativity of its people, it will lead to not just to economic Comparing South Asian Integrated Economic Survey, this works attempt has been made to substantially reduce the unequal distri- prosperity, but to the enrichment of human civilization. bution of productive assets and the inequality of opportunities that countries out as a coefficient of 30, as noted above. The WDI database’s Palma ratio of 4.8 and Dr. Akmal Hussain is a Distinguished Professor and Dean of the School of Humanities and Social Sciences at the Information Technology University 4.7, respectively, suggests that Pakistan has Comparing the performance of South (ITU) in Lahore, Punjab. the lowest level of inequality among South Notes: Alesina and Rodrick 1994; Berg and others 2012; Galor and Zeira 1993; Hussain 2019; Keefer and Knack 2002; Kuznets 1955; Perotti 1996; Asian countries – Bangladesh, India, Ne- Asian countries. Piketty 2014. pal, Pakistan, and Sri Lanka – on relevant According to the WDI database, trends TABLE 2.3 in inequality vary among South Asian their efforts across three key pillars: social Measures of inequality in South Asian countries, (2010-2016) countries. Bangladesh, Sri Lanka, and Labour: This is measured by three indi- Nepal appear to have reduced inequali- spending, taxation, and labour. cators of inequality, namely the rights of ty according to both measures. India and workers and labour unions, women’s legal Year Gini Year Gini Indicators Pakistan have witnessed some increase in rights to work, and the level of the min- Bangladesh 2000 33.4 2016 32.4 inequality. Examining time series data for imum wage as a percentage of per capita Social spending: This is measured on the India 2004 36.8 2011 37.8 Pakistan reveals that inequality started GDP. basis of public spending on education, Nepal 2003 43.8 2010 32.8 rising from 2001 onward, and peaked in 2005. Thereafter, it has declined. This is health, and social protection as a percent- Findings Pakistan 2001 30.4 2015 33.5 consistent with the HIES calculations pre- age of total government expenditure and Sri Lanka 2002 41.0 2016 39.8 sented above. of GDP, respectively. The CRI Index ranking, first prepared in The Commitment to Reducing Year Palma ratio Year Palma ratio 2017 and updated for 2018, covers 157 Taxation: This is measured by the progres- countries. Denmark ranks first, followed Inequality Index places Pakistan Bangladesh 2000 5.0 2016 4.8 Commitment to Reducing Inequality Index sivity of taxation systems, starting with by Finland and Austria. Among developing second to Sri Lanka in South India 2004 5.7 2011 6.0 the threshold level in personal income tax, countries, South Africa fares best, ranking Asia, but 137th of 157 countries Nepal 2003 7.9 2010 5.0 The Commitment to Reducing Inequality and the minimum and maximum tax rates. 31st. Among Asian countries, Turkey is at globally. Other indicators are the corporate income Pakistan 2001 4.3 2015 4.8 (CRI) Index, developed in 2017 by Oxfam the top, ranking 53rd. tax rate, the value added tax rate, exemp- Sri Lanka 2002 7.1 2016 6.8 and Development Finance International, Figure 2.21 presents the ranking in each is a global ranking of what governments tions, thresholds, and revenue generated pillar, and overall, of selected countries in Note: Data presented is for the earliest and latest year for which the measure of inequality is available in the last as a percentage of GDP. The index fur- twenty years for a particular country. in different countries are doing to tackle South Asia. Among South Asian countries, Source: World Development Indicators, World Bank. the gap between rich and poor. It measures ther identifies the existence of harmful tax Sri Lanka performs best, ranking 102nd. practices and anti-tax avoidance laws. Thailand performs relatively better among

28 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measuring inequality in Pakistan 29 FIGURE 2.21 East Asian countries, ranking 74th. Gen- Notes 8 Jamal 2018. erally, East Asian countries perform better 9 Data based on table 11 of multiple rounds of the Pa- CRI index 2018: South Asia, country rankings out of 157 countries on the CRI Index than South Asian na- kistan Social and Living Standards Measurement Survey tions. * Name changed to protect the informant’s identity. This between 2006 and 2019. Government of Pakistan 2006b, Country name / Change in Gini-coefficient Nepal / N.A. Bangladesh / 0.15 Sri Lanka / 0.38 Pakistan is near the bottom, ranking story was shared during the NHDR focus group discus- 2010g, 2012c, 2013d, 2015c, and 2020f. Pakistan / -0.32 India / 0.42 Bhutan / 0.73 sion in Tharparkar, Sindh, on 20 June 2019. The language 137th out of 157 countries, placing it sec- 10 CDC 2019. used was primarily Urdu. The quotes used in the story are 11 Government of Pakistan 1972 and 2010b. CRI Social Taxation Labour rights ond in South Asia after Sri Lanka. How- ranking spending policies and wages approximate translations. 12 Ibid. ever, in social spending its ranking (154th) Rank Rank Rank Rank 1 Government of Pakistan 2018c. 13 UNDP 2019. 1 1 1 1 is even lower. The overall position im- 2 Cobham and Sumner 2013. 14 The IHDI was developed in 2010, based on measures ex- proves because of its high ranking (61st) 3 For the methodology used to compute this ratio, see amined by Foster and others 2005. in terms of taxation policies. This is per- Technical note 2 on the Pashum ratio. 15 See the standard methodology for IHDI quantification de- 10 10 10 10 haps surprising given Pakistan’s relatively 4 Government of Pakistan 2020d. velopment in the global Human Development Reports. low tax-to-GDP ratio and its high share of 5 Anwar and others 2004; Anwer and Sampath 1996. 16 Refer to the standard methodology for HDI quantification 20 20 20 20 revenues from indirect taxes. Pakistan also 6 Government of Pakistan 2020d. in the global Human Development Reports. performs relatively well in terms of labour 7 See Technical note 1 on the underreporting of income. 17 UNDP 2019. 30 30 30 30 rights and wages, ranking 119th. A key issue is whether the ranking of

40 40 40 40 countries is consistent with the extent of change in inequality as measured by the Gini coefficient or the modified Palma ra- 50 50 50 50 tio. There appears to be a great deal of in- 60 60 60 60 consistency between CRI Index rankings and the rate of change in the Gini coeffi- 70 70 70 70 cient in recent years. Among the countries presented in figure 2.21, the fact that Sri

80 80 80 80 Lanka ranks highest in South Asia is con- tradicted by the rise in inequality in the country in recent years. 90 90 90 90 There is, therefore, a need to refine the CRI Index, and add an additional pillar 100 100 100 100 that focuses on the nature and outcome of economic policies that impact inequality. 110 110 110 110 Some suggested indicators include:

120 120 120 120 1. the rate of effective currency devalu- ation; 2. the level of nominal interest rates; 130 130 130 130 3. the rate of inflation in food prices rel- ative to the overall rate of inflation; 140 140 140 140 and 4. the rate of change in the level of em- 150 150 150 150 ployment as a ratio of the GDP growth rate. 157 157 157 157 The higher the magnitude of these in- Source: Transparency International 2018a. dicators, the likelier it is that a country’s government has a weak commitment to re- ducing inequality.

30 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 CHAPTER 3 Measures of regional inequality

32 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 33 CHAPTER 3 Measures of regional inequality

Now in her early 30s, Zafra* has worked at a brick kiln in Umerkot, Sindh, all her life. Her family is ‘bonded’ to the kiln’s owner by intergenerational debt – loans taken by her forefa- thers decades ago. As in most underdeveloped areas, life in Umerkot is difficult. Most days, Zafra and her family wake up at 5 a.m. and engage in manual labour until 6 p.m., working through the heat and smoke. She and her husband earn PKR 600 (US$3.6) for every thousand bricks they pro- duce, a target they aim to meet together daily. They can’t even afford to eat daal (lentils) on a daily basis. The family’s regular diet consists of red chillies ground into a paste and boiled in water, eaten with roti. As for meat, that is something they only get “Eid kay Eid’’ – once a year, at Eid. Here, children have no means of going to school. They work alongside their parents making bricks. The harsh working conditions often cause skin diseases, eye infections, and asthma, but these families can’t afford health care. Things are especially difficult for women. Sexual exploitation is common, sometimes at the hands of their landlords, says Zafra. Their husbands also often abuse them. Talking about domestic violence, one man says, “Sometimes, our women deserve it.” Most of the women, including Zafra, laugh. A lack of access to health care and education, food insecurity, and sexual exploitation are common in Pakistan’s underdeveloped districts. As many as 37.5 million people live in such districts today. Unless the pace of development is accelerated and oriented towards these communities, their situation will not improve. In fact, it may worsen.

Increasing differences in human develop- Inequality between ment and economic growth between Pa- provinces kistan’s regions make spatial inequality an extremely relevant issue for the country. The geographical boundaries of districts Disparity in per capita income among Pa- and provinces have come to define inequal- kistan’s four federating units – Punjab, ity, both in terms of income and opportu- Sindh, Khyber Pakhtunkhwa, and Baloch- 1 nity. Research shows that an individual’s or istan – is an important dimension of in- equality. Article 160 of Pakistan’s Consti- community’s region of residence has a pro- The 7th NFC Award, under tution provides the framework to set up found impact on their economic and so- Article 160 of Pakistan’s a National Finance Commission (NFC) cial development opportunities, enabling Constitution, calls for fiscal to decide on the nature of fiscal relations varying levels of growth, social mobility, redistribution among the between the federal and provincial govern- and access to public services, markets, and provinces to reduce regional ments, and address regional disparities. infrastructure. This chapter explores re- disparities. gional inequality from the perspective of The NFC is expected to bestow an award income and human development at various every five years, which lays out the share of levels – provincial, district, rural and ur- federal tax revenue to be transferred to the ban areas, and in terms of Pakistan’s special provinces, as well as a ‘horizontal sharing’ regions. formula among the provinces for these transfers (box 3.1). The 6th and 7th NFC Awards were mechanisms consciously built to foster a process of fiscal equalization.

34 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 35 BOX 3.1 SPECIAL CONTRIBUTION Sanaullah Baloch Seventh NFC Award: Fiscal equalization 7th National Finance Commission Award: Fiscal equalization

Earlier NFC awards made fiscal transfers to the provinces from the the rest is divided as follows: Federal Divisible Pool on the basis of each province’s share of the The human development landscape of Pakistan’s four federating Balochistan has not benefitted much from the 7th NFC scheme. national population. Balochistan 9.00 percent units is shockingly unequal. Since the country was founded, inequi- The stark socio-economic differences between the country’s prov- The 7th NFC Award fundamentally changed the sharing formula by Khyber Pakhtunkhwa 15.47 percent table resource distribution has created massive regional disparities inces are evident in Pakistan’s first ever Multidimensional Poverty introducing multiple criteria, namely: Punjab 51.22 percent and political turmoil, including the country’s break-up in 1971. Index (MPI), launched in June 2016. Punjab’s central and northern Sindh 24.31 percent The Constitution of 1973 attempted to redress fiscal imbalances districts recorded poverty rates of less than 10 percent, compared Population 82 percent through Article 160, setting up the National Finance Commission that to the alarming rate of over 70 percent in Balochistan and the New- aims to equally distribute financial resources to the four provinces to ly Merged Districts of Khyber Pakhtunkhwa (formerly known as the Poverty backwardness 10.3 percent The 7th NFC Award also increased the combined provincial share meet their expenditure liabilities and alleviate horizontal fiscal im- Federally Administered Tribal Areas). Revenue collection or generation 5.0 percent from the Divisible Pool from 46 to 57.5 percent. balances. The 7th NFC Award did lead to increased spending in social sec- Inverse population density 2.7 percent Thus, Pakistan’s two relatively more underdeveloped provinces, However, undemocratic regimes have often sabotaged the dem- tors, such as education and health, but there is growing concern that Balochistan and Khyber Pakhtunkhwa, receive a fiscal share that is ocratic idea of fair and equal resource distribution. This has led to this has not led to qualitative changes. In Balochistan, recent data Prior to the distribution to the provinces, a 1 percent share from the larger in proportion to their population. The 7th NFC Award remains immense, unconstitutional delays in terms of announcing and imple- indicate a rise in infant mortality, a decrease in primary education Divisible Pool goes to Khyber Pakhtunkhwa to help finance the war on in place and its aspirations of distributing more funding to underde- menting the NFC Awards in a timely manner. enrolment, and a downward trend in the overall literacy rate. terror. After the allocation of this 1 percent to Khyber Pakhtunkhwa, veloped provinces remains valid. The 7th NFC Award, effective since 10 July 2010, addressed a These challenges are largely related to governance and public longstanding demand of Pakistan’s more underdeveloped provinces. expenditure management. Most spending goes to non-development To this end, they increased the per capita in economic growth.3 Previously based on the single criterion of population, the 7th NFC sectors, such as increased salaries and overhead costs. In order to achieve fiscal equalization, Pakistan’s provinces are transfer of revenue to the two provinces Figure 3.1 presents the provincial shares Award introduced, for the first time, multiple indicator criteria for distributing resources. To this end, it introduced two major changes. also demanding the inclusion of more relevant and fair multiple indi- that lag behind financially: Balochistan of the national economy, and of the pop- One was a sizable reduction, of 10 percent, in the share of the Fed- cator criteria, so that resource distribution is based on actual dispar- and Khyber Pakhtunkhwa. FIGURE 3.1 eral Government and the introduction of multiple indicator criteria ities and realities. For example, in 2018, the Balochistan Assembly (MIC) such as poverty (10.3 percent), revenue generation (5 percent), unanimously adopted my resolution to include further benchmarks, Inequality in income Share of provinces in the national GDP, and inverse population density (2.7 percent), including a minimal like the inclusion of criteria such as geographical area, coastline, in- The fundamental question is: Have fiscal (2018-2019) and total population, (2017) change in the weight of the population share (82 percent, down from ternational borders, economic potential (natural and marine resourc- 100 percent), among other measures. es), and poverty. The upcoming NFC Award needs to give justified transfers and broader regional develop- Balochistan Khyber Pakhtunkhwa Sindh Punjab These changes in the 7th NFC Award did not take place overnight. weightage to these areas. ments helped to reduce regional inequality They are the result of a long and consistent struggle by Pakistan’s Finally, to achieve fiscal equalization, the Federal Government in Pakistan? This section attempts to an- three smaller provinces for equitable resource distribution. must introduce conditional transfers and matching grants linked es- swer the question by quantifying the extent 4.5% 12.0% Yet after all these years of struggle, the achievement of fiscal pecially with social needs like health care and education. This will of regional income inequality in Pakistan, equality in Pakistan seems a distant dream. Due to persistent under- ensure that essential services are provided at the required minimum and determining whether it has increased development and weakened institutional structures, a province like levels. or decreased since 1999–2000. GDP share In countries like Malaysia, Thailand, 29.2% Sanaullah Baloch is a Member of the Provincial Assembly of Balochistan. He has served as a Senator, as a Member of the National Assembly of Paki- and India, national statistical agencies 54.3% stan, and as UNDP Senior Constitutional Adviser in Somalia and Sierra Leone. provide GDP estimates for each state. In Notes: Government of Pakistan 2010a; Government of Pakistan 2016. Pakistan, however, there are no official es- timates of gross regional product (GRP), ulation. Punjab has the largest regional largest share of Pakistan’s national econo- 6.1% including the inflow of home remittances economy, accounting for 54.3 percent of my, is close to the country’s overall growth Punjab has the largest regional for each province. Such information comes 15.0% Pakistan’s GDP. The other three provinces, rate. Sindh showed exceptional growth in economy and the highest share from independent academic studies by Sindh, Khyber Pakhtunkhwa, and Baloch- the early 2000s when modern sectors like in GDP, followed by Sindh, various economists that seek to estimate Population share istan have shares of 29.2 percent, 12.0 per- large-scale manufacturing, banking, and Khyber Pakhtunkhwa, and provincial GRPs. The most recent book cent, and 4.5 percent, respectively. telecommunications demonstrated con- Balochistan. on growth and inequality in Pakistan2 23.6% 55.3% The gap between Pakistan’s provinc- siderable buoyancy. Khyber Pakhtunkhwa provides provincial GRPs, estimated from es has also varied because of fluctuating maintained a GRP growth rate consistently 1999–2000 to 2017–2018. These esti- growth rates in each province’s gross re- above the national average, despite large- mates are based on the distribution of each Note: Islamabad Capital Territory is included in Punjab, FATA is gional product. Figure 3.2 presents the an- scale migration from Afghanistan and fre- sector’s value addition among the four pro- excluded. Gross Regional Product (provincial GDP) does not include nual growth rates of each province’s GRP quent acts of terrorism since 11 September vincial economies. The NHDR 2020 uses foreign income (remittances). Source: Government of Pakistan 2018g; Pasha 2019. in different periods. 2001. these results to assess provincial disparities Punjab’s growth rate, accounting for the The dynamism in Khyber Pakhtunkhwa

36 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 37 FIGURE 3.2 cators has consistently lagged behind, even capita income, Sindh, and the one with the FIGURE 3.3 in sectors where it has a comparative ad- lowest, Balochistan (figure 3.4 and box 3.3, Growth rates of provincial gross regional product at constant 2005-2006 The per capita GRP of all provinces has increased, except for Balochistan, prices, (1999-2019) vantage, such as reserves – once p. 41). (1999-2019) a major source of provincial income. Over Table 3.1 presents the provincial dis- % the years, the annual production of natural tribution of Pakistan’s population across 80,000 7 gas has fallen rapidly, worsening with pow- different national income quintiles. Some Sindh er load-shedding. Severe water constraints clear patterns are visible. The poorest na- 6 have restricted agricultural growth, while tional income quintile (Q1) includes the 70,000 a steady influx of migrants from northern segment of the population living in ex- Khyber Pakhtunkhwa Punjab 5 Pakistan have further strained Baloch- treme poverty. Balochistan’s and Sindh’s 60,000 istan’s resources. shares in this quintile are high compared Pakistan Surprisingly, Balochistan had a relative- to their share in the overall national pop- 4 Punjab ly high level of per capita income in 1999– ulation distribution. Khyber Pakhtunkhwa 50,000 Khyber 2000, second only to Sindh (figure 3.3). has a higher share of Pakistan’s lower mid- Pakhtunkhwa 3 Gas production at the Sui Gas Field was at dle class, represented by the second quin- Balochistan Pakistan Sindh its peak, and the Hub Industrial Estate was tile (Q2), compared to its overall share in 40,000 Balochistan 2 set up in Balochistan, located strategically the country’s population (box 3.2). Punjab near Karachi. Fiscal incentives led to Hub has a larger share of the two richest quin- becoming a popular site for industrial re- tiles (Q4 and Q5). 30,000 1 location. The supply of water from the Pat There have been major changes in pro-

Feeder Canal started up in northern Ba- vincial rankings in terms of GRP per cap- 0 0 lochistan, enabling a quantum jump in ag- ita between 1999–2000 and 2016–2017. 1999-2000 2007-08 2012-13 2018-19 1999-2000 2007-08 2012-13 ricultural production, especially of vegeta- As noted above, Balochistan fell from 1999-2000 to 2018-2019 to to to bles. But the province’s per capita income second to fourth place, while Khyber 2007-08 2012-13 2018-19 in real terms has fallen ever since. Today, Pakhtunkhwa ascended from fourth to Growth -1 -0.5 0 0.5 1 1.5 2 2.5 1999-2000 to 2018-2019 18 years later, it is 7 percent lower, despite third place. In tandem, Punjab improved rate a slight improvement from 2012–2013 to its ranking, moving from third to second

0 1 2 3 4 5 6 2017–2018. Rapid population growth of place. Sindh is the only province with no over 3.4 percent per annum has also con- change in its ranking, remaining ahead of tributed to Balochistan’s decline. all other provinces in terms of GRP per Khyber Pakhtunkhwa is at the opposite capita. 4.2 end of the spectrum, as the trade devel- Overall, these changes in the relative Balochistan Khyber Pakhtunkhwa Punjab Sindh Pakistan opments and remittances discussed above position of Pakistan’s provinces imply an Note: GRP is calcuated at constant prices of 2005-2006, in PKR. have spurred growth. In 1999–2000, the increase in interprovincial income inequal- Source: Pasha 2019. Balochistan Khyber Pakhtunkhwa Punjab Sindh Pakistan province’s per capita income was almost ity (figure 3.5, pg 41). It appears that the 26.9 percent below the national average. process of fiscal equalization initiated by FIGURE 3.4 Source: Pasha 2019. By 2017–2018, it was 21.3 percent below the 7th NFC Award has failed to bridge The ratio of Sindh's-to-Balochistan’s per Pakistan’s average, despite the provinces the gaps in per capita income across the capita income is increasing, (1999-2018) stems from rapid growth in both inter- fast population growth rate of 2.8 percent country’s provinces. national and domestic remittances – the per annum. 0 1 2 3 province accounts for over one-third of Sindh’s per capita income, which was 21 Inequality in different sources Balochistan Sindh Pakistan’s home remittances. This has led percent higher than the national average of income 1999-2000 1:1.08 to a boom in construction and the demand in 1999–2000, has risen to 22.2 percent. The gap between the provinces for various services in the province. The Punjab, meanwhile, has consistently re- 2007-2008 1:1.48 with the highest and lowest It may be worthwhile to go a step further flow of North Atlantic Treaty Organiza- mained close to the national average. Con- 2012-2013 1:1.52 per capita income, Sindh and to understand the potential reasons for tion (NATO) supply traffic and the transit sequently, widening regional disparities Balochistan, has increased over regional disparities in income. In 2018– 2017-2018 1:1.65 trade to Afghanistan have also stimulated are evident when we only consider Sindh’s the years. 2019, Punjab still accounted for 60.7 per- the province’s informal sector. and Balochistan’s per capita income. Since cent of Pakistan’s total household income, Balochistan is the only province whose 1999, the gap has constantly increased be- while Sindh accounted for 22.4 percent, Source: UNDP calculations based on Pasha, 2019. performance on crucial development indi- tween the province with the highest per Khyber Pakhtunkhwa for 12.7 percent,

38 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 39 BOX 3.2 FIGURE 3.5 TABLE 3.2

The buoyancy of Khyber Pakhtunkhwa’s economy Trend in interprovincial income inequality, Share of provinces in annual national income by sources (%), (2018-2019) (1999-2000 and 2016-2017) Khyber Pakhtunkhwa’s economy has shown exceptional buoyancy fostered a buoyant informal economy, including illicit trade. and resilience over the last two decades. Since 1999–2000, when it Khyber Pakhtunkhwa’s economy now accounts for a higher share Gini coefficient Khyber had the lowest per capita income among Pakistan’s provinces, it has of national value added in key sectors – such as construction, trans- Punjab Sindh Pakhtunkhwa Balochistan Pakistan 10 10 overtaken Balochistan and come close to the per capita income of port, communications, housing services, and social and community Population 54.7 23.8 15.3 6.2 100.0 Punjab. services – compared to its overall share in Pakistan’s GDP. Household income 60.7 22.4 12.7 4.2 100.0 The average annual growth rate of Khyber Pakhtunkhwa’s gross The 7th NFC Award increased the province’s share of federal trans- 9 regional product has been 5.2 percent since 1999–2000, compared fers from 13.5 percent to 17.2 percent, inclusive of straight transfers Wages and salaries 54.4 28.9 10.7 6.0 100.0 8 8 to 4.2 percent for the country as a whole. With a population growth like hydro-electricity profits. This includes an additional 1 percent Crop production 67.4 21.5 6.0 5.1 100.0 rate of 2.8 percent, this has implied an annual average growth rate in share for financing efforts to counter terrorism. Livestock 75.7 9.5 13.3 1.5 100.0 real per capita income of 2.4 percent. Khyber Pakhtunkhwa’s different provincial governments have all 7 Two primary sources underlie this growth. First, growth is stimu- placed particular emphasis on using these larger transfers to achieve Other non-agri activities 64.5 19.0 13.5 3.0 100.0 lated by the inflow of home remittances, both foreign and domestic. a higher level of human development. Consequently, the rates at 1 Property income 57.9 28.5 10.0 3.6 100.0 The former are currently estimated at over US$6 billion. These in- which school enrolment and literacy have increased have been the Social Protection 63.8 17.2 16.9 2.1 100.0 flows have added both to the province’s overall income by almost fastest in the country. 0 18 percent, while simultaneously acting as a major stimulus for the A word of caution is needed here. Khyber Pakhtunkhwa has pri- 1999-2000 2016-2017 Foreign remittances 66.5 3.0 29.8 0.7 100.0 domestic economy. marily relied on external factors to achieve higher growth, with a Domestic remittances 71.9 0.7 26.4 1.0 100.0 Remittances have financed a housing construction boom in Khy- limited focus on domestic stimulants. Consequently, the primary and Pashum ratio ber Pakhtunkhwa. Housing units with two or more rooms account secondary sectors – especially the major crop and large-scale manu- 0.4 Source: UNDP calculations based on HIES, 2018-2019 for 80 percent of its total number of housing units, compared to 68 facturing sectors – have not been adequately focused on. Private in- percent in other provinces. Demand for better services, like educa- vestment’s role in productive sectors remains extremely limited. This 0.28 er share of national income derived from tion and health care, has soared. Domestic remittances have had an is reflected in the fact that, although bank deposits exceed PKR 1.1 0.25 0.2 crop production and livestock, other equalizing impact and reduced the income differential between urban trillion, the volume of advances in the province is only PKR 87 billion. non-agricultural activities, social protec- and rural areas, as well as between households. Emerging developments may negatively affect Khyber Pakh- tion, foreign remittances, and domestic Second, growth has been stimulated by developments in the Af- tunkhwa’s prospects for growth. First, the inflow of remittances could remittances. By contrast, the lowest share ghan War after 2001. The transport sector and associated services decline significantly in the wake of the COVID-19 pandemic and the 0 have witnessed greatly expanded activity due to the movement of sharp fall in oil income among countries in the Middle East. Second, 1999-2000 2016-2017 of its income is derived from wages and NATO supplies to bordering Afghanistan, and the growth in transit if the United States of America withdraws from Afghanistan, traffic salaries, and property. The fact that Punjab traffic of goods exported by various countries, including India. Paki- flows could be badly affected. Third, the Newly Merged Districts will Source: UNDP calculations based on HIES, 2005-2006, 2011-2012, is largely an agrarian economy may explain 2015-2016, and 2018-2019. stan’s exports to Afghanistan have also increased. require special development allocations, partly financed by federal the high share of income derived from crop The surge in economic activity promoted by both factors has grants, to tackle their relative underdevelopment. This makes it es- more than compensated for the relatively high incidence of terrorist sential that Khyber Pakhtunkhwa’s provincial authorities devise a BOX 3.3 attacks and power outages in the province. They have particularly growth strategy that is more reliant on domestic factors. Balochistan falls behind

Balochistan has fallen behind in development in the last two de- Today, Balochistan is home to 6 percent of Pakistan’s population, TABLE 3.1 and Balochistan for just 4.2 percent. cades. At the turn of the present century, its per capita income was represents the largest provincial share of its land area (44 percent), This section explores regional dispari- second only to Sindh, and higher than that of Punjab and Khyber Pa- and accounts for only 4.5 percent of national GDP. Balochistan has a Provincial distribution of population in national income quintiles, ties in income by analysing income sourc- khtunkhwa. Now, it is the province with the lowest per capita income, comparative advantage in economic sub-sectors in which it accounts (2018-2019) es that make up total household income almost 24 percent below the national average. for a higher share of national output than its overall share in the na- in each province. These, as measured by What happened in the intervening years? In part, its slow growth is tional economy. These sub-sectors are minor crops, forestry, fishing, due to a high population growth rate. Provincial growth began to slow mining and quarrying, electricity and gas, and government services, Quintile Quintile Quintile Quintile Quintile Share in the Pakistan Bureau of Statistics (PBS), 1 2 3 4 5 national include income from wages and salaries, in the Musharraf era. While the national economy grew relatively fast, with shares of 23 percent, 8 percent, 11 percent, 21 percent, 6 per- () () () () () population crop production and livestock, self-em- at a rate of 5.2 percent, Balochistan’s growth rate languished at only cent, and 7 percent, respectively. 3.1 percent. Since 2008, the difference in the national and provincial The unit costs of development and the maintenance of services Punjab 44.7 49.1 52.7 58.1 64.7 53.9 ployment, property, foreign remittances, GDP growth rates has fallen to 1 percentage point. are higher in Balochistan because of its low population density and Sindh 26.9 21.7 22.5 22.2 21.7 23.0 domestic remittances, social protection, Initially, Balochistan had a dominant share of natural gas produc- relatively low urban population share (28 percent). The dominance of and other sources. Khyber Pakhtunkhwa 18.9 20.1 18.9 16.0 11.4 17.1 tion in Pakistan from the Sui Natural Gas Field. The Hub Industrial Es- the capital city, Quetta, is pronounced. Its share of the urban popu- Given the different resources and pop- tate in Balochistan, located strategically close to Karachi, witnessed lation is 32 percent. There is a clear need for the development of a Balochistan 9.3 9.0 5.8 3.4 2.08 5.9 ulation sizes of each province, varied pro- substantial investment. In tandem, the production of fruits and veg- network of secondary cities and towns across the province. Pakistan 100 100 100 100 100 100 portions of these income sources contrib- etables took off. The sub-sectors which lag behind in Balochistan, compared to the

Source: UNDP calculations based on HIES, 2018-2019. ute to household income (table 3.2). Punjab accounts for a relatively high-

40 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 41 BOX 3.3 (CONTINUED) TABLE 3.3 tively better progress on life expectancy. Balochistan falls behind Punjab follows close behind with the sec- Extent of regional inequality, (2018-2019) ond highest provincial HDI value. It also rest of Pakistan, are major crops, manufacturing, transport and com- leads on education, with the highest net munications, finance, insurance, and private services. Their shares in (i) enhancing the role of the private sector in industry, housing Weighted Pashum ratio Rank enrolment ratio and literacy rate. Khyber national value added range from only 2 to 3 percent. The province has and services. This will require greater access to credit. A Wages and salaries 0.11 8 Pakhtunkhwa places third, while Baloch- largely been excluded from the process of financial intermediation. scheme for financing at lower interest rates by the State Bank Crop production 0.34 7 istan has the lowest provincial HDI value Today, the size of Balochistan’s banking sector is only 1 percent of of Pakistan is needed in relatively less developed parts of Pa- (figure 3.6). the sector’s value added in Pakistan. While its share of deposits is 2.2 kistan. There must be a continued focus on sub-sectors in Livestock 0.70 3 If we apply the global categories of the If we apply global HDI categories percent, its share of advances is only 0.3 percent. There is, therefore, which, as highlighted above, Balochistan has a comparative Other non-agri activities 0.43 4 Human Development Index to Pakistan’s a net transfer of resources from Balochistan to the rest of the coun- advantage. to the provinces, Punjab and Property income 0.37 6 provinces, Punjab and Sindh fall in the me- try. Private sector development in the province has been frustrated by (ii) filling gaps in physical infrastructure at a more rapid pace. Sindh have medium human a lack of access to credit. This will also facilitate the development of the province’s Social protection 0.41 5 dium human development category, while development, whereas Khyber Khyber Pakhtunkhwa and Balochistan fall The absence of physical infrastructure is the other major con- mineral resources. Partnerships should be sought with multi- Foreign remittances 5.17 2 Pakhtunkhwa and Balochistan straint in Balochistan. Water is a basic limiting factor to the devel- lateral development agencies. The institutional capacity of in the category of low human development. have low human development. Domestic remittances 5.57 1 opment of its agricultural sector. Roads in the province account for provincial line departments will need to be strengthened to Despite ranking third, Khyber Pakh- just 14 percent of the national road network, even though its share of ensure the timely, cost-effective implementation of projects. Source: UNDP calculations based on HIES, 2018-2019 land area is over three times larger. Balochistan’s share of electricity (iii) harnessing the promise of the China-Pakistan Economic Cor- FIGURE 3.6 consumption is only 4 percent, a large part of which (75 percent) is ridor (CPEC) of providing a big push to Balochistan’s devel- between provinces. The results reveal that used for agricultural tube-wells. opment. The Gwadar port project is near completion, and the the greatest inequality exists in domestic Provincial Human Development Index, The 7th NFC Award has given new impetus to Balochistan’s devel- first phase of the free industrial zone has been finalized. The remittances, followed by foreign remit- (2018-2019) opment. Today, the per capita transfer to the province is almost twice early completion of CPEC’s eastern corridor to Gwadar is ur- tances. Punjab and Khyber Pakhtunkhwa HDI the national average. Consequently, the latest figures for 2019–2020 gently needed. Special incentives should be granted for the account for a much higher share of these 1.000 indicate that Balochistan’s current and development expenditures location of industrial units and housing in Gwadar. Moreover, income sources than Pakistan’s two other were 9 percent and 15 percent, respectively, of total spending by the development of Balochistan’s coastal belt should pro- provinces. Pakistan’s provinces. The greatest shares in development spending mote fishing and the offshore exploration of oil and gas. 0.900 are allocated to augmenting water resources, communications, and The third greatest level of inequality is social sectors. It is hoped that, in the years to come, the growth rate of Balochistan’s evident in income from livestock, followed Balochistan’s future development strategy will need to focus on: economy will catch up with that of the rest of Pakistan. by other non-agriculture activities. Pun- 0.800 jab’s agrarian economy earns almost eight times more income from livestock than 0.700 production and livestock. es rice, fruit, and vegetables. Sindh, six times more than Khyber Pakh- Khyber Pakhtunkhwa accounts for a Balochistan, with the lowest popu- tunkhwa, and 52 times more than Baloch- 0.600 relatively large share of national income lation density in Pakistan – that is, the istan. 0.572 0.574 0.546 accruing from remittances, both foreign largest area and smallest population – ac- Inequality is least pronounced in in- 0.500 and domestic. However, it has a low share counts for a relatively high share of nation- come derived from wages and salaries, 0.473 of income derived from wages and salaries, al income derived from wages and salaries, followed by property. However, regional crop production, and property. This dif- and crop production. All other sources of differences also exist in these sources of in- 0.400 ference in income sources can be partially income continue to be small. Formal sector come, which remain low compared to oth- explained by the province’s terrain, which employees in Balochistan have relatively er income sources. 0.300 is mostly mountainous. Thus, only 30 per- higher pay compared to those engaged in cent of its land is cultivable.4 all other sources of livelihood. Moreover, Inequality in human development 0.200 Sindh, with Karachi – Pakistan’s finan- the size of Balochistan’s provincial govern- cial hub – at its core, boasts a large formal ment is relatively large. Analysing regional inequality through the sector. This explains why Sindh is a major Table 3.3 presents the extent of in- lens of the Human Development Index 0.100 source of national income derived from terprovincial inequality across different involves a multifaceted approach that cap- wages and salaries, followed by the second sources of income. It uses the weighted tures access to education and health care, 0 highest share of income earned from prop- Pashum ratio, instead of the simple ratio alongside trends in income. At present, Balochistan Khyber Punjab Sindh erty. Its third greatest source of national in- (see Technical note 2 for details). The Sindh is ahead of Pakistan’s other provinc- Pakhtunkhwa come is crop production, largely because, weighted Pashum ratio is used when the es, with the highest provincial HDI val- apart from Karachi, most of Sindh has an distribution of income is not in quintile ue. This is because of its leading position Source: UNDP calculations based on HIES, 2018-2019; PDHS, 2017- 2018; and Pasha, 2019. agriculture-based economy which produc- form; in this case, the distribution is only in terms of GDP per capita, and its rela-

42 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 43 tunkhwa stands out as the province with FIGURE 3.7 derailed, implying the deceleration of so- Punjab the most rapid and substantial improve- cial development. Despite an insignificant change The HDI of all provinces improved minimally in provincial HDI values initially, ment in human development over the after 2016, (2006-2019) Between 2016 and 2019, all of Paki- Pakistan’s most populous province, Pun- years. Balochistan fares worst, as the only stan’s provinces managed to improve their jab, is home to some of the country’s best all four provinces improved 6 these values between 2016 and province that has experienced deteriora- HDI HDI values (figure 3.7). This improve- education and health facilities. With its tion rather than improvements, with its 1.000 ment can be attributed to smooth shift to large population, productive agriculture 2019. HDI value decreasing in the past decade. a third democratic government, political and livestock sector, and large concentra- Khyber Pakhtunkhwa The provinces have maintained these 0.900 stability, and increased income per capita. tion of small and medium-sized enterprises experienced the highest growth ranks since 2006–2007, although Khy- Chapter 5 provides a detailed analysis on (SMEs), Punjab is a major driver of, and in its HDI value from 2007 to ber Pakhtunkhwa experienced the highest the lack of progress on social indicators. contributor to, Pakistan’s economy. 2019. growth in its HDI value between 2007 and 0.800 Table 3.4 presents the regional differ- 2019 (figure 3.7). This underscores its rap- ences in HDI values compared to the aver- Vertical inequality in income Punjab and Sindh have 5 id social and economic progress, despite 0.700 age national HDI magnitude. This reveals higher HDI values than the conflict and instability. From 2006–2007 which dimension of the HDI contributes GDP per capita is a useful measure for an- national average, while Khyber to 2012–2013, the HDI values of both most to each province’s HDI value. Pun- alysing the distribution of income across Pakhtunkhwa and Balochistan 0.600 Sindh Punjab and Sindh markedly improved, Punjab jab’s HDI value is higher than the nation- different groups. In Punjab, the provin- have HDI values that fall below followed by a decline. The size of this de- Pakistan al value principally because of the higher cial GDP per capita of the richest quintile the national average. Khyber crease was more pronounced in Sindh than 0.500 Pakhtunkhwa contribution of, and better performance (Q5) is 5.2 times higher than that of the in Punjab. Even so, the HDI values of both Balochistan on, education. In Sindh, the difference is poorest quintile (Q1) (figure 3.8). There is provinces have improved in the long-term due to the province’s better performance in also a sharp difference between the GDP from 2006–2007 to 2018–2019. 0.400 terms of the HDI’s health and income di- per capita of the fourth and fifth quintiles. Balochistan’s HDI value improved least mensions. The HDI values of both Khyber Figure 3.9 shows that the gap between

between 2006–2007 and 2018–2019. 0.300 Pakhtunkhwa and Balochistan are below rich and poor increased slightly in Punjab Like Pakistan’s other provinces, its HDI the national HDI value largely due to poor in terms of GDP per capita between 2006 value improved slightly from 2006–2007 performance on education. and 2019. The values of three of the mea- 0.200 to 2012–2013 and, after a slight dip in TABLE 3.4 sures of inequality used in this report – 2015–2016, it rose back to its previous lev- the Gini coefficient, the Palma ratio, and

el of 0.473 by 2018–2019. The ratio of the 0.100 Difference between provincial HDI values the Pashum ratio – increased for Punjab HDI value of the province that performs and the national HDI value, (2018-2019) during this period. From 2012 to 2016, best (Sindh) to the province that performs 0 FIGURE 3.8 worst (Balochistan) increased from 1.12 Education Health Income HDI in 2006–2007 to 1.21 in 2018–2019. Punjab 1.03 0.97 1.00 0.99 Punjab’s richest quintile has over 5.2 times 2006-07 This highlights the growing inequality 2012-13 2015-16 2018-19 more GDP per capita (PPP $) than the Sindh 0.99 1.01 1.02 1.02 between these provinces. By contrast, the poorest, (2018-2019) ratio of Sindh’s HDI value to Khyber Pa- Source: UNDP calculations based on multiple years of HIES, 2005- Khyber Pakhtunkhwa 0.95 1.03 0.98 0.96 2006, 2011-2012, 2015-2016, and 2018-2019; PDHS, 2006-2007, khtunkhwa’s gradually declined, from 1.08 2012-2013, and 2017-2018; Pasha, 2019. Balochistan 0.86 0.99 0.97 0.82 Q5 in 2006 to 1.05 in 2019, reflecting the pace Richest 10,617 Source: UNDP calculations based on provincial HDI data of NHDR at which Khyber Pakhtunkhwa is catching First, the initial years between 2006 and 2020. Q4 up. 2012 were marked by a relatively high 5,065 Overall, as noted above, the HDI values GDP growth rate which potentially al- Q3 3,865 of all four provinces improved from 2006– lowed greater investment in social ser- Inequality within provinces 2007 to 2012–2013 before either declini- vices, such as education and health care. Q2 2,886 ing or remaining constant until 2016. The This investment gradually declined after Moving on from the discussion of inter- decrease in Sindh’s and Balochistan’s HDI Q1 2012–2013. Second, the strong local gov- provincial inequality, this section explores 2,016 values, and the lack of progress in Punjab’s ernment system established by the military inequality within each province in terms Poorest and Khyber Pakhtunkhwa’s values after government in the Musharraf era, through of both income and human development. 2013, is largely due to the stagnation or the Local Government Ordinance of 2001, This is known as ‘vertical inequality’ as it GDP per capita deceleration of social development from also helped to improve the decentralized measures differences in human develop- 2013 to 2016 (figure 3.7). delivery of public services. However, after ment and income between different in- Source: UNDP calculations based on Pasha, 2019 and HIES, 2018- 2019. Two key factors explain this trend. 2012–2013, progress on local governance come classes, that is, by quintiles.

44 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 45 FIGURE 3.9 in HDI values between income quintiles. Sindh quintile also decreased slightly between In Punjab, income inequality The HDI value of the richest 20 percent 2016 and 2019. increased from 2006 to 2019. Income inequality in Punjab has increased of Punjab’s population is 1.63 times higher over the years, (2006-2019) Sindh is Pakistan’s third largest province in than that of the poorest 20 percent (figure terms of land area, and the second largest Vertical inequality in human develop- Modified Palma ratio 3.10). Applying the HDI’s global catego- with respect to its share of the total pop- ment 6 rization of countries – into high, medium, ulation.8 It is a major centre of economic 5.37 5.27 5.18 and low human development – reveals that The HDI value of Sindh’s richest quintile 5 activity; with its coastline and seaports, it 4.87 the two poorest quintiles in Punjab have has traditionally been a trading hub. (Q5) is 1.79 times more than that of its 4 HDI values in the range of low human de- poorest quintile (figure 3.13). The HDI velopment countries. By contrast, the HDI Vertical inequality in income value of the richest 20 percent of Sindhis 0 values of Punjab’s middle and upper quin- places them in the high human develop- 2006-07 2012-13 2015-16 2018-19 tiles (Q3, Q4, and Q5) falls in the range of Analysing Sindh’s GDP per capita in terms ment category. The four other quintiles Gini coefficient middle human development countries. of purchasing power parity (PPP $) reveals fall in the range of low to medium human 40 In comparative terms, income inequal- stark inequality between rich and poor development. ity in Punjab has always been greater Excluding the dimension of income in- 33 (figure 3.11). The GDP per capita of the 32 32 than inequality in education and health. equality reveals that there is comparatively 30 31 richest 20 percent of Sindh’s population In Sindh, income inequality Among these two dimensions, inequality more inequality in Sindh’s education in- (Q5) is 5.3 times more than that of the decreased from 2006 to 2019. 0 is more pronounced in terms of access to poorest 20 percent (Q1). 2006-07 2012-13 2015-16 2018-19 education, and adult literacy in particular. Economic progress for the richest quin- FIGURE 3.12 Factors that contribute to this situation tile between 2006 and 2016 led to high Income inequality in Sindh has decreased 1 include the limited devolution of deci- income inequality until 2016. As a result, Pashum ratio over the years, (2006-2019) sion-making powers to district education during these 10 years, all three measures of authorities, a lack of capacity, and issues 0.5 0.53 0.54 0.50 0.54 inequality spiked (figure 3.12). From 2016 Modified Palma ratio surrounding public finance management. to 2019, the modified Palma ratio, the 7 6.40 While Punjab’s education budget has in- Gini coefficient, and the Pashum ratio all 6.31 0 creased, progress is blocked by the low uti- 6 2006-07 2012-13 2015-16 2018-19 decreased, showing that the gap between 5.57 lization of the development budget, and 5.33 the richest and the poorest 20 percent of 5 Source: UNDP calculations based on HIES, 2005-2006, 2011-2012, the mismatch between the budget and the 2015-2016, and 2018-2019. 7 Sindh’s population decreased. On average, targets of reform agendas. the difference between each successive 0 2006-07 2012-13 2015-16 2018-19 FIGURE 3.10 GDP per capita increased for all quintiles, FIGURE 3.11 Gini coefficient as the economy gradually emerged from Punjab’s richest quintiles enjoy higher 40 human development compared to the recession. As a result, inequality declined Sindh’s richest quintile has 5.3 times more 36 36 during these years. After 2016, alongside poorest, (2018-2019) 33 GDP per capita (PPP $) than the poorest, 30 31 improvements in the overall economy, (2018-2019) Q1 Q2 Q3 Q4 Q5 the formal sector – which employs high- Poorest Richest ly-qualified individuals, most of whom 0 Q5 2006-07 2012-13 2015-16 2018-19 are from households in the richest quin- Richest 12,799 tile (Q5) – showed the highest growth in employment. This increased the GDP per Q4 6,308 1 capita of Punjab’s richer quintiles com- Pashum ratio Q3 4,884 0.504 pared to its poorer quintiles, thereby wid- 0.559 0.617 0.64 0.63 0.57 0.55 ening the disparity between them. 0.7 0.692 0.5 0.6 0.424 0.5 Q2 3,692 0.4

0.3 Vertical inequality in human develop- HDI Q1 2,401 ment Poorest 0 GDP per capita 2006-07 2012-13 2015-16 2018-19 Dividing Punjab’s total population into five Source: UNDP calculations based on Pasha, 2019; HIES, 2018-2019; equal groups reveals a significant difference and PDHS, 2017-2018. Source: UNDP calculations based on Pasha, 2019 and HIES, 2018- Source: UNDP calculations based on HIES, 2005-2006, 2011-2012, 2019. 2015-2016, and 2018-2019.

46 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 47 FIGURE 3.13 VerticalFIGURE 3.14 inequality in income FIGURE 3.15 FIGURE 3.16 Sindh’s richest quintiles enjoy higher human Income inequality in Khyber Pakhtunkhwa Khyber Pakhtunkhwa’s richest quintiles enjoy ThereKhyber is somewhatPakhtunkhwa’s less difference richest quintile between has development compared to the poorest, almost 4 times more GDP per capita (PPP $) has decreased over the years, (2006-2019) higher human development compared to the (2018-2019) thethan GDP the per poorest, capita (2018-2019) (in PPP $) of the rich- poorest, (2018-2019) est and poorest quintiles in Khyber Pakh- Modified Palma ratio Q1 Q2 Q3 Q4 Q5 6 Q1 Q2 Q3 Q4 Q5 Poorest Richest tunkhwa. In 2018–2019, the richest quin- Poorest Richest Q5 5.04 tile’s RichestGDP per capita was 7,320 almost four times 5 that of the poorest quintile (figure 3.14). 4.49 In Khyber Pakhtunkhwa, income Q4 4,157 4 A steep increment in GDP per capita be- 3.98 3.94 inequality decreased substantially tween the fourth and fifth quintiles is also 0.484 3 0.524 0.576 from 2006 to 2019. 0.8 Q3 3,187 0.470 0.7 0.550 notable. 0.629 0.7 0.6 0.650 0.6 0.449 0.5 0.5 Between 2006 and 2019, the GDP per 0.4 0.4 0.729 0 0.406 0.3 Q2 2,857 2006-07 2012-13 2015-16 2018-19 capita of each quintile in Khyber Pakh- HDI HDI tunkhwaQ1 increased substantially. Income 1,860 Gini coefficient Source: UNDP calculations based on Pasha, 2019; HIES, 2018-2019; inequalityPoorest measured by all three metrics – 40 Source: UNDP calculations based on Pasha, 2019; HIES, 2018-2019; and PDHS, 2017-2018. and PDHS, 2017-2018. the Gini coefficient, the Palma ratio, and GDP per capita 32 the Pashum ratio – decreased (figure 3.15). 30 29 are in the low human development range. dicators, especially its adult literacy ratio. The GDP per capita of all quintiles in 27 Source: UNDP calculations based on Pasha, 2019 and HIES, 2018- 25 Inequality in human development between In terms of life expectancy, the variation is Khyber2019. Pakhtunkhwa decreased from 2006 20 the quintiles is largely due to inequality in much lower. to 2012, except for that of the richest (Q5), which increased by 10 percent. However, access to education, followed by inequality from 2012 to 2019, as the security situa- in income. Khyber Pakhtunkhwa 2006-07 2012-13 2015-16 2018-19 tion improved and the provincial economy Balochistan Pakistan’s third largest province in terms picked up, GDP per capita increased for 1 of population, Khyber Pakhtunkhwa has all five quintiles. The highest growth rate Pashum ratio Pakistan’s largest province in terms of land experienced substantial human develop- is evident in the middle-income quintile 0.5 0.54 0.48 0.43 0.43 mass, Balochistan has the lowest share of ment in recent years. The merger of the (Q3), followed by Q2 and Q4. The GDP the country’s population10 and the poorest former Federally Administered Tribal Ar- of the richest 20 percent of the population 0 performance on human development indi- eas (FATA), now called the Newly Merged experienced very little growth. Overall, in- 2006-07 2012-13 2015-16 2018-19 cators. Applying the categorization used by Districts, with Khyber Pakhtunkhwa in come inequality consistently declined in Source: UNDP calculations based on multiple years of HIES data. UNDP’s global HDI would place Baloch- May 2018 added another 5 million people FIGURE 3.14 istan’s HDI value at par with Sierra Leone to its population of 30.5 million.9 Khyber Pakhtunkhwa between 2006 and in West Africa, which ranked 181st of 189 Khyber Pakhtunkhwa’s considerable Khyber Pakhtunkhwa’s richest quintile has 2019. countries on the global index in 2019. development in the last 15 years belies the almost 4 times more GDP per capita (PPP $) conflict and turmoil it has faced, includ- than the poorest, (2018-2019) Vertical inequality in human Vertical inequality in income ing the spillover of the decades-long war development in Afghanistan and the military operation Q5 7,320 Balochistan’s average GDP per capita in- against insurgency in Swat and the Newly Richest Some disparities in human development are come for each of the five quintiles reflects Merged Districts. Natural disasters, espe- Q4 4,157 evident between different groups in Khy- the inequalities inherent in the province’s cially the 2005 earthquake and the 2010 ber Pakhtunkhwa. The HDI value of the economic system, indicating the vast dif- floods, also wrought heavy damage on life, Q3 3,187 richest quintile (Q5), who earn the most ferences in its people’s standard of living. property, and infrastructure. Despite these income, is 1.4 times more than the HDI In 2018–2019, the GDP per capita (PPP challenges, the province has been able to 2,857 Q2 value of the poorest quintile (figure 3.16). $) of the richest 20 percent of Balochistan’s prosper and grow in recent years – a tes- Q1 Applying UNDP’s global categorization population was, on average, 3.66 times tament to the resilience of its people and 1,860 Poorest of HDI values to the province reveals that higher than that of the poorest 20 percent effective governance. This section explores the HDI value of Khyber Pakhtunkhwa’s (figure 3.17). the extent of inequality in the province be- GDP per capita richest two quintiles (Q4 and Q5) falls in Income inequality in Balochistan in- fore the merger of the Newly Merged Dis- the range of middle human development creased between 2006 and 2012, before tricts in 2018. Source: UNDP calculations based on Pasha, 2019 and HIES, 2018- 2019. countries, while the other three quintiles decreasing. From 2012 to 2016, GDP per

48 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 49 FIGURE 3.17 FIGURE 3.18 greatest inequality in education (literacy ondary schools also face an acute shortage rates and net enrolment), followed by liv- of teachers in general, and qualified teach- Balochistan’s richest quintile has almost 4 Income inequality in Balochistan has seen no ing standards (GDP per capita), and then ers in particular. times more GDP per capita (PPP $) than the substantial change over the years, poorest, (2018-2019) (2006-2019) health (life expectancy). Comparatively lower disparities in health do not mean Comparing interprovincial inequalities Modified Palma ratio that everyone in the province has good ac- Q5 5 Richest 6,469 cess to health care. In fact, the reality on Income-based inequality 4.24 the ground is that Balochistan suffers from 4 Q4 3,987 3.52 3.55 3.67 an overall scarcity in the provision of edu- All three measures of income inequali- 3 cation and health facilities. Limited or no ty used in this report reveal that income Q3 3,289 public transport means that it is difficult inequality has been, and continues to be, 0 to access functional hospitals or health most pronounced in Sindh, followed by Q2 2,371 2006-07 2012-13 2015-16 2018-19 units, most of which are located in district Punjab, Khyber Pakhtunkhwa, and Ba-

Q1 Gini coefficient headquarters. Existing primary and sec- lochistan (figure 3.20). The good news is 1,764 40 Poorest FIGURE 3.20 GDP per capita 30 26 24 24 Sindh’s initially high income inequality has fallen to Punjab’s income inequality level, (2006- Source: UNDP calculations based on Pasha, 2019 and HIES, 2018- 2019) 22 2019. 20 Balochistan Khyber Pakhtunkhwa Sindh Punjab Modified Palma ratio 7 capita improved for all quintiles except the 0 two richest groups (Q4 and Q5), helping 2006-07 2012-13 2015-16 2018-19 56 In Balochistan, while income to reduce income inequality (figure 3.18). However, the three measures of inequality 1 5 inequality between the richest Pashum ratio and poorest increased slightly do not point in the same direction after 4 from 2006 to 2019, overall 2015–2016. While there is an increase in 0.5 0.46 income inequality decreased Balochistan’s modified Palma ratio, the 0.40 0.39 3 0.38 slightly. Gini coefficient and the Pashum ratio suggest a decline in inequality. This is the 0 0 only case recorded by the NHDR 2020 2006-07 2012-13 2015-16 2018-19 2006-07 2012-13 2015-16 2018-19 where the three measures of inequality do Source: UNDP calculations based on multiple years of HIES data. Gini coefficient not point in the same direction in a single 40 province.

FIGURE 3.19 30 Vertical inequality in human development Balochistan’s richest quintiles enjoy higher human development compared to the 20 poorest, (2018-2019) There are significant differences in the 0 HDI values of Balochistan’s income quin- Q1 Q2 Q3 Q4 Q5 Poorest Richest 2006-07 2012-13 2015-16 2018-19 tiles. The HDI value of the richest 20 percent of the population was 1.76 times Pashum ratio higher than that of the poorest 20 percent 1 in 2018–2019 (figure 3.19). This indicates 0.389 growing inequality since 2006, when the 0.457 0.501

0.7 0.610 0.5 0.6 0.346 richest quintile’s HDI value was 1.68 times 0.5

0.4 higher than that of its poorest quintile. 0.3 The decomposition analysis of the HDI HDI 0 and its indicators, used to assess the extent Source: UNDP calculations based on Pasha, 2019; HIES, 2018-2019; 2006-07 2012-13 2015-16 2018-19 and PDHS, 2017-2018. of inequality between different income Source: UNDP calculations based on multiple years of HIES data. groups, reveals that Balochistan faces the

50 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 51 that, from 2012 onward, all provinces ex- FIGURE 3.21 FIGURE 3.22 perienced a decline in income inequality, except for Punjab. Khyber Pakhtunkhwa’s income inequality Education drives the inequality in human development among the quintiles in all provinces has improved significantly compared to other (ratio of top to bottom quintile), (2018-2019) Growing income inequality in Punjab provinces, (2006-2019) can be explained by higher levels of rapid Ratio urban development in metropolitan cities, Palma Gini coefficient Pashum 3.5 %

such as Lahore, while rural and semi-ur- Education 1.5 3 ban areas grew at a slower pace. The ur- 2.5 ban-rural income gap in Punjab increased 1.0 2

by 5 percentage points between 2015 and Income 2019; while urban areas’ per capita income 0.5 0.4 1.5 Health 0.2 0.2 0.2 was 55 percent higher than that of rural 0.0 Increase in inequality 1 0 areas in 2015–2016, this difference rose 0.5 -0.3 to 60 percent in 2018–2019. Sindh, home -0.5 -0.4 -0.4 0 to Pakistan’s largest metropolitan city, Ka- Balochistan Khyber Punjab Sindh Pakistan rachi, also experienced an increase in the -1.0 Pakhtunkhwa -1.0 urban-rural income gap. However, this gap Source: UNDP calculations based on NHDR 2020 HDI. -1.5 in Sindh grew by 2 percentage points, con- siderably less than in Punjab. The opposite -2.0 FIGURE 3.23 -2.0 -2.1 trend played out in Balochistan and Khy- -2.2 The urban-rural divide ber Pakhtunkhwa, where the urban-rural -2.5 Decrease in inequality The loss of human development due to Balochistan Khyber Punjab Sindh inequality is highest in Sindh, (2018-2019) income gap decreased between 2015 and Pakhtunkhwa Rural and urban Pakistan vary significant-

2019. HDI HDI IHDI ly in terms of income, poverty, and human Note: This figure is based on the average annual rate of change in Analysing long-term trends in inequali- 1.000 development, as discussed in chapter 2. The suppression of human income inequality, as measured by the Palma, Gini coefficient, and ty reveals an alarming trend in Punjab: the Pashum ratio. This subsection compares the urban-rural development due to inequality Source: UNDP calculations based on multiple years of HIES data. province had the highest average annual 0.900 divide in inequality between the four prov- – i.e. the difference between increase in income inequality between inces. the HDI and the IHDI – is the provision of quality education that can 2006 and 2019 (figure 3.21). In the same 0.800 highest in Sindh, followed translate into productive employment and period, income inequality decreased in Inequality in income by Punjab, Balochistan, and improved incomes. Sindh and Khyber Pakhtunkhwa, with the Khyber Pakhtunkhwa. 0.700 reduction in Khyber Pakhtunkhwa signifi- Provincial Inequality-adjusted HDI The provincial distribution of Pakistan’s cantly greater than in Sindh. While overall urban population, and of the national ur- 0.600 11 inequality in Balochistan declined slightly, 0.572 0.574 ban GDP, is presented in figure 3.24. As noted above, the HDI is not sensitive 0.546 0.535 inequality between its richest and poorest to the degree of inequality within each 0.523 0.531 Punjab has the highest urban per capita 0.500 households, and between each successive of its dimensions. To compensate for this 0.473 income, followed closely by Sindh. While Punjab has the greatest income quintile, continued to increase from 2006 gap, the NHDR 2020 also calculates the 0.447 a number of cities contribute to high lev- inequality within both its urban to 2019. Inequality-adjusted Human Development 0.400 els of urban GDP in Punjab, in Sindh only and rural areas, closely followed Index (IHDI) at the provincial level. one city is the largest contributor to urban by Khyber Pakhtunkhwa, Sindh Human development-based inequality In 2018–2019, with an IHDI value of 0.300 GDP – Pakistan’s largest metropolitan and Balochistan. 0.535, Punjab had the highest inequal- city, Karachi. As box 3.4 discusses, howev- Figure 3.22 illustrates the decomposi- ity-adjusted human development level 0.200 er, the city is plagued by other issues. Khy- For human development to tion of the Human Development Index’s among Pakistan’s provinces, followed by ber Pakhtunkhwa follows Sindh in terms improve, all of Pakistan’s sub-indices at the provincial and nation- of urban GDP per capita, followed by Ba- Sindh and Khyber Pakhtunkhwa. Baloch- 0.100 provinces need to focus on the al levels among income quintiles. As it istan is last with an IHDI value of 0.447 lochistan. provision of quality education shows, disparities in human development In all provinces, urban centres have a (figure 3.23). However, the difference be- 0 that can translate into across different income quintiles are large- tween HDI and IHDI values – reflecting higher GDP per capita (PPP $) than ru- improved incomes. Balochistan Khyber Punjab Sindh ly driven by variations in the dimension of the suppression of human development Pakhtunkhwa ral areas, but they are also characterized education, followed by income, and then due to inequality – is highest in Sindh, fol- by higher levels of income inequality. In- health. To improve human development, Source: UNDP calculations based on Pasha, 2019; PDHS, 2017-2018; come inequality measured by the Gini co- lowed by Punjab, Balochistan, and Khyber multiple years of HIES data. all of Pakistan’s provinces must focus on Pakhtunkhwa. efficient suggests that income inequality

52 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 53 FIGURE 3.24 is higher in urban areas than rural areas in 2019, with a Pashum ratio of 0.612 and FIGURE 3.25 Punjab has the greatest level all provinces (figure 3.24). Punjab has the Gini coefficient of 34.2 percent. of income inequality in rural Inequality within rural and urban areas both greatest level of income inequality in rural Figure 3.25 compares the provincial Share of provinces in the urban and rural GDP and total population, areas, closely followed by is highest in Punjab followed closely by (2015-2016) Khyber Pakhtunkhwa, (2018-2019) areas, closely followed by Khyber Pakh- distribution of Pakistan’s rural and urban Khyber Pakhtunkhwa, Sindh, and tunkhwa, Sindh, and finally, Balochistan. population, and these areas’ share of na- Balochistan Khyber Pakhtunkhwa Punjab Sindh Balochistan. Gini coefficient The differences between inequali- tional GDP. Punjab has the highest rural % 35 ty in urban and rural areas in each prov- per capita income, followed by Sindh, Khy- URBAN

Urban 3% 4.5% 30 ince are fairly similar, although they are ber Pakhtunkhwa, and Balochistan. The 6.7% 7.6% 25 Rural slightly more pronounced in Punjab and Pashum ratio for rural income inequali- Khyber Pakhtunkhwa than in Sindh and ty is 0.49 and the Gini coefficient is 29.2 20 Balochistan. Despite the fact that income percent, confirming comparatively lower 33% 15 inequality is least pronounced in Baloch- levels of inequality in rural areas than in 40.8% 10 istan, this is not good news. It implies that urban centres. GDP share Population share 5 everyone is poor; in essence, lower levels GDP per capita (PPP $) is higher in ur- 49.5% 0 of inequality in Balochistan reflect lower ban areas than in rural areas across all four Balochistan Khyber Punjab Sindh overall incomes across all quintiles. provinces (figure 3.26). The greatest gap is Pakhtunkhwa 54.9% The magnitude of income inequality in in Sindh, demonstrating greater urban-ru- Source: UNDP calculations based on Pasha, 2019; HIES, 2018-2019. urban areas was relatively high in 2018– ral inequality in the province. The second BOX 3.4 greatest gap is evident in Punjab, followed RURAL 2.9% by Khyber Pakhtunkhwa, and then Ba- 6.7% Karachi: Plight of the primate city lochistan. 19.3% 17.4% 19.3% The NHDR 2020 measures regional in- According to the Population Census of 2017, Karachi – Pakistan’s share has increased somewhat in recent years, up from 54 percent 18.7% primate city – has a population of 14.9 million. Many believe that the in 2012–2013. come inequality between rural and urban city is actually larger, as the intercensal growth rate was only 2.5 per- However, Karachi’s share in national public expenditure remains areas, using the Gini coefficient and the cent, when in the previous 1998 Census this growth rate was record- less than 5 percent. The budget of the Karachi Metropolitan Cor- Pashum ratio, by adjusting for population GDP share Population share ed at 4.1 percent. It is estimated that almost 10 percent of Pakistan’s poration is only PKR 25 billion (US$149 million), compared to the distribution. The results in figure 3.27 population lives in Karachi. equivalent of US$4.6 billion of the Mumbai Municipal Corporation. show that the urban-rural divide, wheth- The city is estimated to generate almost 18 percent of the coun- Consequently, Karachi’s infrastructure and services are under severe er measured by the Gini coefficient or the try’s GDP. It does so through its role as Pakistan’s main port for inter- stress. Today, water scarcity, power shortages, deteriorating public Pashum ratio, is starkest in Balochistan, 58.5% 57.2% national trade, as well as the primary location for industry, banking, transport, illegal settlements, land grabbing, urban pollution, and a followed by Sindh. insurance, and other economic and social services. Almost 47 per- lack of waste disposal plague the lives of Karachi’s residents, while This differs from a simple difference in cent of Sindh’s gross regional product is generated in Karachi. hampering economic activity. The most severe monsoon rains on re- income, as the population distribution in Note: Islamabad Capital Territory is included in Punjab, FATA is excluded. Gross Regional Product (provincial GDP) Historically, Karachi has had a number of advantages due to its cord led to a virtual breakdown of the city in 2020. does not include foreign income (remittances). rural and urban areas is vastly different in Source: UNDP calculations based on Pakistan Population Census, 2017; Pasha, 2019. location, including the presence of its immense port, agglomeration, Clearly, Karachi needs more resources to improve and expand its and economies of scale in industrial production. It also boasts a rela- network of services. The Provisional Order of 2006 was conscious Balochistan and Sindh. Between Punjab FIGURE 3.26 tively educated labour force. These factors explain its relatively large of the city’s financial needs, as well as those of other large cities. and Khyber Pakhtunkhwa, Punjab has a higher Gini coefficient than Khyber Pa- contribution to both the provincial and national economy. One-sixth of the General Sales Tax was to be distributed, according Both urban and rural GDP per capita (PPP$) is highest in Sindh amongst all Pakistan has followed a regional variation on the ‘trickle-down a weight of 50 percent to the population and 50 percent to the ratio khtunkhwa, but its Pashum ratio is lower. provinces, (2018-2019) growth’ model by concentrating economic activity in Karachi. The of the collection of Octroi and Zila tax* in 1998–1999. Unfortunately, Hence, while Balochistan and Sindh stand strategy employed involves extracting the surplus from the city in the this clause was excluded in the 7th NFC Award. A new financing plan out as provinces with a greater urban-rural Urban Rural form of tax revenues and using these funds, through the NFC Award, needs to be put together for Karachi. divide in income according to both mea- to finance development in the rest of the country – with a view to The fundamental lesson is this: if resources are meant to trickle Balochistan 4,199 sures of inequality, Punjab’s and Khyber 3,325 reducing regional inequality. Thus, the revenues generated in this down, they need to be generated first. The neglect of Karachi must Pakhtunkhwa’s performance changes de- urban metropolis have funded development, including in Pakistan’s come to an end. This will contribute to improving living conditions in pending on the measure used. Khyber 4,756 underdeveloped regions. the metropolis, while generating resources more efficiently for rela- Pakhtunkhwa 3,701 This ‘trickle-down growth’ model has worked well historically. tively underdeveloped parts of Pakistan, thereby reducing regional Inequality in human development Sindh 7,547 Today, almost 56 percent of federal tax revenues, and 85 percent inequality nationwide. 4,381 of provincial tax revenues, are collected from Karachi. This former Punjab 5,909 Beyond income, urban areas also enjoy a 4,336 Note: Octroi and Zila Tax (OZT) was the amount charged on goods entering a city or district, which the Federal Government transferred to district govern- higher HDI value than rural areas across 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 ments, through provincial governments. The tax was abolished by the Federal Government in June 1999. all of Pakistan’s provinces. The greatest gap between urban-rural HDI values is in Source: UNDP calculations based on Pasha, 2019; HIES, 2018-2019.

54 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 55 FIGURE 3.28 SPECIALBalochistan CONTRIBUTION and Khyber Pakhtunkhwa. Shoaib Sultan Khan ern-most territory, with a population of nearly 2 million (figure 3.29). Its three Sindh has the greatest gap The process approach: Use the ‘institutions of the rural poor’ to alleviate problems The gap between rural and urban HDIs is between urban and rural highest in Sindh and lowest in Khyber administrative divisions are further divid- HDI values, followed by Pakthunkhwa, (2018-2019) ed into ten districts: Gilgit (Gilgit, Ghiz- The World Bank, in its first assessment of the Aga Khan Rural Sup- both the resources of governments and the flexibility of NGOs. The er, Hunza, and Nagar), Baltistan (Skardu, Balochistan, Punjab, and Khyber port Programme (AKRSP) in 1987, observed that AKRSP’s first four Commission recommended that South Asian governments support HDI Urban HDI Rural HDI Shigar, Kharmang, and Ghanche), and Pakhtunkhwa. years correspond to the ‘missing’ four years in many delayed rural such initiatives financially, while administratively establishing in- 1.000 Diamer (Diamer and Astore). The region development schemes across the world, which followed blueprints, dependent non-governmental support mechanisms to catalyse this has access to several corridors of connec- rather than the process approach that the AKRSP took. process. 0.900 Terming AKRSP’s process approach ‘Social Mobilization’, in 1992 The Rural Support Programmes (RSPs) set up by Pakistan’s fed- tivity with neighbouring countries, linking the Independent South Asian Commission on Poverty Alleviation eral and provincial governments since 1982 have fostered nearly Pakistan directly with China, Central and 0.800 recommended that this should be the centrepiece of all poverty al- half a million community organizations, comprising some 8 million South Asia, and Afghanistan. leviation strategies followed by South Asian states. This is because rural households (over 50 million people). However, government de- Various public and private development social mobilization enables the rural poor to participate directly in partments are not taking advantage of these networks, which can 0.700 projects have led to a dramatic transforma- 0.654 the decisions that affect their lives and prospects. be used as conduits to deliver public services, like health care and 0.631 0.612 tion in Gilgit-Baltistan over the last two It was the legendary Dr. Akhter Hameed Khan who originally es- education, or facilitate agriculture and livestock development. 0.600 decades. For example, in 2018–2019, the poused the social mobilization approach through his world-famous Given the proven success of Dr. Khan’s approach across time and 0.548 0.532 0.539 Federal Government provided PKR 51.7 Comilla project in what was then East Pakistan, now Bangladesh. He regions, and in accordance with the SAARC Poverty Commission’s 0.500 0.485 billion in financial support to the region, a advocated complementing the state’s political and administrative pil- recommendations, Pakistan’s federal and provincial governments 0.440 relatively high per capita share, in the form lars by fostering a socio-economic pillar that comprises ‘institutions must mandate their ministries, departments, and other development 0.400 of subsidies, grants, and development fi- of the rural poor’ as the conduit for the delivery of services and sup- agencies to utilize the organizations of the poor. nancing (table 3.5). plies by the public sector, civil society, and donor agencies. These institutions of the rural poor, nurtured by government-spon- 0.300 The South Asian Association for Regional Cooperation’s (SAARC) sored Rural Support Programmes that are ready-made conduits for Major administrative changes in recent Poverty Commission concluded that government departments or services and supplies, can help to reduce multidimensional poverty years include the Gilgit-Baltistan Order 0.200 non-governmental organizations cannot by themselves help the rural across Pakistan. 2018, which grants the area the same legis- poor, or help the rural poor to help themselves. The process needs 0.100 FIGURE 3.29 Shoaib Sultan Khan is Chairman of the Rural Support Programmes Network of Pakistan. Notes: ISACPA 1992; Raper 1970; World Bank Operations Evaluation Department 1987. 0 Key facts: Gilgit-Baltistan Balochistan Khyber Punjab Sindh Pakhtunkhwa 1 2 Sindh, followed by Balochistan, Punjab, health between rural and urban areas is Area : 72,971 km Sindh has the greatest gap and Khyber Pakhtunkhwa (figure 3.28). not as pronounced as the gaps in education Source: UNDP calculations based on Pasha, 2019; PDHS, 2017-2018; multiple years of HIES data. between urban and rural Among HDI indicators, the difference in and income. Population2: 1,900,000 HDI values, followed by

Balochistan, Punjab, and 3 FIGURE 3.27 Population growth rate : 2.56 Khyber Pakhtunkhwa. Inequality in Pakistan’s special regions Income inequality between urban and rural areas is highest in Balochistan, (2015-2016) Urban population4: 18.6

Punjab Sindh Khyber Pakhtunkhwa Balochistan National No analysis of human development and $ Per capita income (PPP$)5: 4,171 inequality in Pakistan can be complete without examining its three special re- 16 0.96 Net enrolment rate6: 30.1 9 gions: Gilgit-Baltistan, Azad Jammu and 0.45 0.74 7 14 24 Gini coefficient 0.50 1.74 Pashum ratio Kashmir, and the Newly Merged Districts of Khyber Pakhtunkhwa. This section Under 5 mortality rate (per 1000 live births)7: 71.6 presents a snapshot of human development in these regions, followed by a brief com- Received antenatal care from a doctor8: 71.6 parison of each region with the rest of the ∞ % 0 20 40 60 80 100 0 0.5 1 1.5 country. Stunted children9: 47.2 Equality Inequality Equality Inequality

Gilgit-Baltistan Source: (1) Gilgit-Baltistan Scouts 2020; (2) UNPO 2020; (3-4) Government of Gilgit-Baltistan 2013; (5) UNDP calculations. See Source: UNDP calculations based on Pasha, 2019; HIES, 2015-2016. technical note 4; (6) PSLM, 2014-2015; (7-9) Government of Gilgit-Baltistan is Pakistan’s north- Pakistan 2019g.

56 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 57 TABLE 3.5 FIGURE 3.30 adult literacy rate, which rose to 47.5 per- from 37 percent to just 7.9 percent. Pov- cent, and a 5 percent increase in net enrol- erty decreased far less markedly in rural Pakistan Federal Government financial Human development trend in Gilgit-Baltistan, ment, which reached 30.1 percent. Despite areas, from 68.9 to 49 percent.19 support to Special Regions (PKR billion), (2006-2016) (2018-2019 and 2019-2020) this progress, Gilgit-Baltistan experienced The decline in multidimensional pov- HDI the slowest improvement in education erty in Gilgit-Baltistan is linked to im- Multidimensional poverty in 2018-2019 2019-2020 1.000 indicators of all of Pakistan’s regions and provements in various indicators used to Gilgit-Baltistan has declined over (Revised (Budget provinces between 2006 and 2016. measure different forms of deprivation. the years due to improvements estimate) estimate) 0.900 For instance, deprivation declined most in health and living standards. Subsidy 62.3 29.0 Health significantly in two indicators within the Azad Jammu and Kashmir* 43.0 3.0 Among the three dimensions of human dimensions of health and living standards: 0.800 Newly Merged Districts* 12.0 18.0 development, Gilgit-Baltistan experienced increased access to electricity, and health the greatest improvement in health, mea- facilities. Deprivation also declined in oth- Gilgit-Baltistan** 7.3 8.0 0.700 sured by life expectancy at birth. In 2016, er indicators. In terms of education, more Grant 78.7 144.0 life expectancy in the region was 69.2 years, children attended school, and more people Azad Jammu and Kashmir 49.2 54.9 0.600 11 percent higher than in 2006. It also sur- completed at least five years of education. 0.538 Newly Merged Districts _ 56.1 0.491 passed the national average of 66.3 years in In terms of health, access to antenatal care 0.500 0.535 2016. This is partially due to the AKDN’s improved, as did the number of births as- Gilgit-Baltistan 29.5 33.0 work, under the Aga Khan Health Ser- sisted by skilled birth attendants. In terms Development financing 51.5 92.7 0.400 vice Pakistan (AKHSP), which runs sev- of living standards, access to sanitation fa- Azad Jammu and Kashmir 26.5 26.9 eral projects across the region, including cilities improved, alongside access to water, 20 Newly Merged Districts 10.0 48.0 0.300 a medical centre, three comprehensive cooking fuel, and assets. health centres, and 26 basic health centres. These improvements aside, the region Gilgit-Baltistan 15.0 17.8 0.200 In 2019 alone, the AKHSP reached around continues to face major challenges. The Total financial support 192.4 265.7 half a million beneficiaries in Gilgit-Baltis- division of responsibilities between Gilg- Azad Jammu and Kashmir 118.7 84.8 17 0.100 tan. Improved life expectancy can also be it-Baltistan’s Legislative Assembly and the Newly Merged Districts 22.0 122.1 attributed to the improved coverage of the Federal Government is unclear, with Gil- region by Lady Health Workers (LHWs). git-Baltistan depending on the latter for Gilgit-Baltistan 51.7 58.8 0 2006-07 2012-13 2015-16 funding and key decisions. This leads to Note: *Power tariff differential, **Wheat subsidy. Source: Government of Pakistan 2019e. Living standards ineffective public administration and inad- Note: The data for Gilgit-Baltistan was based on PSLM 2014-2015, Income per capita in Gilgit-Baltistan in- equate funding. Some initiatives under the but for consistency with other regions, the year has been shown as creased by 10 percent between 2006 and Gilgit-Baltistan Order of 2018 aim to re- lative powers exercised by other provinces 2015-2016. Source: UNDP calculations based on PDHS, 2012-2013; Pasha, 2019; 2016. This may be due to greater connec- duce these complications, but they have yet under Schedule IV of Pakistan’s Constitu- multiple years of PSLM for Gilgit-Baltistan. tivity, as this rise coincides with the re- to be effectively implemented. In addition, tion. However, the Prime Minister of Pa- construction of the Karakoram Highway the region has an extremely low population kistan has direct and final authority over in Gilgit-Baltistan are largely due to ini- (KKH) by the Government of Pakistan. density, of just 12 people per square kilo- Gilgit-Baltistan’s legislation, policies, tax- tiatives by civil society-led development The highway’s development boosted the metre.21 The scattered population makes it es, and other financial matters. projects, such as the Aga Khan Rural De- region’s economy considerably, linking cit- costly to implement socio-economic devel- velopment Network (AKDN), working ies, improving access to markets and new opment projects, and to reach economies Inequality in human development in partnership with the Government of technologies, and enabling cheaper travel of scale and boost productivity. Pakistan.15 Credit for progress is also due and the transport of goods. Nevertheless, Gilgit-Baltistan is also particularly vul- According to the latest available data, to the Government of Gilgit-Baltistan, Gilgit-Baltistan’s per capita income growth nerable to the global challenge of climate Gilgit-Baltistan had an HDI value Gilgit-Baltistan13 had a Human Develop- including legislation enabling the launch rate remains below the national average. change. With almost all of its energy gen- of 0.535 in 2016, lower than the ment Index value of 0.535 in 2016 (figure of socio-economic development and me- eration based on hydropower, the region national average of 0.570. 3.30).14 Overall, from 2006 to 2016, the ga-projects in collaboration with the Fed- Multidimensional poverty contributes next to nothing to global region experienced an improvement of 9 eral Government. These initiatives have Since 2006–2007, multidimensional pov- warming, but it suffers disproportionate- percentage points in its HDI value. Along- boosted both the region’s economy and its erty in Gilgit-Baltistan has declined by ly from the phenomenon. Warning signs side neighbouring Khyber Pakhtunkhwa, levels of human development.16 32 percent, dropping from 63.7 percent include unseasonable snowfall, unusually this was the highest percentage increase to 43.2 percent in 2012–2013.18 Between heavy rainfall and floods, and fast-melting in HDI values among Pakistan’s provinces Education 2006 and 2013, poverty decreased dramat- snow and glaciers that, in turn, provoke and regions in this period. The latest data available, from 2016, reveal ically in the region’s urban areas, falling landslides. Improvements in human development a 6 percent increase in Gilgit-Baltistan’s

58 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 59 Nevertheless, Gilgit-Baltistan has seen FIGURE 3.31 FIGURE 3.32 system is better than the national average. FIGURE 3.33 great improvements overall. As noted The region’s infant mortality rate is 58 Key facts: Azad Jammu and Kashmir Net enrolment rate, Azad above, this is partly due to government Human development trend in Azad Jammu deaths for every 1,000 live births, com- and Kashmir, (2006-2019) Jammu and Kashmir, (2015) initiatives, although these are limited, and pared to the Pakistani average of 66 in- 1 2 Area : 13,297 km 27 2013-14 partly due to civil society-led initiatives by HDI fant deaths. Life expectancy at birth is 2014-15 the Agha Khan Rural Support Programme 1.000 69 years, slightly higher than the national 2 and others. The construction of the Chi- Population : 4,045,367 average of 67 years in 2018–2019. Some

na-Pakistan Economic Corridor and an 0.900 75.2 percent of children between 12 and inter-district road network are expected Population growth rate3: 1.63 23 months old are fully immunized, far to boost the transport and logistics sectors more than the national average of 65.6 per- 0.800 PRIMARY 78 81 manifold, thereby improving socio-eco- Urban population4: 17.4 cent.28 Children in the region fare better in nomic integration. other respects as well, with stunting at 30 0.700 Other initiatives can further enhance $ Per capita income (PPP$)5: 5,190 0.632 percent, compared to the national average 0.621 the region’s potential. A sustainable tour- 0.603 of 38 percent.29 0.600 0.575 MIDDLE 46 50 ism policy and investments to preserve her- Net enrolment rate6: 42.4 As elsewhere in Pakistan, health statis- itage sites would be a huge boost for tour- tics vary greatly from district to district, 0.500 ism. Similarly, campaigns targeted at the Under 5 mortality rate (per 1000 live births)7: 71.6 as well as between urban and rural areas. business community can foster interest in For example, the unmet need for family HIGH 15 34 0.400 CPEC. The region also has the fifth larg- Received antenatal care from a doctor8: 87.1 planning is high in rural Azad Jammu and est mineral reserves in the world, including Kashmir at 23 percent, but lower in urban Source: Government of Azad Jammu and Kashmir 2018. almost 70 percent of Pakistan’s gemstone 0.300 centres where there is greater awareness of 9 reserves. Proper investment, and efforts to Stunted children : 30.0 reproductive health issues.30

upgrade mining and extraction technolo- 0.200 Source: (1-4) Government of Azad Jammu and Kashmir 2018; (5) gies, can generate substantial revenues. In UNDP calculations. See technical note 4; (6) PDHS, 2017-2018; Economy the long-term, well-thought-out policies, (7-9) Government of Pakistan 2019g. 0.100 Azad Jammu and Kashmir’s developing regulations, and administrative clarity are economy depends largely on agriculture, essential to reap substantial benefits. Inequality in human development services, and tourism. While the formal 0 sector has shrunk over the years, the in- Azad Jammu and Kashmir Despite the prevalence of violence, con- formal sector accounts for more than sev- 2006-07 flict, and natural disasters in the region, 2012-13 2015-16 2018-19 en-tenths of the non-agricultural sectors in Note: The data for Azad Jammu and Kashmir was based on PSLM 31 Azad Jammu and Kashmir is a self-govern- Azad Jammu and Kashmir does well in 2014-2015, but for consistency with other regions, the year has been the region. Remittances from the Kash- ing administrative territory in Pakistan. terms of access to essential services, al- shown as 2015-2016. miri diaspora, particularly the British Mir- Source: UNDP calculations based on PDHS, 2012-2013, 2017-2018; Alongside Gilgit-Baltistan, the region is though it fares worse on other indicators. Pasha, 2019; multiple years of PSLM for Azad Jammu and Kashmir. puri community, contribute significantly Azad Jammu and Kashmir’s HDI known as Pakistan Administered Kashmir In 2014–2015, 24.9 percent of its inhab- to Azad Jammu and Kashmir’s economy. value of 0.632 is far higher than (figure 3.31). The 2017 Census records itants were multidimensionally poor, the 3.33). 23 the national average of 0.570. Azad Jammu and Kashmir’s population at lowest level in Pakistan. Similarly, Azad Four of the top 10 districts in Pakistan’s Labour just over 4 million, with an annual pop- Jammu and Kashmir’s HDI value is 0.632, 2017 District Education Rankings are in Azad Jammu and Kashmir’s unemploy- ulation growth rate of 1.62 percent.22 A far higher than the national average of Azad Jammu and Kashmir: Bagh ranks ment rate of 10.3 percent is almost twice largely rural region, it is divided into 10 0.570 in 2018–2019 (figure 3.32). fifth, followed directly by Muzaffarabad, the national average of 5.8 percent.32 Em- Azad Jammu and Kashmir districts: Hattian Bala, Neelum Valley, Kotli, and Poonch.25 In fact, Azad Jammu ployment is primarily concentrated in performs better than the rest of Mirpur, Bhimber, Kotli, Poonch, Bagh, Education and Kashmir has the highest overall re- services (53.4 percent), industry (27.2 Pakistan in the dimensions of Haveli, Sudhanoti, and Muzaffarabad, Azad Jammu and Kashmir far surpasses gional education score in Pakistan, as well percent), and agriculture (19.4 percent), education and health. which is also the regional capital. In 2018– the rest of Pakistan in terms of education. as the highest score in gender parity in ed- with a labour force participation rate of 2019, the Federal Government gave Azad While some 0.6 million children in the ucation.26 Islamabad Capital Territory is 30.8 percent.33 There are large skill gaps Jammu and Kashmir a relatively high per region are out of school, its literacy rate next, followed by Punjab, Gilgit-Baltistan, in the region’s substantial informal sector, capita share of financial support, totalling of 76.8 percent was considerably higher Khyber Pakhtunkhwa, Balochistan, Sindh, particularly in terms of construction, au- PKR 118.7 billion in the form of subsidies, than the national average of 57.4 percent and the Newly Merged Districts. tomobile-related work, and chemical engi- grants, and development financing (see ta- in 2018–2019.24 Enrolment rates require neering.34 Adequate training and the estab- ble 3.5, above). more attention, especially at the mid- Health lishment of in-demand trade institutes can dle and higher levels of education (figure Azad Jammu and Kashmir’s health care address these gaps.

60 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 61 Gender mitigate the impact of natural disasters. nomic growth. To raise human develop- FIGURE 3.34 Azad Jammu and Kashmir is also an area ment levels, it is essential to address these Women in Azad Jammu and Kashmir fare Key facts: Newly Merged Districts slightly better than the average Pakistani crying out for stability. Tensions with In- issues while simultaneously improving woman. The female literacy rate is 64.9 dia over Kashmir threaten violence ranging health, education, and living standards. Area1: 27,220 km2 percent, much higher than the national from skirmishes and ceasefire violations, to average of 49 percent.35 The region ranks outright war. A sustainable dialogue pro- Newly Merged Districts fifth highest in the country in terms of cess between the two nuclear-armed neigh- Population2: 5,001,676 women who read a newspaper at least bours aimed at resolving the Kashmir issue The Newly Merged Districts are located once a week, and fourth highest in terms is essential, taking into account the needs in the north-west of Pakistan. Formerly Population growth rate3: 2.41 of women who use the internet every day.36 and aspirations of the Kashmiri people.38 known as the Federally Administered Trib- This implies women’s considerable access It is worth examining the main eco- al Areas (FATA), the region was officially to technology and information, as well as nomic areas, like farming, that can help merged with the province of Khyber Pakh- Urban population4: 2.85 the leisure time needed to engage with in- Azad Jammu and Kashmir to harness its tunkhwa in 2018, as noted above (figure 3.34 and box 3.5).42 With a population of formation technologies. potential. Nearly 87 percent of the re- 5 $ Per capita income (PPP$) : 3,174 However, only 7.9 percent of women in gion’s households own land or farms, but over 5 million, the region encompasses sev- Azad Jammu and Kashmir participate in smaller farm sizes and low access to credit en semi-autonomous tribal agencies (Khy- the labour force, compared to men’s labour greatly inhibit agricultural income.39 The ber, Mohmand, Bajaur, Kurram, Orakzai, Net enrolment rate6: 22.9 force participation rate (LFPR) of 54.8 Government of Azad Jammu and Kashmir North Waziristan, and South Waziristan) has begun investing in crop maximization and six frontier regions, now called ‘subdi- percent. Converted to the augmented la- Under 5 mortality rate (per 1000 live births)7: 71.6 schemes, as well as pest and disease man- visions’ (Kohat, Bannu, Lakki, Tank, Dera bour force participation rate, this percent- 43 age rises to 39.4 percent.37 This indicates agement, to increase productivity. Addi- Ismail Khan, and Peshawar). 8 that most women in the region are engaged tional steps, such as farm collectivization In the last two decades, the population Received antenatal care from a doctor : 65.5 in marginalized occupations or subsistence to benefit from economies of scale, can of the Newly Merged Districts grew by al- agriculture, which does not improve their further improve efficiency. most 37 percent despite mass migration Stunted children9: 52.3 well-being. The region’s tourism industry remains from the area, catalysed by security chal- severely untapped. The Government of lenges. Urbanization, however, remains ex- Source: (1) Government of FATA 2019; (2-4 and 7-9) Government of Pakistan 2019g; (5) UNDP calculations. See technical note 4; (6) Challenges and opportunities Azad Jammu and Kashmir has begun to tremely small-scale. FATA Development Indicators Household Survey (FDIHS), 2013-2014. Although Azad Jammu and Kashmir fares address this by launching a tourism police The Newly Merged Districts’ annual better than Pakistan as a whole in terms force in 2019, and lifting the requirement BOX 3.5 of human development, various challeng- of No Objection Certificates (NOCs) es continue to hold it back. These include for international travellers.40 Taking such Implications of the merger with Khyber Pakhtunkhwa cross-border firing along the Line of Con- initiatives forward will help to boost the Pakistan’s 25th Constitutional Amendment merged the Newly Merged Political representation: The Newly Merged Districts’ political repre- trol in violation of the 2003 Ceasefire regional economy and raise standards of living. Districts with the province of Khyber Pakhtunkhwa. The merger was sentation was increased in Khyber Pakhtunkhwa’s Provincial Assem- Agreement, alongside natural disasters like finalized on 31 May 2018. Before this, while the Constitution of Paki- bly, from 16 to 24 seats, and in the National Assembly from six to 12 Improving regional connectivity would earthquakes, landslides, and floods. The stan protected the basic rights of people in the region, it was beyond seats. This is a huge gain for a population that has historically been 2005 earthquake in particular caused mas- also enhance development in Azad Jam- the jurisdiction of Pakistan’s judicial system. As such, constitutional disenfranchised. sive damage in the region, claiming around mu and Kashmir. CPEC envisages four rights could not be guaranteed. The implications of the merger have Fundamental rights: There is credible hope that nullifying the Frontier 100,000 lives and destroying buildings, mixed-industry projects in the region. To been hotly debated. Some of the hopes riding on it, and the challeng- Crimes Regulation will end structural violence. Increased attention to emergency services, and infrastructure. aid these, the Government of Azad Jammu es posed, are discussed here. fundamental rights may encourage the provision of basic facilities In response, the Government estab- and Kashmir has launched special incen- Regulation: A widely hailed aspect of the merger is its abolition of like health care, education, infrastructure, water, and power supplies. lished the Earthquake Reconstruction and tives for these projects, involving tax-free Frontier Crimes Regulation (FCR) that meted out collective punish- Socio-economic transformation: Economic concessions to the New- Rehabilitation Authority (ERRA) in 2005, imports, permission to self-generate elec- ment, holding an entire family or tribe accountable for an individual’s ly Merged Districts may translate into new opportunities for local 55 followed by the National Disaster Manage- tricity for industries, and the construction actions. Eliminating the regulation has ended this archaic practice. businesses and greater cross-border trade. In 2018, the Economic 41 Regular courts began functioning in the Newly Merged Districts on 4 Coordination Committee (ECC) exempted the Newly Merged Districts ment Authority (NDMA) and State Disas- of infrastructure. In tandem, the Govern- ment established a Board of Investment March 2019, enabling its people to access Pakistan’s courts for re- from taxes for five years, while Parliament exempted the erstwhile ter Management Authority (SDMA) in the 56 (BOI) to encourage investment, especially dress. However, habits formed over more than a century under the Provincially Administered Tribal Areas (PATA)* from taxation for a following years. These institutions have Frontier Crimes Regulation may be hard to break. decade. been crucial for addressing the devastation by the Kashmiri diaspora. A sustained fo- caused by natural disasters nationwide. cus on these areas will enable the region to Note: The Provincially Administered Tribal Areas (PATA) were Pakistani administrative subdivisions designated in Article 246(b) of the Constitution of Further steps are needed to enhance pre- break its reliance on foreign remittances Pakistan. paredness, in order to predict, prevent and and move towards more sustainable eco-

62 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 63 population growth rate of 2.4 percent is The population per hospital bed – 2,433 Gender devolved a considerable degree of power the same as the national average. However, people per bed – is nearly twice the nation- Only 4.2 percent of women in the New- to subnational governments in 2010. Af- its population density is only 184 people al average of 1,341. Social norms hinder ly Merged Districts are allowed deci- ter that, when more than half of Pakistan’s per square kilometre, compared to the na- women from accessing reproductive health sion-making powers, either alone or with resources were given out to the provinces, tional average of 287 people per square ki- centres attended by male specialists, poten- their husbands, regarding their own health there was little left for the Newly Merged lometre. In 2018–2019, the Federal Gov- tially putting their lives at risk. Access to care, major household purchases, or social Districts. To counter this, the Government ernment allocated PKR 22 billion to the modern health care is rare, including ante- visits.47 This is compared to 35.8 percent of Pakistan developed and funded pro- region in the form of subsidies, grants, and natal and postnatal care, and deliveries in in the rest of Pakistan. Over 95 percent of grammes designed in line with the New- development financing – a relatively low health facilities. This contributes to the re- women in the region, compared to the na- ly Merged Districts’ share of the national per capita share (see table 3.5, p. 58) gion’s high maternal mortality rate, of 380 tional average of 41.7 percent, are unaware population. However, this has not alleviat- . women’s deaths per 100,000 live births, of their basic rights, and believe that their ed the region’s markedly low levels of de- Inequality in human development compared to the national average of 186 husbands are justified in beating them over velopment. deaths per 100,000 live births reported by domestic matters. These statistics are not The security situation makes matters Poor infrastructure and services, coupled the Pakistan Maternal Mortality Survey surprising considering that 56.2 percent worse. Armed militancy and military oper- with limited opportunities, negatively im- (PMMS) 2017. Moreover, only 30.4 per- women in the region have experienced ations in 2014 forced 0.9 million people to pact human development in this largely re- cent children between 12 and 23 months physical violence since the age of 15, com- flee from elsewhere in the Newly Merged mote and underdeveloped region. Overall, old are immunized, less than half of Paki- Districts to North Waziristan and Khyber 44 pared to the national average of 27.6 per- 50 The Newly Merged Districts have the Newly Merged Districts’ HDI value is stan’s already low average of 65.6 percent. cent.48 These figures are likely to be much Agency. By mid-2015, the number of in- the second lowest HDI value in abysmally low, at just 0.479 in 2015–2016. ternally displaced persons from the Newly lower than real rates of violence, as gen- 51 Pakistan, just 0.479. Access to basic health care, education, util- Economy der-based violence tends to go unreported Merged Districts reached 1.56 million. ities, and even sanitation is unpredictable Historically, the Newly Merged Districts around the world. A lack of employment opportunities, in- or non-existent. have been a strategically vital region. Al- adequate access to public education, and though the region accounts for 2.4 percent Multidimensional poverty unregistered madrassas continue to fuel 52 Education of Pakistan’s population, its share in the No comprehensive quantitative data on extremism. All of this has cost the region The Newly Merged Districts’ primary net national economy is a mere 1.5 percent, poverty in the Newly Merged Districts dearly. enrolment rate, 52.1 percent, is far lower making it the country’s poorest perform- had been collected before the publication On a positive note, plans to revitalize than Pakistan’s average rate of 78 percent. ing region in economic terms. The New- of the Multidimensional Poverty Index the Newly Merged Districts are under- The same is true for its literacy rate, which ly Merged Districts’ per capita income of (MPI) by UNDP, the Oxford Poverty & way. The arrangements of its merger with stands at just 33 percent compared to the US$3,174 (PPP $) is far lower than the the province of Khyber Pakhtunkhwa in- 45 Human Development Initiative (OPHI), national average of 57 percent. As many as national average of US$4,534. Although and the Government of Pakistan, in 2016. clude development projects like construct- 701 of every 1,000 children in the region the region has been tax-exempt for years, it ing small dams, water and power supply The MPI report showed that the Newly 74 percent of people in the are out of school. There are few secondary has no formal structure for industry. Work Merged Districts have the highest levels of schemes, and other infrastructure, coupled education facilities in the region, and ghost opportunities are largely primary level eco- with mineral development. Power projects Newly Merged Districts are multidimensional poverty in Pakistan. Al- multidimensionally poor, and schools abound. Teacher absenteeism and nomic activities. Agriculture is the leading most 74 percent of the region’s people are worth PKR 2 billion have already been corporal punishment are common, even source of income for residents, followed launched.53 Under the 7th NFC Award, 52 percent are deprived of multidimensionally poor, and over half, 52 education. in functional schools. A parallel school by the private sector, livestock, small in- percent, are deprived of education.49 the Federal Government also reiterated its system of madrassas (religious seminaries) dustries, mining, and small firms. Most of There is overwhelming poverty in the commitment to bear all expenditures in- absorbs 98 percent of the region’s children. the labour force is unskilled or semiskilled. region, coupled with widespread illitera- curred on the ‘war on terror’ in any part While these institutions do impart basic Women are normally engaged in unpaid cy, under-training, and few opportunities. of Pakistan. Recognizing Khyber Pakh- literacy skills, their limited religion-based family work. As most people face similar deprivations, tunkhwa’s role as a frontline province in syllabus renders graduates unfit to com- levels of inequality are low. However, low this conflict, the Federal Government and pete in the job market. Labour inequality on these terms is unacceptable. the provinces earmarked 1 percent of the The labour force participation rate of the The aim is for Pakistan to achieve low in- net proceeds of the Federal Divisible Pool Health Newly Merged Districts is just 35.2 per- equality alongside high levels of human for the province Khyber Pakhtunkhwa as Health indicators in the Newly Merged cent. Its unemployment rate of 7.1 per- development. an additional resource during the NFC Districts are extremely poor. There are few cent outstrips the national average of 5.8 Additional challenges in the Newly Award period. basic health units (BHUs) and only one percent. Workers are overwhelmingly em- Merged Districts include historically low Since the merger, regional develop- doctor for every 7,670 people, compared ployed in low-paying jobs, and women’s levels of federal grants, an area which the ment programmes planned for the Newly to the national average of 1,226. There are participation in the workforce is particu- Merged Districts include a 10-year Tribal 46 Federal Government was responsible for no private hospitals at all in the region. larly low. until the 18th Constitutional Amendment Decade Strategy, effective from 2020 to

64 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 65 2030, and the Accelerated Development and Kashmir ranked second in terms of per lochistan fared worst. FIGURE 3.36 Unit (ADU) in Khyber Pakhtunkhwa’s capita income in the country. Gilgit-Baltis- To reduce regional disparities, develop- Planning and Development Department. tan ranked fourth, marking an improve- ment needs to be prioritized in provinces Ranking of human development dimensions across Pakistan, (2006-2016) This is responsible for implementing proj- ment from its previous position (fifth). and regions with lower HDI values, such HDI Adult Net Life Per capita Human ects related to water and infrastructure, Due to the limited availability of data, as Balochistan and the Newly Merged Dis- ranking literacy enrolment expectancy income development forests, and agriculture. Committed to and the fact that the NHDR 2020 only tricts of Khyber Pakhtunkhwa. This can be 1 Azad Jammu helping the Government of Khyber Pakh- computes one year of HDI for the Newly achieved by convening a new NFC Award & Kashmir tunkhwa in social, political, educational, Merged Districts, no long-term compar- to update the magnitude of horizontal and economic terms, the Federal Govern- ison is possible for this region. However, criteria, according to data from the Pop- 2 Sindh ment earmarked PKR 48 billion under the it is worth noting that in 2015–2016, the ulation Census of 2017. This will change 10-Year Development Plan of 2019.54 Newly Merged Districts had the lowest in- provincial shares from the Federal Divis- Overall, the Newly Merged Districts come per capita in Pakistan. ible Pool.58 Simultaneously, budgets can 3 Punjab remain among Pakistan’s most underde- In 2015–2016, Azad Jammu and Kash- be allocated to underdeveloped districts veloped regions. Better outcomes may be mir ranked above the national average in based on a formula provided by the Pro- 4 Khyber on the horizon if the region is granted the terms of education, with the highest val- vincial Finance Commission, with non- Pakhtunkhwa sizeable budget for development that it has ues in both adult literacy and the net en- lapsable funds. Economic development requested. rolment ratio. Gilgit-Baltistan came fifth, can be boosted in underdeveloped regions 5 Gilgit while the Newly Merged Districts were by devising a special medium-term strate- Baltistan Comparing inequality across Pakistan’s near the bottom in terms of both indica- gy based on their comparative advantages regions tors (figure 3.36). – such as in mining and quarrying, minor 6 Newly Merged Health was the only dimension where crops, fishing, and forestry. Moreover, the Districts According to the latest available data from the Newly Merged Districts performed exceptionally low HDI value of the Newly 2016, Azad Jammu and Kashmir has the better than some other regions in Pakistan. Merged Districts can be improved by in- 7 Balochistan highest levels of human development Azad Jammu and Kashmir ranked fourth creasing the special federal grant to more among Pakistan’s regions and provinces. in terms of the health dimension of human than its existing value of PKR 56 billion,

Gilgit-Baltistan ranks fifth out of seven, development, while Gilgit-Baltistan did while prioritizing the provision of quality 8 and the Newly Merged Districts rank sixth unexpectedly well, ranking third. Overall, education, health care, and infrastructure. (figure 3.35).57 Azad Jammu and Kashmir performed best

Between 2006 and 2016, Azad Jammu among all of Pakistan’s regions, while Ba- 9

FIGURE 3.35 Note: Data for the Newly Merged Districts of Khyber Pakhtunkhwa were not available for 2018–2019. Therefore, the Notes comparison of the special regions with Pakistans provinces is only conducted until 2015–2016. Human Development Index trends in Pakistan, (2006-2016) Source: UNDP calculations based on Pasha, 2019; multiple years of HIES and PDHS data. * Name changed to protect the informant’s identity. This story was shared during the NHDR focus group discus- 6 In 2015, the year used for this analysis, Punjab had a pop- sion in Umerkot, Sindh, on 21 June 2019. The languages ulation of 110 million, representing 54 percent of Paki- Non-lapsable funds can be HDI used were primarily Dhatki and Sindhi, with Urdu trans- stan’s total population. These figures were calculated us- allocated to underdeveloped 0.7 lations. The quotes used in the story are approximate ing data from the National Population Census of 1998 provinces and regions on a translations. and of 2017. Government of Pakistan 1998 and 2018g. 0.6 Azad Jammu and Kashmir priority basis to reduce regional 1 Pakistan’s provinces are consistently discussed in this Punjab Sindh 7 Javed and Naveed 2018. disparities. Khyber Pakhtunkhwa Gilgit-Baltistan FATA 0.5 Balochistan order in the NHDR 2020, listed according to their share 8 In 2015, the year used for this analysis, Sindh had a popu- of the national population, from the largest (Punjab) to 0.4 lation of 48.8 million, accounting for 23 percent of Paki- the smallest (Balochistan). stan’s total population. These figures were calculated us- 0.3 2 Pasha 2019. ing data from the National Population Census of 1998 0.2 3 For details, see Technical note 3 on the estimation of and of 2017. Government of Pakistan 1998 and 2018g. gross regional product. 9 In 2015, the year used for this analysis, Khyber Pakh- 0.1 4 Government of Khyber Pakhtunkhwa 2020. tunkhwa’s population was 30.5 million, representing 15 0 5 The calculations are based on the following formula, percent of Pakistan’s total population. After the 2018 2006-2007 2012-2013 2015-2016 where\ {HDI}_i is the HDI value of the provinces, \bar{HDI} merger of the Federally Administered Tribal Areas (FATA) Note: Data for the Newly Merged Districts of Khyber Pakhtunkhwa were not available for 2018–2019. Therefore, the comparison of the special is the national HDI value, and E is for education, H for – now known as the Newly Merged Districts – into the regions with Pakistans provinces is only conducted until 2015–2016. health care, and I for income: Source: UNDP calculations based on Pasha, 2019; multiple years of HIES and PDHS. province, Khyber Pakhtunkhwa’s population increased to 35.5 million, or 17 percent of Pakistan’s population.

66 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Measures of regional inequality 67 These figures were calculated using data from the Na- 26 Ibid. tional Population Census of 1998 and of 2017. Govern- 27 Government of Azad Jammu and Kashmir 2018. ment of Pakistan 1998 and 2018g. 28 Government of Pakistan 2019g. 10 In 2015, the year used for this analysis, Balochistan’s 29 Ibid. population was 11.9 million, accounting for just 6 percent 30 Government of Pakistan 2018a. of Pakistan’s total population. These figures were cal- 31 Government of Pakistan 2018b. culated using data from the National Census of 1998 and 32 Government of Pakistan 2018c. of 2017. Government of Pakistan 1998 and 2018g. 33 Ibid. 11 For details see Technical note 4 on the estimation of ur- 34 GIZ Pakistan 2017. ban and rural GRP. 35 Government of Azad Jammu and Kashmir 2018. 12 For details see Technical note 5 on the derivation of in 36 Government of Pakistan 2018a. come inequality in urban and rural areas. 37 Government of Pakistan 2018c. 13 As recent or relevant data are not available, many of the 38 The Pakistan-India People’s Forum for Peace and Democ- headings within these sections on Pakistan’s special re- racy (PIPFPD) – the region’s largest, oldest people-to- gions do not coincide. people group – has been demanding, since it was found- 14 This figure was calculated for Gilgit-Baltistan using the ed in 1994, that India and Pakistan settle the Kashmir dis- latest available data on HDI indicators for 2014–2015. pute according to the needs and aspirations of the Kash- However, for comparison and consistency with other miri people, and include them in any dialogue about provinces and special regions, this report refers to this their future. See: ‘De-escalate Tensions between India data as 2015–2016 data. and Pakistan: PIPFPD 26 February 2019, Joint Statement 15 The AKDN includes the Aga Khan Foundation, Aga Khan by the National Committees PIPFPD of India and Paki University, and the Aga Khan Health Service. stan’, Sabrang 2019. 16 These include the Gilgit-Baltistan Civil Servants Act 2011, 39 The News International 2015. the Auditor-General of Gilgit-Baltistan (Functions, Pow- 40 Radio Pakistan 2019; Pakistan Today 2019. ers and Terms and Conditions of Service) Act 2012, the 41 Dawn News 2019. Gilgit-Baltistan Council (Election) Ordinance 2015, the 42 Pakistan Today 2018. Gilgit-Baltistan Council (Salaries, Allowances and Privi- 43 Peshawar here refers to the former Frontier Region with leges) (Amendment) Act 2012, and the Gilgit-Baltistan the same name as Khyber Pakhtunkhwa’s capital city. Council Adaptation of Laws Act 2015, among others. 44 Government of Pakistan 2008b. 17 Information about AKDN and its health interventions was 45 Statistical annex table 1A. obtained from AKDN. 46 Government of Pakistan 2018b. CHAPTER 4 18 Government of Pakistan 2016. 47 Government of Pakistan 2019g. 19 Ibid. 48 Ibid. 20 For details on indicators and a description of assets used 49 Government of Pakistan 2016. to calculate multidimensional poverty, refer to the Multi- 50 IDMC 2014. dimensional Poverty in Pakistan Report, published in 51 Ibid. 2016. 52 Ahmad and Junaid 2010. Special measures 21 Gilgit-Baltistan’s population density of 12 is based on its 53 Jabri 2018. population of 0.884 million according to the Census of 54 Alam 2019. 1998 (Government of Pakistan 1998). Its population has 55 Khan 2018. of inequality not been officially reported since this Census. The Sta- 56 Noor and others 2018. tistical Cell of the Planning and Development Department 57 The latest available data for Gilgit-Baltistan’s HDI indi- of Gilgit-Baltistan (2013) calculated a population density cators are from 2014–2015. However, for comparison projection of 18 persons per square kilometre, using a with other provinces and special regions, the NHDR refers population projection of 1.301 million. to this data as 2015–2016 data. 22 Government of Azad Jammu and Kashmir 2017. 58 Balochistan’s share will accordingly increase from 9.09 23 Government of Pakistan 2016. percent in the 7th NFC Award to 10.81 percent. This will 24 Government of Azad Jammu and Kashmir 2018. facilitate further development in the province. 25 Alif Ailaan 2017.

68 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 CHAPTER 4 Special measures of inequality

After barely a few years of marriage, Ayesha’s* husband suddenly passed away. The young widow lives with her parents and daughter in Rahimyar Khan, Punjab. Realizing that her daughter’s education now depends on her, she began taking classes to train as a beautician. After completing her certification, Ayesha plans to move to Lahore because jobs in Ra- himyar Khan are hard to come by. This will be difficult, especially with a young child in tow. With no family in Lahore and day care too expensive for all but the richest Pakistanis, Ayesha knows it will be hard to find a job that allows her to take her daughter to work. “The Government should make policies that make it easier for women with children to work in different environments,” she says. She suggests subsidized day care facilities, or flexible schedules if the work allows it. There are 2.5 million unemployed young people like Ayesha in Pakistan today. Like her, many are stuck between a rock and a hard place.1 Even if they have some level of education or training, those in smaller towns are unable to find decent work close to home. Most need to find steady jobs to provide for their families. This usually forces them to move to a big city, uprooting their lives in places where they have family support. Unemployment and underemployment among Pakistan’s youth exacerbate inequality, squandering the potential of the country’s most important resource.

One of the NHDR 2020’s objectives is to Reports. Since 2014, these reports have examine the impact of inequality on hu- also included performance on the Gender man development through the lens of so- Development Index (GDI). However, the cial strata like children, youth, gender and lack of a Child Development Index (CDI) labour. These lenses affect both the eco- remains a major gap. nomic and social dimensions of well-be- Pakistan’s NHDR 2020 attempts to ad- ing in terms of access to, the availability dress this gap by constructing, perhaps for The NHDR 2020 constructs and usage of resources. Examining these the first time, a Child Development Index Pakistan’s first Child aspects in terms of inequality and human in the Pakistani context. For this purpose, Development Index, which development reveals results of great im- it uses three groups of indicators related deconstructs inequality among portance for policy makers. For instance, to children’s living standards, health, and the country’s children. the Human Development Index for youth levels of education. Living standards en- offers evidence that can inform policies to compass three indicators, while health and tackle the issue of ‘idle’ youth, in order to education include four indicators each, as include them in economic activities. Sim- described below. ilarly, policy interventions can be identi- fied to tackle gaps in child development, Living standards labour, and gender development. The three indicators used to determine liv- ing standards for the Child Development Child development and inequality Index are: households’ average child-equiv- alent level of income, the percentage of Since 1990, UNDP has published coun- children in the two richest quintiles, and try rankings on the Human Development the percentage of children who are not en- Index in annual Human Development gaged in child labour.

70 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 71 The child-equivalent of income, YNE, and those who do not suffer from wasting. Pakistan’s national Child Development rate (2.68 percent) between 2001-2002 is first derived for a typical household us- Index had an intermediate value of 0.575, and 2007-2008. This increased to an extent ing the following formula: Education compared to a potential maximum value of between 2007–2008 and 2011–2012 (2.9 1. Some indicators register relatively high percent), before slowing again between The first three education indicators of the sub-index values, such as the percentage 2011–2012 and 2015–2016 (1.8 percent), Child Development Index relate to net of children who do not suffer from wast- and between 2015–2016 and 2018–2019 Where NE is the number of child enrolment rates at the primary, middle, ing (0.828), the percentage of fully-immu- (0.9 percent).

equivalents, NA is the number of adults, and matric levels. The fourth indicator is nized children (0.777), and the percentage

NC is the number of children, and Y is the the amount of education expenditure per of children who are not engaged in child Provincial Child Development Index average income per household. child. This is taken as a proxy for the qual- labour (0.670). Compared to these, the This is similar to the Organisation ity of education. sub-index values of other indicators are The NHDR 2020 derives Child Develop- of Economic Co-operation and Devel- The primary sources of information very low, specifically the net enrolment ment Index values for each of Pakistan’s opment’s (OECD) approach to deriving for these indicators are the Household In- rate at the matric level (0.284) and at the four provinces for 2018–2019 (table 4.2 adult equivalents. tegrated Economic Survey, the Pakistan middle school level (0.292). and map 4.1). The results show that Pun- Punjab has the highest Social and Living Standards Measurement The only indicator among the Child jab has the highest CDI value, followed by Child Development Index Health and nutrition (PSLM) Survey, and the Pakistan Demo- Development Index’s 11 indicators that has Khyber Pakhtunkhwa. Sindh, Balochistan, value, followed by Khyber graphic and Health Survey, carried out pe- experienced a decline is the percentage of and Khyber Pakhtunkhwa have CDI values Pakhtunkhwa, Sindh, and The four indicators used to gauge health riodically in the country.2 children in the two richest quintiles, which below the national average – almost 10.3 Balochistan. Punjab is the only and nutrition in the Child Development dropped from a sub-index value of 0.625 in percent, 39.3 percent, and 7.3 percent be- province whose value is above Index are: the percentage of fully-immu- National Child Development Index 2001–2002, to 0.544 in 2018–2019. low the national average, respectively. the national average. nized children, children who survive up to Overall, the national Child Develop- Among Pakistan’s provinces, Punjab the age of five, those who are not stunted, According to table 4.1, in 2018–2019, ment Index experienced an annual growth registers the highest values for nine of the

TABLE 4.1 TABLE 4.2

Trends in the national Child Development Index and in sub-indices, (2001-2019) Magnitude of Child Development Index and sub-indicies by province, (2018-2019)

2001-2002 2007-2008 2011-2012 2015-2016 2018-2019 Khyber Punjab Sindh Pakhtunkhwa Balochistan Pakistan Standard of living index 0.463 0.493 0.538 0.611 0.611 1) Income per child equivalent 0.275 0.445 0.515 0.601 0.618 Standard of living index 0.687 0.548 0.552 0.399 0.611 2) % of children in top two quintiles 0.625 0.563 0.540 0.575 0.544 1) Income per child equivalent 0.699 0.569 0.521 0.376 0.618 3) % of children not engaged in child work 0.490 0.472 0.558 0.656 0.670 2) % of children in top two quintiles 0.683 0.465 0.422 0.087 0.544 Education index 0.273 0.357 0.428 0.411 0.420 3) % of children not engaged in child work 0.679 0.610 0.712 0.735 0.670 1) Primary level enrolment rate 0.420 0.550 0.570 0.570 0.528 Education index 0.542 0.392 0.361 0.183 0.420 2) Middle level enrolment rate 0.213 0.240 0.293 0.293 0.292 1) Primary level enrolment rate 0.596 0.477 0.478 0.330 0.528 3) Matric level enrolment rate 0.180 0.220 0.260 0.280 0.284 2) Middle level enrolment rate 0.365 0.208 0.242 0.152 0.292 4) Education expenditure per child 0.280 0.417 0.590 0.499 0.578 3) Matric level enrolment rate 0.377 0.209 0.167 0.112 0.284

Health and nutrition index 0.454 0.545 0.598 0.677 0.694 4) Education expenditure per child 0.828 0.673 0.558 0.137 0.578

1) % Immunised fully 0.413 0.663 0.775 0.775 0.777 Health and nutrition index 0.736 0.607 0.685 0.466 0.694 2) % not stunted 0.417 0.448 0.473 0.526 0.558 1) % Immunised fully 0.919 0.730 0.654 0.304 0.777 3) % not wasted 0.715 0.723 0.730 0.794 0.828 2) % not stunted 0.649 0.413 0.525 0.442 0.558 4) Infant survival rate 0.271 0.347 0.413 0.538 0.613 3) % not wasted 0.908 0.710 0.815 0.558 0.828 Child Development Index 0.397 0.465 0.521 0.560 0.575 4) Infant survival rate 0.467 0.573 0.747 0.560 0.613 Average annual growth rate - 2.68% 2.90% 1.80% 0.90% Child Development Index 0.655 0.516 0.533 0.349 0.575

Source: UNDP calculations based on multiple years of HIES, PSLM, and PDHS. Source: UNDP calculations based on the HIES 2018–2019, the PSLM 2018–2019, and the PDHS 2017–2018.

72 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 73 MAP 4.1 province whose Child Development Index on all three sub-indices. Sindh performs value is higher than the national average. especially poorly in terms of health and nu- Sindh’s Child Development Pakistan Child Development Index, (2018-2019) The province registers relatively high val- trition, while gaps in education are greatest Index value is lower than the ues on all three sub-indices. By contrast, in Khyber Pakhtunkhwa and Balochistan. national average because of the other three provinces perform poorly health and nutrition, while Khyber Pakhtunkhwa’s and CHILD DEVELOPMENT INDEX (CDI) TABLE 4.3 Balochistan’s values are below average due to education. High CDI 0.700 and above Factors that contribute to deviations from the national CDI value (%) Medium CDI 0.550 - 0.699

Low CDI 0.549 and below Child Standard Health and Development of living Education Nutrition Index Punjab 4.4 7.1 2.4 13.9 Child Development Index for Pakistan: 0.575 Sindh -3.7 -1.6 -5.0 -10.3 Khyber-Pakhtunkhwa -3.4 -3.5 -0.4 -7.3 Balochistan -12.2 -13.7 -13.4 -39.3

Source: UNDP calculations based on NHDR 2020 CDI. BALOCHISTAN KHYBER 0.349 PAKHTUNKHWA 0.533 Youth development and 3. the employment-to-population ratio inequality of Pakistan’s youth;

Pakistan’s burgeoning youth population – 4. the extent to which employed youth comprising young people between 15 and are engaged in full-time jobs (35 or 29 years old – will be a potentially vital more hours a week); and factor in accelerating the pace of economic growth. However, progress will depend on 5. the youth mortality rate, which is used whether youth entering employment have to calculate the Youth Survival Index. more education and skills than the existing labour force, and whether they are fully Primary sources of data for the Youth and productively absorbed into employ- Development Index are the various Labour Force Surveys undertaken by the Pakistan PUNJAB SINDH ment with quality jobs. Otherwise, with 0.655 0.516 growing numbers of ‘idle’ unemployed Bureau of Statistics since 2001–2002, as youth, there is an increased risk of crime well as the Pakistan Demographic and and violence cloaked in the garb of ethnic- Health Survey 2006–2007, and the Paki- stan Maternal Mortality Survey 2019 by Source: UNDP calculations based on the HIES 2018–2019, the PSLM 2018–2019, and the PDHS 2017–2018. ity, sectarianism, or religion. The NHDR 2020 constructs a Youth the National Institute of Population Stud- Development Index (YDI) primarily to as- ies (NIPS). Child Development’s 11 indicators. Khy- es have a very high incidence of stunting The Youth Development Index in- ber Pakhtunkhwa performs exceptionally and wasting among children. Social pro- sess trends in young people’s human capital endowment, and the extent to which they cludes estimates at the national level for well on three indicators: the percentage tection programmes for child development 2001–2002, 2007–2008, 2012–2013, and of children who are not engaged in child in Sindh and Balochistan need more of a contribute to the economy through full- time employment (figure 4.1). The Youth 2017–2018, and at the provincial level for labour, the percentage who do not suffer focus on food supplements, immunization 2017–2018, with a gender-based variation from wasting, and the survival rate among coverage, and enhancing enrolment rates Development Index is based on five key indicators: in the index calculated at the national lev- infants. at the middle school and matric levels. el.3 Balochistan registers low values for vir- 1. the mean years of schooling of the Sources of inequality in the Child De- tually all indicators, except the percentage youth population; National Youth Development Index of children who are not engaged in child velopment Index labour. In fact, both Balochistan and Sindh 2. their enrolment rate in higher educa- The national Youth Development Index are facing a nutrition crisis – both provinc- As table 4.3 reveals, Punjab is the only tion (colleges or universities); only grew at a rate of 1.41 percent per year

74 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 75 from 2012 to 2018, and stood at a moder- growth. MAP 4.2 ate value of 0.605 in 2017–2018. A down- ward trend is evident in two of its indica- Provincial Youth Development Index Pakistan Youth Development Index, (2017-2018) tors: the employment-to-population ratio for youth and the percentage of youth who The Youth Development Index at the YOUTH DEVELOPMENT INDEX (YDI) are in full-time employment (figure 4.1). provincial level in 2017–2018 shows that Sindh and Punjab perform The indices which registered a positive Sindh and Punjab perform better than the High YDI 0.700 and above

better on the Youth trend are years of schooling, the extent of national average (map 4.2). This is due Medium YDI 0.550 - 0.699 Development Index than enrolment in higher education, and the to higher levels of full-time employment Low YDI 0.549 and below Khyber Pakhtunkhwa and youth survival rate. among youth in Sindh, and Punjab’s slight- Balochistan. The results indicate that, fundamen- ly better performance in terms of young tally, the working environment has not people’s years of schooling. Youth Development Index for Pakistan: 0.605 changed for Pakistan’s youth over time. Among the provinces, Punjab performs The most rapid improvement in the Youth best in terms of years of schooling and Development Index, albeit at a low rate the youth employment-to-population ra- of almost 2.0 percent, was apparent be- tio. Khyber Pakhtunkhwa has the highest

tween 2001–2002 and 2007–2008, during levels of youth enrolment in higher edu- BALOCHISTAN KHYBER the tenure of the Musharraf government. cation. Sindh has the highest percentage 0.435 PAKHTUNKHWA 0.572 The index subsequently experienced little of youth in full-time employment in the FIGURE 4.1 country, while Balochistan has the highest youth survival rate.4 Trends in the national Youth Development Index and its sub-indices*, (2001- 2018) Sources of inequality in the Youth

HDI Development Index 1.000 Punjab performs better than the national 0.900 average on the Youth Development Index because of the province’s better perfor- % of fully employed youth 0.800 mance on education indicators (table 4.4). Sindh’s above average YDI value is due

0.700 largely to a higher rate of the absorption of young people into employment. Khyber PUNJAB SINDH 0.621 0.630 Youth Development Index Pakhtunkhwa has a lower YDI value than 0.600 Youth Survival Index Years of schooling of youth the national average because of low rates % of enrolled youth in higher education of youth employment. Balochistan’s poor Source: UNDP calculations based on LFS 2017-2018 and PMMS, 2019. 0.500 performance on the index is due to low Youth employment-to- population ratio levels of education among its youth. TABLE 4.4 0.400 The determining equation is: Youth bulge: Not just unemployed but Impact of different factors on deviation from the national YDI value Number of [100 – employment-to-pop- 0.300 also ‘idle’ ‘idle’ or unem- = ulation ratio - % of youth ployed youth enrolled in higher educa- Youth Years of employment of youth in of fully deviation 0.200 This analysis also enables the NHDR 2020 tion] X youth population schooling to population higher employed from National to quantify the number of ‘idle’, or unem- of youth ratio education youth YDI ployed, youth in Pakistan. This is perhaps 0.100 There are as many as 27 million ‘idle’ or Punjab 1.6 0.0 2.0 -1.3 2.3 the key indicator of the extent to which unemployed young people in Pakistan Sindh -1.2 0.5 -0.8 5.3 3.8 the youth bulge has been accompanied by 0 (figure 4.2). One-quarter are young men, a high rate of the absorption of young peo- Khyber-Pakhtunkhwa -3.5 -4.3 6.6 -4.6 -5.8 2001-02 2007-08 2012-13 2017-18 while most (three-quarters) are young ple into full-time jobs, thereby contribut- Balochistan -10.3 -5.5 -17.8 5.3 -28.3 Note: The actual value of each indicator is given in the Statistical Annex. women. This highlights the predicament ing to higher national income. Source: UNDP calculations based on NHDR 2020 YDI. Source: UNDP calculations based on multiple years data of LFS, PDHS, and PMMS. that Pakistan finds itself in. The large pop-

76 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 77 ulation of youth, their expectations raised engage 44.28 percent and 38.49 percent, ation without gender-based discrimina- Employment-to-population ratio in the run-up to the 2018 General Election respectively, of the country’s total em- tion. Pakistan has always had a gender gap by the ruling party, face the prospect of an ployed workers. in wages. National statistics show that the This dimension provides information uncertain future and a lack of opportu- In 2006, the Government of Paki- adjusted gender wage gap across all occu- about the economy’s ability to absorb the nities. Tackling this challenge must rank stan embarked on the process of estab- pation groups amounts to 50 percent. This labour force drawn from a country’s popu- high among the Government’s priorities to lishing decent work standards. Pakistan’s means that men are likely to earn 50 per- lation of working age. It is a more represen- prevent rising frustration and disengage- third Decent Work Country Programme cent more than women employed at the tative measure of labour absorption in the 11 ment among Pakistan’s youth. (DWCP III) 2016–2020 is currently be- same level or in the same position. The market than the unemployment rate. If the ing implemented.5 However, the country’s adjusted gender wage gap is slightly higher FIGURE 4.2 employment-to-population ratio increases, massive ‘industrial reserve army’ keeps it in rural areas (52 percent) than in urban it indicates that a larger number of people 12 Number of ‘idle’ or unemployed male and from achieving Sustainable Development areas (46 percent). of working age are gaining employment. female youth in millions, (2017-2018) Goal 8, with its focus on decent work for Pakistan desperately needs to lay the This means that more people are working, There are 27 million ‘idle’ youth all. groundwork for decent work for all. This indicating a positive development in the in Pakistan; three-quarters are Decent work is defined as a job and is vital to reduce inequality, while curb- labour market. young women and one-quarter work environment where workers’ funda- ing the sense of deprivation and lack of are young men. mental rights are protected – such as work self-worth that plague workers toiling in Share of labour income safety, respect, decent working hours, and deplorable working conditions. Happy, fair remuneration – where there is space satisfied workers translate into a more pro- This measure provides information on the Female 13 20.3 to maintain physical and mental integrity, ductive labour force. proportion of income accruing to workers Male room for professional and personal devel- Pakistan’s labour protection laws do set out of total national income. An increase opment without gender-based discrimina- standards for minimum wages and work- in this dimension indicates that workers tion, and space for freedom of speech. ing hours, but these only cover the formal are receiving a higher share of national in- Despite Pakistan’s Minimum Wage sector. Workers in the informal and agri- come, reflecting a positive labour-related Ordinance of 1961, in 2018 only around cultural sectors comprised the bulk (82.77 development. 53 percent of Pakistan’s total employed percent) of those employed in 2018, yet Male 6.7 workers received the minimum wage, earn- they are unprotected by labour laws or reg- Skill premium ing less than PKR 17,500 per month.6 Of ulatory authorities, while lacking job safety 14 those employed, 40.42 percent do not have and health insurance. This dimension reflects how much more decent working hours; as such they work likely educated, skilled persons are to earn either more than 48 hours per week or six Labour Development Index an income, compared to those who are un- days each week, or less than 10 hours per Source: UNDP calculations based on LFS, 2017-2018 and PES, week.7 To assess labour development and the FIGURE 4.3 2016-2017. Vulnerable employment with low wages gravity of the situation in the country, the Dimensions of the Labour Development and no health insurance is not considered NHDR 2020 constructs Pakistan’s first Index Labour development and decent work. In 2018, 3.74 percent of em- ever Labour Development Index in normal The NHDR 2020 constructs Pakistan’s first ever Labour inequality ployed workers in Pakistan suffered from conditions (LDIN) and a Labour Devel- occupational injuries or diseases at work. opment Index with decent work inclusion Employment Development Index, both with 15 to population and without the inclusion of Countries like Pakistan, with a huge sur- Most (2.94 percent) were in rural areas, (LDIDW). The Labour Development In- ratio plus of labour, have what Karl Marx termed compared to far fewer (0.8 percent) in ur- dex ranges from 1 to 0, where the value of decent work. 8 an ‘industrial reserve army’ – that is, work- ban areas. 1 reflects the highest level of labour devel- The Constitution of Pakistan and many opment, and 0 the lowest. The LDI has Incidence Share of ers who are irregularly employed. A surplus N of decent labour of its laws prohibit the employment of four dimensions: the employment-to-pop- work Labour income of low-skilled or unskilled workers, most Development of whom are illiterate, is an inexhaustible children who are under the age of 14. De- ulation ratio, the share of labour income, Index (with reservoir of ‘disposable’ manpower. A lack spite this, 2.92 percent of the country’s la- the skill premium, and human capital. The decent work) of education and skills, coupled with lim- bour force is between 10 and 14 years old; LDIDW includes these four dimensions ited alternative livelihood opportunities, that is, approximately 1.8 million children with the addition of one more: the inci- 9 are engaged in work. Figures are higher dence of decent work, comprising three Human Skill makes these workers easily exploitable, capital premium willing to live and toil in deplorable con- in rural areas (1.57 million) than in urban sub-indicators. All five dimensions are dis- 10 16 ditions to make ends meet. In Pakistan, the centres (0.24 million). cussed briefly below (figure 4.3). informal sector and the agricultural sector Decent work also entails fair remuner-

78 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 79 FIGURE 4.5 educated and unskilled. The skill premium 10 hours and below 48 hours); 2018, the national LDIDW stood at a low can have a negative connotation as well; an value of 0.442. Changes in the dimensions of the national increase in the difference in wages between c. the percentage of the labour force em- The long-term trend shows that nation- Labour Development Index, (2012-2018) the highly-educated and those who are un- ployed in the formal sector, which cap- al labour development is indeed increasing, educated implies an increasing disparity in tures those working under the protec- but the extent of development decreases Employment to population income distribution. However, when con- tion of labour laws; when decent work indicators are consid- Skill premium Share of labour income structing the Labour Development Index, ered, resulting in lower LDIDW values. This the NHDR 2020 used a positive interpre- d. the percentage of the employed who implies that although general labour devel- Human capital tation for the skill premium, treating it as a are paid, excluding contributing family opment in Pakistan is increasing, decent Incidence of decent work

‘measure of returns on education’. The log- workers; and work is not growing at the same pace, and % 30 ic behind this interpretation is that labour needs to pick up pace. The good news is 29% productivity should increase if there is an e. the gender wage ratio. that, over the years, the LDIDW value is

increase in the quality of the labour force, catching up with Pakistan’s LDIN value. that is, an increase in more highly-educated National Labour Development Index This trend indicates that decent work and skilled workers. An increase in the skill conditions in Pakistan’s labour market are 25

premium, therefore, reflects an increase in Figure 4.4 plots the national LDIN and improving, albeit slowly. Between 2012

labour development. LDIDW over time. The results reveal that and 2018, a decline in the labour force par- including the incidence of decent work in ticipation rate led to a reduction in the em- Although it is improving Human capital the index suppresses the values of the nor- ployment-to-population ratio (figure 4.5). 20 slowly, Pakistan’s Labour mal Labour Development Index. In other This decline was caused by young people Development Index value The fourth dimension of the Labour De- words, the LDIDW with decent work in- entering the labour market later in life, ei- (with decent work inclusion) velopment Index considers mean years of clusion is lower than the LDI . In 2017– ther because more of them pursued higher N 15 is quite low. schooling, measuring the stock of knowl- education to become more competitive in edge, social capital, and an individual’s FIGURE 4.4 the labour market, or because they migrat- personality. The index includes this di- ed abroad in search of better opportuni- Over the years labour development is 17 mension because it reflects the ability of improving with regards to decent working ties. 10 the labour force to contribute to the econ- conditions, (2012-2018) A reduction in returns on education omy. As such, it determines the position of (the skill premium) can be explained by 7% 7%

labour development in the market. An in- 0.45 the increase in the unemployment rate crease in human capital reflects an increase for highly-skilled individuals (4 percent), 5 in labour development as well. and a decline in the unemployment rate for low-skilled and unskilled workers (1 Incidence of decent work 0.44 18 LDI Normal percent) between 2012 and 2018. The reason for this could be the lack of quali- 0

This dimension captures the labour mar- LDI including decent work ty jobs needed to absorb highly qualified ket’s ability to provide decent work. In this 0.43 workers. context, and in line with available data, de- Meanwhile, the positive trend in the -3% cent work is defined as work that is at least share of labour income can be explained -5 10 hours or up to 48 hours per week, pays by a 55 percent increase in the average 0.42 above the minimum wage, and is in a sector monthly wages at the national level, both -7% protected by labour laws – that is, the for- in nominal and real terms, from 2012 to mal sector. To quantify decent work, the 2018.19 This is certainly a step in the right -10 NHDR 2020 uses five sub-indicators: 0.41 direction. However, a point of concern

remains: the highest proportion of the to- Source: UNDP calculations based on Pasha 2019 and multiple years a. the percentage of the labour force who tal civilian labour force (37.7 percent in of LFS. earn more than the minimum wage, 0 2018) remains illiterate and adds no value out of the total employed labour force; 2012-13 2014-15 2017-18 to human capital. This group is most like- to a report published in 2015 by the South ly to be part of lower-income households Asia Forum for Education and Develop- b. the percentage of employed work- Source: UNDP calculations based on Pasha 2019 and multiple years because low levels of income play a role in ment (SAFED), children from the poorest of LFS. ers with decent working hours (above keeping children out of school. According backgrounds are twice as likely to remain

80 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 81 out of school as those from the richest.20 employed worked as contributing family MAP 4.3 The overall increase in the incidence workers (13.2 million), who are not paid of decent work can be attributed to im- at all. Women are still being paid 50 per- Pakistan Labour Development Index, (2017-2018) proved performance on a number of in- cent less than men in positions of the same dicators. The greatest improvement is level (box 4.1). About 32.8 million people apparent in terms of the percentage of in Pakistan do not work decent working LABOUR DEVELOPMENT INDEX (LDI) employed persons who are paid above the hours (40 percent), and around 51 million minimum wage, followed by an increase (83 percent) work without the protection High LDI 0.700 and above in the percentage of workers employed in of labour laws. Medium LDI 0.550 - 0.699

the formal sector. This is evident from the Low LDI 0.549 and below 16 percent increase in employment in the Regional inequality in the labour

formal sector, compared to an increase of market Labour Development Index for Pakistan: 0.442 7 percent in the informal sector, and a 12 percent decline in the agricultural sector, Pakistan’s labour market is an amalgama- between 2012 and 2018. This suggests that tion of its provincial labour markets, each improvements in the incidence of decent characterized by different labour dynam- work are more likely to be caused by bet- ics. To understand the change in national ter working conditions in the formal sector labour indicators and dynamics, it is essen- BALOCHISTAN KHYBER 0.405 PAKHTUNKHWA than in the less protected informal or agri- tial to look at the provincial level. As such, 0.421 cultural sectors. the NHDR 2020 has constructed the first

Thus, it is no wonder that, despite im- provincial LDIDW in Pakistan’s history, in provements in the incidence of decent order to understand labour dynamics and work, about half of those employed in Pa- the depth of disparities between the prov- kistan (53 percent) were not being paid the inces.21 minimum wage in 2018 – about 24.9 mil- The results show that the provincial

lion people. In tandem, 21 percent of those LDIDW increased for all provinces from

BOX 4.1

Inequality in wages in the labour market

There are two dimensions to inequality in work-related payments. The fundamental problem is not relative wages, but the low lev- The first is the share of wages in national income, which is relatively el of wages of the ‘lower’ categories of workers. As noted above, a

low in Pakistan, at 42 percent. large percentage of such workers do not even receive the minimum PUNJAB SINDH The second is inequality between workers with different skill en- wage set by provincial governments. Some 57 percent of plant and 0.432 0.478 dowments in the total remuneration received. Wage data became machinery operators, for instance, did not earn the minimum wage in available for the first time in the Labour Force Survey of 2008–2009 2017–2018. The corresponding percentages for sales workers, craft

for nine categories of workers – ranging from managers and profes- workers, and workers in elementary occupations were 66 percent, 61 Source: UNDP calculations based on Pasha 2019 and LFS, 2017-2018. sionals, to those engaged in ‘elementary occupations’. percent, and 77 percent, respectively. The skill premium in 2017–2018, adjusted for the population, was As the presence of trade unions and collective bargaining process- 2.61 as measured by the ratio of emoluments of the top two, and bot- es remain limited in Pakistan, it is not surprising that the corporate 2012 to 2018, but not by much. In fact, ranking in terms of labour development. tom two, occupations. It fell to 3.01 in 2008–2009, slightly less than sector does not adequately share its growing profits with workers. its peak of 3.03 in 2014–2015. The decline in returns on education Between 2014 and 2018, net corporate profits went up substantially, in 2017–2018, all provincial values were Sindh, Pakistan’s economic hub, performs is evident in the increased unemployment rate for highly-educated rising by 75 percent. However, workers’ remuneration in large compa- below 0.500 – a worrisome state of affairs best on two indicators: human capital, and (map 4.3). Punjab experienced the highest the skill premium. It also has the highest individuals – that is, people with degrees, post-graduate studies, and nies only increased by 41 percent. Sindh has the highest Labour PhD holders. This rate rose from 7.18 percent in 2008–2009 to 25.75 Provincial labour departments will have to function more effec- increase (7.2 percent), followed by Baloch- overall Labour Development Index value Development Index value with percent in 2017–2018, according to table 35 of the Labour Force Sur- tively to address this situation. There is a clear need to monitor the istan (6.9 percent), Sindh (6.6 percent), with decent work inclusion (LDI ). Pun- DW decent work inclusion, followed veys of 2008–2009 and 2017–2018. level of wage payments, especially for relatively unskilled workers. and Khyber Pakhtunkhwa (4.9 percent). jab, the most populous province with the closely by Punjab, and then The NHDR 2020 computes the Gini coefficient of wage distribution Labour courts must address complaints by workers regarding the Sindh maintained its top ranking in terms highest rate of labour force participation, Khyber Pakhtunkhwa and among the nine main categories of workers in Pakistan. It was 0.19 in non-payment of at least the minimum wage. This is essential to re- of labour development that includes de- performs well in one indicator: the abili- Balochistan. 2008–2009, and is estimated at 0.21 in 2017–2018. Therefore, wage duce the incidence of poverty among Pakistan’s workers. cent work, while other provinces have at- ty to absorb the labour force. However, it inequality is not very pronounced and has grown only modestly. tempted to catch up. fares worse on two indicators: human cap- Figure 4.6 shows the overall provincial ital and the incidence of decent work. As a

82 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 83 FIGURE 4.6 percent) and the informal sector (44 per- than men in percentage terms, revealing sume holding Pakistan Tripartite Labour FIGURE 4.7 cent), which comprises cottage industries that the greatest difference in wages is in Conferences. These are important fora for Provincial Labour Development Index rankings by indicator values, (2017- Gender wage ratios, (2012- 2018) as well. Compared to this, only 17 percent Punjab. Here, women earn 52 percent less discussing the ILO Conventions that Paki- 2018) of Punjab’s employed labour force works in than men for jobs of the same level. Sindh stan has ratified, gaps in legislative frame- the formal sector.22 This implies that, de- follows, with women earning 39 percent works, and other labour issues. Male Female Employment Share of spite having the largest capacity to absorb less than men. In Khyber Pakhtunkhwa, Legal provisions can also be enacted to Ratio Punjab LDI to population labour income Skill Human Incidence of Ranking ratio in GDP premium capital decent work its labour force, workers in Punjab are less women earn 26 percent less than men, ensure that informal sector workers receive 0.8 1 Balochistan likely to enjoy decent work standards. while in Balochistan, they earn 24 percent at least the minimum wage, have access to 0.6 Khyber Pakhtunkhwa has the highest less. Nevertheless, the good news is that social security, and enjoy decent terms of share of labour income among Pakistan’s improvements are apparent over the years employment and workplace conditions. 0.4 provinces. However, this growth in income – that is, the gender wage ratio has nar- Such laws should not apply exclusively to 0.2 is largely led by a flourishing informal mar- rowed, although at a snail’s pace. registered formal sector organizations. For 0 2012-13 2014-15 2017-18 2 Khyber ket with no protection of labour rights – a A major concern is that much of Paki- that matter, the Government and civil soci- Pakhtunkhwa worrying situation. stan’s employed population works in the ety organizations should educate informal Ratio Sindh In terms of the incidence of decent informal and agricultural sectors as an in- workers about their legal rights. In tan- 0.8 work, Balochistan performs better on the dustrial reserve army, largely in conditions dem, all labour rights should be extended 0.6 index than the other provinces. However, with little or no occupational safety and to informal workers, including the right to 0.4 this does not mean that the province has health (OSH) measures in place. Given the 3 Sindh form unions for workers without perma- better labour market conditions. Its higher prevalence of child labour, the gender wage nent contracts. This will help to curb the 0.2 ranking in this dimension is due to a com- gap, occupational injuries, and employees exploitation of workers by employers. 0 2012-13 2014-15 2017-18 paratively higher number of people em- working excessive hours at below the mini-

ployed in the formal sector (19 percent), mum wage, decent work for all seems like a Sources of inequality in the Labour Ratio Khyber Pakhtunkhwa the second greatest proportion after Sindh difficult goal to achieve. Development Index 0.8 4 Punjab (21 percent). Since the formal sector tends There have been improvements, but 0.6 to have better working conditions, Ba- progress is slow. For instance, after the Sindh is the only province with higher 0.4 lochistan emerges at the top. Given that 18th Amendment in 2010, responsibility LDI values than the national average be- DW 0.2 so many more workers are employed in for labour and other social domains was cause it has the highest skill premium and Balochistan’s informal sector (40 percent) devolved to the provinces. A decade lat- 0 5 human capital, coupled with a moderate 2012-13 2014-15 2017-18 and agricultural sector (40 percent) than er, provincial governments are still in the incidence of decent work (table 4.5). Pun- in the formal sector, only 19 percent of process of adapting federal legislation. Ba- jab performs lower than the national aver- Ratio Balochistan 0.9 Source: UNDP calculations based on Pasha 2019 and LFS 2017-2018. people employed in Balochistan enjoy de- lochistan is far behind in terms of adopting age because of its lower skill premium, hu- cent work conditions. required labour laws, while Punjab, Sindh, man capital, and incidence of decent work. 0.7 result, the province has the second highest It is no surprise that Sindh, whose in- and Khyber Pakhtunkhwa have at least ad- Khyber Pakhtunkhwa performs lower than 0.5 LDI value in the country. Khyber Pakh- dustrial and service sector hub is Pakistan’s opted the fundamental laws, regardless of average because it has the lowest labour 0.3 DW economic capital, has the highest skill pre- their level of implementation. Overall, in- tunkhwa performs best on one indicator, absorption capacity among the provinces, 0.1 mium and human capital among the prov- terprovincial disparities continue. the share of labour income, but its perfor- and a low skill premium. Balochistan per- 2012-13 2014-15 2017-18 mance is poor or average on other indica- inces. It does comparatively better in terms Appropriate policy measures are ur- forms far more poorly than all other prov- of labour development, including improv- gently needed to address the challenges to tors compared to the other provinces. As a inces, and lower than the national average, Ratio Pakistan ing decent work for all. decent work that hamper Pakistan’s over- result, it ranks third in terms of its LDI because of its poor labour absorption ca- 0.8 DW Gender-based discrimination in the all human development and economic value. Balochistan performs best in one pacity, extremely low skill premium, and 0.6 dimension, the incidence of decent work, labour market is yet another setback that growth. Several measures can be taken to low human capital. perpetuates labour inequality and hampers lessen discrimination in the labour mar- 0.4 but ranks last overall on the LDIDW. In terms of the dimensions of the La- labour development. Figure 4.7 illustrates ket, such as the effective implementation 0.2 provincial and national adjusted gender of laws, and learning from other provinc- The gender wage ratio reveals bour Development Index, as noted above, 0 23 2012-13 2014-15 2017-18 discrimination in the labour Punjab has the greatest capacity to absorb wage ratios (female/male), an indicator es. First, as in Sindh, each province’s In- which is used to gauge the incidence of de- dustrial Relations Act should affirm the market by showing how much its population of working age into the Source: UNDP calculations based on less women earn than men. labour market, as measured by the em- cent work. It is alarming to see the differ- right of agricultural and informal sector multiple years of LFS. This ratio is highest in Punjab, ployment-to-population. As an agrarian ences in adjusted gender wage ratios over workers to form trade unions, like their followed by Sindh, Khyber economy, most of Punjab’s labour force is the years. In 2017–2018, the gender wage counterparts in the formal sector. Second, Pakhtunkhwa, and Balochistan. concentrated in the agricultural sector (38 ratio showed how much less women earn all of the provinces should, like Sindh, re-

84 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 85 TABLE 4.5 PML-N government, before increasing to National Gender Development Index 0.564 in the 2015–2020 period. HDI values for both women Impact of different dimensions on deviation from the national Labour Development Index To assess inequality in gender devel- The Gender Development Index is derived and men improved between opment, the NHDR 2020 uses the gen- after obtaining the ratio of the HDI values 2006 and 2019, leading to an Labour der-based Child Development Index, Employment Share of Incidence Development for women and men. The results suggest improvement in the Gender to population labour income Skill Human of decent Index Youth Development Index, and Labour that the HDI values for both women and Development Index. ratio Index in GDP premium capital work (decent work) Development Index, in addition to the men improved between 2006–2007 and Punjab 1.7% 0.3% -1.2% -1.5% -1.5% -2.1 HDR’s two traditional indices. The tra- 2018–2019 (figure 4.9). Overall, the pace ditional gender inequality indices are the Sindh -0.8% -2.5% 5.8% 3.0% 2.7% 8.1 of improvement in the female HDI value Gender Development Index (GDI), which still ranks in the category of low human de- Khyber Pakhtunkhwa -4.5% 4.0% -4.4% 1.8% 3.9% -4.7 calculates the gap in achievements of wom- velopment compared to men’s HDI value, Balochistan -2.2% 1.9% -7.1% -1.3% 6.5% -8.2 en and men caused by gender disparities, which falls in the medium human develop- Source: UNDP calculations based on Pasha 2019 and LFS 2017-2018. and the Gender Inequality Index (GII) ment category. Pakistan’s overall Gender that calculates gender inequality’s cost to Development Index value in 2018–2019 human development. was 0.777. The percentage increase in the Gender development and 2030. Pakistan is ahead of only Iraq and Ye- Gender Development Index inequality men on the Global Gender Gap Index FIGURE 4.9 2020. It ranks 151st of 153 countries on The Gender Development Index shows Pakistan Gender Development Index, Gender equality is at the heart of the 17 this index, having closed only 56 percent how much women lag behind men in each (2006-2019) Sustainable Development Goals, adopt- of the gender gap in the country.28 This dimension of human development. To ed by all UN Member States. Not only is the lowest ranking among South Asian gauge this gap, the NHDR 2020 computes Female HDI Male HDI GDI Pakistan are gender equality and women’s empow- countries, continuing the trend observed the Gender Development Index using the HDI erment a standalone goal in themselves since 2015, when it ranked 144th of 145 HDI values for women and men, as de- 1.000 (SDG 5), they are also a cross-cutting issue countries on the index. With the exception fined by UNDP’s standard methodology across all 17 global goals. SDG 5 includes of political empowerment, where Pakistan for 2006–2007, 2012–2013, 2015–2016, 0.900 an explicit commitment to ending discrim- ranks 93rd, the country performed poorly and 2018–2019.29 ination against all women and girls every- in terms of educational attainment (rank- As in the HDI, the gender-based dimen- 0.800 where, including gender-based violence in ing 143rd), health and survival (149th), sion of health in the Gender Development the public and private spheres. Given the and economic participation and opportu- Index is estimated using the indicators of 0.700 cross-cutting nature of gender equality, it nity (150th). As table 4.8 shows, Pakistan’s life expectancy at birth for women and is crucial to view the issue not just in terms overall performance on the Global Gender men. Similarly, gender-based adult litera- of the equal allocation of, and access to, re- Gap Index improved to 0.559 during the 0.600 cy for persons over the age of 15, and the sources, but rather in terms of equality of 2013–2015 period, the early years of the 24 opportunity for resources and rights. net enrolment ratio in the 5–14 year age 0.500 group, are used as the proxy for education. Women are more likely to be affected FIGURE 4.8 To calculate the estimated earned in- by low human development than men. The 0.400 deprivations they face affect both their Pakistan’s performance on the Global comes of women and men, the NHDR own productivity, as well as their ability Gender Gap Index, (2006-2018) 2020 calculates the wage bill, applying to contribute to the overall economic de- the ratio of both wages in terms of pur- 0.300 velopment process. Women account for 0.6 chasing power parity (PPP $). The other 0.559 0.564 around 47 percent of the world’s labour 0.543 0.546 indicators are women’s and men’s employ- 0.200 force.25 In South Asia, this figure is low- ment-to-population ratio, the proxy for Women account for only 22 er, at around 24 percent. It is even lower the economically active population, as well 0.100 percent of Pakistan’s labour in Pakistan, at 22 percent, 2 percent more 0.4 as women’s and men’s shares of the popula- force. than in India, and 14 percent lower than tion, and gross national income (GNI) per 0 in Bangladesh.26 At the current rate, it will capita. The NHDR 2020 only analyses Pa- 2006-07 2012-13 2015-16 2018-19 take over two centuries (202 years) to close kistan’s Gender Development Index at the 0 national level. Note: GDI is the ratio of female to male HDI values. the gender gap in economic opportunities 2006 2013 2015 2020 Source: UNDP calculations based on HIES, 2005-2006, 2011-2012, worldwide27, unless the world achieves 2015-2016, and 2018-2019; Global HDR, 2018, and Population census, SDG 5’s aspirations of gender parity by Source: WEF 2020. 2017.

86 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 87 FIGURE 4.10 Gender Development Index from 2006– the better a country’s performance in terms SPECIALBalochistan CONTRIBUTION and Khyber Pakhtunkhwa. Khawar Mumtaz 2007 to 2015–2016 remained at just 4.1 of reducing the loss to human development Wider gap in female and How gender and poverty are intertwined in Pakistan male earnings, (2006-2019) percent, before decreasing by 0.5 percent caused by gender inequality. The higher between 2015–2016 and 2018–2019. It the level of gender inequality, the greater Sustainable Development Goal 1, ‘End poverty in all its forms every- voter registration (approximately 12.4 million in the 2018 elections) Estimated earned income PPP is important to note that the average HDI the loss to human development. values for women and men (0.564) in In 2015, Pakistan ranked 130th of 188 where’, is indicative of the recognition of different dimensions of pov- and vulnerability to domestic violence (44 percent of men and wom- erty – looking beyond the numbers of those living under US$2 a day, en believe that husbands are justified in beating their wives). Conse- Male 2018–2019 are close to the national HDI countries on the global Human Develop- to how poverty impacts different members of a household. quently, the dependency ratio in poor households that are also large value (0.570) calculated in this report. ment Report’s Gender Inequality Index, 7,385 Poverty for women (and the third gender), who are often the poor- in size continues to negatively affect their poverty condition. Multiple factors affect women’s partici- falling from a ranking of 121st in 2014. est of the poor in Pakistan, is intertwined with their unequal status Pakistan’s policy makers recognized the social and gender di- pation in economic growth, decision-mak- In 2017, Pakistan ranked 133rd on the at home and in society. As a result, the vulnerability of women and mensions of poverty in the Poverty Reduction Strategy Paper back Female ing, and their mobility. This trend suggests Gender Inequality Index among medium girls is increased. They do not have a say in household decisions, ed- in 2003, and linked poverty reduction to the removal of the “social 1,385 that improvements in the female adult human development countries. In terms of ucation, employment, and marriage, nor do they have agency. While and economic constraints that have hampered women’s access to 2006-07 literacy, an increase in women’s labour countries in South Asia, Pakistan ranks be- poverty drives women to enter the labour force, it also prevents them and use of resources.” However, these barriers persist and continue force participation, and in women’s life low India (127th) and just one place above from acquiring education or employable skills, restricting them to to prevent women from realizing their potential – a reality evidenced expectancy contribute to gender-related Bangladesh (134th).31 menial or low-skill jobs – either as domestic helpers or home-based by Pakistan ranking 151st of 153 countries in the World Economic human development achievements up to The NHDR 2020 computes a Gen- workers in urban areas, or non-formal workers in agriculture and fish- Forum’s Gender Gap Index 2020. 7,528 2018–2019. However, the gap in women’s der Inequality Index at the national and eries in rural areas. The perception continues of women as lower status dependants, and men’s wage bills has increased (figure sub-national levels based on UNDP’s Given that education, paid employment, and household well-being their work largely invisible, lacking information about opportunities, are positively correlated with women’s decision-making, the estimat- assets and services, and without control over resources. Additionally, 4.10). The estimated earned income of methodology used to measure human de- ed 12.5 million girls who are out of school, and only 12 percent of women’s mobility remains restricted, their skills are not marketable, 1,459 both genders reveals that, in 2018–2019, velopment indices and indicators. This young women (15–29 years old) who complete middle level educa- they have no voice, and they continue to face violence and the fear 2012-13 women in Pakistan earned an average of composite index gauges the inequality in tion in Pakistan, have limited opportunities for meaningful employ- of violence. US$1,673 (PPP $ equivalent) compared women’s and men’s achievements through ment. Women’s low-paying informal sector employment does not It is obvious that realization is important, but not enough, to ad- to an average of US$9,335 (PPP $ equiv- three aspects of human development: re- contribute to household well-being, lift households out of poverty, or dress gender and poverty dynamics. The way forward is to create alent) earned by men. In other words, the productive health, empowerment, and eco- raise women’s voice and status at home. a transformative environment, supported by laws, institutions, and 8,405 estimated earned income of women was nomic status. Entrenched social norms that discriminate on the basis of gender effective implementation mechanisms. It is clearly imperative to only 18 percent that of men. The standard indicators used to mea- translate into the devaluation of women’s multidimensional work. In eradicate and reduce poverty and end gender inequalities. To achieve As a result, in terms of GDI groups – sure reproductive health are the maternal Pakistan, this means a 50 percent wage gap, early marriages (25 per- this goal, among other things, it is essential to address power rela- that is, the absolute deviation of the Gen- mortality ratio and the adolescent birth cent of under-18s are married) and early motherhood (34 percent of tionships between women and men. under-20-year-olds become mothers). It also means a gender gap in 1,689 der Development Index from gender parity rate. As data are not available at the inter- 2015-16 (100 ∙ |GDI – 1|) – low levels of equality provincial level, the NHDR 2020 replaces Khawar Mumtaz is a women’s rights activist and former Chairperson of Pakistan’s National Commission on the Status of Women. between women and men are evident in these indicators with the average number Notes: Figures estimated from the PSLM 2018–2019 in CGAPs, UN Women, and NCSW, Young Women in Pakistan Status Report 2020; Labour Force HDI achievements (group 5) in all three of women who did not receive prenatal Survey 2017–2018; PDHS 2017–2018; Government of Pakistan 2020i; Government of Pakistan 2003c; World Economic Forum 2020. periods analysed.30 The closer the GDI to and postnatal consultations, and the per- 1, the better it is. A GDI of 0.777 does not centage of ever-married women between FIGURE 4.11 9,335 suggest meaningful efforts to reduce the the ages of 15 and 19 out of the total num- in the labour force improved between gender gap. Therefore, Pakistan clearly ber of married women. The report uses the Pakistan’s Gender Inequality Index over the 2006–2007 and 2015–2016. The GII val- needs to develop and implement policies standard methodology for other indica- years, (2006-2019) ue of 0.540 in 2015–2016 worsened to that are inclusive of everyone, both women tors, as in the global HDR. 0.548 in 2018–2019 due to a decrease in 0.6 1,673 and men. 0.582 women’s labour force participation, and an 0.555 0.540 0.548 2018-19 National Gender Inequality Index increase in the percentage of ever-married Gender Inequality Index women between the ages 15 and 19. Source: UNDP calculations based on Pakistan’s Gender Inequality Index value Despite Pakistan’s growing population, multiple years of National Accounts, LFS, 0.4 and Population Census, 2017. The Gender Inequality Index measures the improved until 2015–2016, before dete- a general analysis of reproductive health costs to human development that result riorating slightly by 2018–2019 (figure indicators shows a decline in the total fer- from disparities between women and men. 4.11). The resulting index value of 0.540 tility rate, which decreased from 4.1 in 32 Pakistan’s Gender Inequality Thus, it shows the loss in potential human in 2015–2016 is close to the GII value of 2006–2007 to 3.6 in 2017–2018. It is 0 Index value declined slightly development due to gender inequality. 0.546 computed by the global Human De- 2006-07 2012-13 2015-16 2018-19 critical to pay adequate attention to im- from 2006 to 2019, reflecting Ranging from 0 to 1, a value of 0 indicates velopment Report 2015. Overall, repro- proving and sustaining health facilities and Source: UNDP calculations based on multiple sources of PSLM, LFS; a modest decline in gender complete gender equality, while 1 denotes ductive health, female education, political and Khan, A., & Naqvi, S. 2018. services, especially for the most vulnerable inequality. utter inequality. The closer its value is to 0, representation, and women’s participation groups, such as women. As most maternal

88 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 89 and neonatal deaths occur within 48 hours means of advancing women’s economic MAP 4.4 of delivery, prenatal and postnatal care are empowerment, while reducing their vul- particularly critical.33 The number of wom- nerability and dependence on others.39 Pakistan Gender Inequality Index, (2018-2019) en who receive prenatal and postnatal care Empirical evidence demonstrates that mi- in Pakistan has improved, increasing from crofinance enables beneficiaries to increase 37 percent in 2006–2007 to 58.5 percent their incomes, expand their assets, and im- GENDER INEQUALITY INDEX (GII) in 2018–2019. However, this is still far prove their living standards.40 In fact, mi- from the goal of ensuring that all women crocredit has a positive relationship with High GII 0.700 and above

receive adequate reproductive health care. human development and tangible asset cre- Medium GII 0.550 - 0.699 There have been some significant ation.41 Expanding outreach and the inclu- moves towards empowering women at the sion of women in microfinance networks Low GII 0.549 and below

political level. For instance, the Devolu- is, therefore, pertinent for reducing gender Gender inequality Index for Pakistan: 0.548 tion of Power Plan of 2000 reserved 33 inequality overall. percent of seats at the local government Fortunately, Pakistan has a growing Pakistan’s growing microfinance level for women. The Legal Framework microfinance sector. It currently offers mi- sector offers credit in 139 Order (Constitutional Amendment) 2002 crocredit in 139 of the country’s districts, districts to 7.2 million active reserved 17 percent of seats for women in with 7.2 million active borrowers and a borrowers. the National Assembly and Senate, while gross loan portfolio of more than PKR 308 BALOCHISTAN KHYBER establishing a 17.6 percent quota in Pro- billion. In the first quarter of 2020, 50 per- 0.686 PAKHTUNKHWA vincial Assemblies.34 Efforts to improve cent of microcredit borrowers were wom- 0.652 women’s political participation led to en.42 The microfinance sector also offers the election of the first woman Speaker saving services, with 49.3 million active of the National Assembly in 2008, under savers and a savings portfolio of more than the People’s Party government. In the lo- PKR 263 billion. Women accounted for 23 cal government laws of all of Pakistan’s percent of these savers in the first quarter provinces, presented in 2013, Punjab and of 2020.43 Sindh reduced the quota for women coun- To continue to use microfinance as a cillors to 15 and 22 percent, respectively, tool to enhance financial inclusion and al- although these provinces have the highest leviate poverty, especially among women levels of women’s political participation. and other marginalized groups, it is imper- This reflects the fragile nature of women’s ative to expand the outreach of financial empowerment measures.35 services to include the 100 million people In terms of women’s economic partici- who are ‘unbanked’ in Pakistan. To do so, PUNJAB SINDH pation, many women in Pakistan join the provincial governments can initiate large- 0.500 0.599 labour force to help their families make scale financial education and literacy pro- ends meet.36 Nevertheless, their labour grammes on the ground, and expand access force participation rate remains low, as points for commercial banking services by Note: The closer the GII is to 0, the better. See GII technical notes for more details. Source: UNDP calculations based on PSLM, 2018-2019; LFS, 2017-2018; and Khan, A., & Naqvi, S., 2018. noted above. In 2015–2016, while men’s liaising with postal or microfinance net- labour force participation rate stood at 68 works. All government-to-people transfers percent, it was just 22 percent for women, related to pensions, social protection, and Provincial Gender Inequality Index inces except Khyber Pakhtunkhwa. with both rates determined for persons subsidies, among others, can be shifted Although Pakistan’s network of 600 Balochistan performs poorly 37 of and over the age of 10. Women’s par- from cash to digital payments. Increasing With a GII value of 0.500 in 2018–2019, rural health centres (RHCs) is clearly in- on the Gender Inequality ticipation in the labour market decreased the availability of low-risk microcredit will Punjab performed best on the Gender In- adequate for its population of over 200 Index, followed by Khyber slightly thereafter, falling to 20.1 percent also require a stronger, better regulatory equality Index among Pakistan’s provinces million, reproductive health improved Pakhtunkhwa and Sindh. Gender 38 in 2017–2018. environment to ensure consumer privacy, (map 4.4), and considerably better than in all provinces except Sindh between inequality has decreased in while simultaneously helping fin-techs to the national average (0.548). Sindh follows 2006–2007 and 2012–2013.44 Punjab has all provinces except Khyber Microfinance and women’s tap into consumers’ digital footprint. with a GII value of 0.599, followed by Khy- the greatest number of rural health centres Pakhtunkhwa. empowerment ber Pakhtunkhwa (0.652), and Balochistan (293), nearly half the total number, as well (0.686). Long-term trends suggest that as the greatest number of basic health units Asset creation has proven a successful gender inequality has decreased in all prov- (2,456) across its 36 districts.45

90 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 91 The percentage of women between 15 Balochistan, where militants have targeted spend a comparable amount of time sup- 2015–2016, and 2018–2019 at the nation- and 19 years old who have ever been mar- girls’ schools. porting agricultural activities, if not more al and provincial levels (table 4.7). At the ried declined in Sindh and Balochistan, In terms of changing trends over time, time, than men. For instance, 4.3 million national level, both the male and female but increased slightly in Punjab between the overall decrease in women’s labour women spend an average of 191 minutes indices improved at the same rate. The 2006–2007 and 2018–2019. Khyber Pakh- force participation has been most signif- per day on crop farming activities, 7.8 mil- results reveal a slight difference between tunkhwa has the highest percentage of ev- icant in Balochistan. In 2018–2019, the lion spend 115 minutes each day on tend- girls’ and boys’ Child Development Index The disparity in male and female er-married women in this age group, which province had the lowest female labour ing to animals and fish farming, as do 1.6 values in 2018–2019, with no substan- Child Development Index values rose from 31.5 to 31.8 percent during this force participation rate, while Punjab had million on collecting water. Women’s crop tial improvement in the female-to-male shows no substantial change period. Multidimensional poverty in Khy- the highest. farming activities include sowing, weed- CDI ratio at the national level compared nationally and provincially, with ber Pakhtunkhwa (with its MPI value of ing, hoeing, threshing, and seed storage, to 2015–2016. The female-to-male ratios boys faring better than girls. 0.250 in 2015) and Balochistan (with its Women’s role in agriculture while tending to animals (livestock) in- improved in Punjab and Sindh between MPI value of 0.394 in 2015) may explain cludes milking, feeding, treating sick ani- 2007–2008 and 2015–2016, but worsened this trend, as families try and relieve the Agriculture contributes approximately 19 mals, collecting fodder, caring for poultry, between 2015–2016 and 2018–2019. The pressures of household expenditure by percent of Pakistan’s GDP and employs breeding, weaning, cleaning shelters, con- annual growth rate was slightly higher for marrying off their daughters early. 39 percent of the labour force. Some 14.7 verting manure to fuel, processing milk, girls than boys in both provinces. Baloch- Education significantly impacts and percent of these agricultural workers (9.1 and processing wool and hair. istan also witnessed a slight improvement empowers women, improving their deci- million) are women. Thus, women in agri- The few women agricultural workers in the female-to-male CDI ratio during sion-making capacities, helping them raise culture are central to the economy, playing who are paid are peasant farmers, working these years, with a substantially higher educated children, and increasing their a substantial role in food production and on their landlords’ farms. Payment gen- growth rate for girls than boys. In Khyber productivity. These improvements, in food security. Despite this, women’s role erally takes the form of in-kind support. Pakhtunkhwa the female-to-male CDI ra- turn, contribute to enriching society and in agriculture in Pakistan can be broadly Even if some women are paid in cash, their tio declined, and the average growth rate reducing inequality. Not even half of the defined by the ‘three U’s’: unrecognized, remuneration is far lower than men’s. The was higher for boys (2.1 percent) than girls girls in Pakistan’s provinces complete their unappreciated, and unaccounted for. average monthly wage of men engaged in (0.9 percent).50 primary or higher level education, with the While women’s role in agriculture over- the agricultural, forestry, and fishery sec- Figure 4.12 elaborates on the gen- exception of Punjab (52 percent). Girls’ shadows that of men in many agricultural tors (PKR 11,806) is almost twice that of primary level and higher education is low- tasks, it often goes unrecognized at the women (PKR 6,007).48 TABLE 4.7 est in Balochistan (19 percent) and Khy- national level. Unfortunately, 7 million Women in agriculture also face far more 7 million Pakistani women Trends in the gender-based Child Development Index, (2007-2019) ber Pakhtunkhwa (30 percent).46 Many women agricultural workers are contribut- exploitation than men, given gendered cul- in agriculture are unpaid girls drop out of school due to economic ing family workers; as their work is largely tural constraints and the fact that unskilled contributing family workers. 2007-2008 2015-2016 2018-2019 Average growth rate and social pressures, as well as restrict- unpaid, their substantial contribution to agricultural work is largely unprotected by ed mobility. Violent extremism has also agriculture remains unrecognized.47 labour legislation. Sindh is the only prov- Pakistan contributed to blocking girls’ education, Table 4.6 presents the results of the ince that has taken a historic step to ad- Male 0.47 0.563 0.586 2 particularly in Khyber Pakhtunkhwa and Time Use Survey. It reveals that women dress this situation by approving the Sindh Female 0.46 0.556 0.563 1.9 Women Agriculture Act 2019, a first in Punjab TABLE 4.6 Pakistan. It seeks to empower rural wom- Male 0.515 0.588 0.656 2.2 Time use: Numbers of men and women, and mean minutes per day spent on activities, (2009) en by conferring all the rights, protections, and benefits available to industrial workers Female 0.504 0.594 0.654 2.4 under existing labour laws to women agri- Male Female Sindh cultural workers.49 While the results of its Number Minutes Number Minutes Male 0.405 0.476 0.521 2.3 implementation have yet to be seen, it is a Crop farming and market gardening: planting, Female 0.39 0.507 0.51 2.5 9,651,807 261 4,329,982 191 step in the right direction. Pakistan’s oth- weeding, harvesting, picking, etc. er provinces will need to think along the Khyber Pakhtunkhwa Kitchen gardening – backyard cultivation: planting, 78,483 140 57,732 61 same lines to empower and protect women Male 0.449 0.581 0.564 2.1 weeding, harvesting, picking, etc. in agriculture. Female 0.45 0.533 0.498 0.9 Tending animals and fish farming 8,929,194 154 7,882,374 97 Balochistan Hunting, fishing, gathering of wild products Gender-based Child Development 210,027 310 46,827 115 and forestry Index Male 0.333 0.359 0.353 0.5 Collecting water 341,406 62 1,660,394 86 Female 0.291 0.315 0.344 1.5 The NHDR 2020 computes a gender-based Source: UNDP calculations based on multiple years of HIES, PSLM, and PDHS. Source: Government of Pakistan 2009d. Child Development Index for 2007–2008,

92 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 93 FIGURE 4.13 der-based child development sub-indices Gender-based Youth Development is confirmed by the gender-based Labour The disparity in male and female for 2018–2019. The results reveal that the Index Development Index with decent work in- Youth Development Index values The male YDI is twice the female YDI, (2018) girls are at a disadvantage in terms of living clusion for women, LDIDWfemale, and men, has decreased over the years, standards, with a sub-index value of 0.569, LDI (see Technical note 8 for de- The NHDR 2020 also analyses the Youth DWmale with the female value growing at compared to a value of 0.649 for boys. In Development Index from a gender perspec- tailed calculations and the methodology a much faster rate than the male terms of education, boys have an advantage used). In 2012–2013, the LDI value Male tive at the national level for multiple years: DWmale value between 2006 and 2019. compared to girls, although the difference was 0.501, compared to the LDI val- 2001–2002, 2007–2008, 2012–2013, and DWfemale YDI between them is fairly small. In the health 2017–2018. As table 4.8 shows, the gap ue of 0.193. This means that the LDI value 0.692 and nutrition sub-index, girls have a clear between male and female YDI values was with decent work inclusion was almost 2.6 advantage over boys, as girls’ nutritional much larger in 2001–2002, with a male- times higher for men than for women. status and child survival rate is better than The good news is that the LDIDWfemale 51 to-female ratio of 2.1, than in 2017–2018, b oy s’. when this ratio decreased to 1.48. Another value grew at a rate of 4.7 percent per year, Female positive development is the rapid growth considerably faster than the 1.2 percent level of growth of the LDI value be- YDI FIGURE 4.12 of the female YDI value, which is growing DWmale 0.467 at a much faster rate (2.9 percent) than the tween 2012 and 2018. Nevertheless, the Gender-based Child Development Index, (2018-2019) male YDI value (0.8 percent). difference between women’s and men’s LDI values remained virtually unchanged Male The extent of variation in YDI values 0.567 0.804 0.920 CDI 0.586 between young women and men highlights during this period (figure 4.14). This in- 0.667 0.696 dicates that the female LDI value needs to a huge gap between the two (figure 4.13). 0.540 0.509 0.124 0.468 0.502 Young women fare better in some respects, grow faster than the current rate to achieve gender parity (box 4.2). for example, they have a higher survival Percentage of Years of Youth Percentage of Youth Positive growth in Labour Develop- enrolled youth schooling employment fully employed survival Female rate than young men. Overall, however, ment Index values for both women and in higher of youth -to- population youth rate CDI 0.563 there is a clear gap between young women education ratio and men in Pakistan wherein women are men is only apparent in three dimensions. Source: UNDP calculations based on LFS, 2017-2018 and PMMS, 2019. at a disadvantage, especially in employ- The share of labour income in GDP expe- rienced the greatest growth, followed by ment-related indicators. Young women’s FIGURE 4.14 mean years of schooling are substantially human capital, and the incidence of decent work. The gravity of the current situation lower (0.509) than young men’s (0.667). Labour Development Index with decent work The disparity in male and female can be assessed by looking at the largest gap 0.719 The gap in enrolment in higher education inclusion, (2012-2018) Labour Development Index 0.649 in dimensions between women and men. is slightly smaller, but a large gap exists in values has decreased over the 0.439 This gap is most pronounced in the em- LDI Growth rate two employment-related indicators. The years, although the female value ployment-to-population ratio, where the 0.6 1.40% 1.20% 4.70% 0.669 female sub-index value for the employ- needs to grow at a much faster 0.569 LDI value for men is 250 percent higher 0.401 ment-to-population ratio is 0.124, com- rate to achieve gender parity. than the value for women, followed by the Male pared to the male value of 0.804, while the 0.5 Education Standard of living Health and Nutrition share of labour income, where men’s LDI index income index index value for the percentage of fully-employed young women is 0.468, compared to 0.920 value is 171 percent higher than women’s. Pakistan Similarly, in terms of human capital, the 0.4 Source: UNDP calculations based on HIES, 2018-2019; PSLM, 2018-2019; PDHS, 2017-2018. for young men. This shows that young women in Pakistan have fewer economic male LDI value is 63 percent higher than the female LDI value, and 39 percent high- opportunities available to them, especial- 0.3 TABLE 4.8 ly in the labour market, than young men. er with regard to the incidence of decent Special government policy interventions work (figure 4.15). Gender-based Youth Development Index, (2001-2018) Female are needed to improve the economic status The only exception is the skill premium, 0.2 of young women in Pakistan. where the LDI value for women was higher Per annum than the value for men in 2012–2013 and 2001-2002 2007-2008 2012-2013 2017-2018 growth rate 0.1 Gender-based Labour Development 2017–2018. In 2017–2018 alone, educat- Male 0.605 0.639 0.659 0.692 0.8 Index ed women earned 25 percent more than Female 0.288 0.374 0.416 0.467 2.9 educated men. This suggests that women 0 in Pakistan must be highly educated in or- 2012-13 2014-15 2017-18 Ratio 2.10 1.71 1.59 1.48 Patriarchal attitudes and power structures der to face less discrimination in the labour Source: UNDP calculations based on Pasha 2019 and multiple years Source: UNDP calculations based on multiple years of LFS. underlie widespread gender-based discrim- of LFS. ination in Pakistan’s labour market. This market.

94 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 95 FIGURE 4.15 BOX 4.2 such as education and health care, for FIGURE 4.17 2015–2016 and 2017–2018. The Gov- Dimensions of the Labour Marginalization of the female labour force Gender-based public education expenditures, Development Index revealing ernment’s sectoral priorities within the (2015-2016 and 2017-2018) gender discrimination in the Figure 4.16 presents the distribution of Pakistan’s This means that as many as 18.7 million women spheres of education and health are dis- labour market, (2012-2018) female labour force The augmented female la- within the female labour force (74 percent) are in cussed separately in chapter 6. Primary education Secondary education bour force consists of women workers engaged marginalized roles. The corresponding estimate % General universities, college and institutes Male Female in residual economic activities, such as subsis- for an earlier year, 2007–2008, is 83 percent. The Education 80 70 Ratio Employment to population tence agriculture, the construction of their own proportion of men engaged in marginal economic 0.7 dwellings, and caring for livestock, among others. activities is much smaller, as only 17 percent of Education accounted for the highest 60 Women contributing family workers are those male workers are in this residual category. 50 0.5 share of public expenditure (26 percent) who work without payment, either in cash or in In effect, a minority of women workers are 40 Gap between male250 in 2017–2018, according to the Poverty and female 0.3 kind, in enterprises operated by a member of their engaged in mainstream economic activities. Reduction Strategy Paper (PRSP), rising 30 family or kin. Women’s participation in marginal work is often 20 from 25 percent in 2015–2016.52 Public 0.1 Contributing family workers represent the part motivated by pressure to augment their family’s 10 expenditure on primary education, sec- 2012-13 2014-15 2017-18 of the female labour force engaged in ‘marginal’ income, either by providing free inputs to increase 0 roles, alongside members of the augmented la- household outputs, or by earning wages through ondary education, and general universi- Female Male Female Male Ratio Skill premium bour force, and the unemployed within the con- marginalized activities, often by working part- ties, colleges, and institutes accounts for 2015-16 2017-18 4 82 percent of total education expendi- ventional labour force. time. Over 46 percent of working women in Pa- Source: UNDP calculations based on multiple years of PRSP and -25 3 Estimates of the size of the ‘marginal’ female kistan are from the two poorest income quintiles. ture. Analysing these figures from a gen- Government of Pakistan 2018j. 2 labour force based on the Labour Force Survey To emancipate women workers, Pakistan will der perspective reveals a dismal picture. 2017–2018 indicate that Pakistan’s total fe- need to broaden the scope for women’s partici- In 2017–2018, only 39 percent of public 1 male labour force is 25 million strong. Among pation in well-remunerated, productive jobs, and sector education expenditure was spent on interventions, instead the opposite trend their ranks, 1.2 million women are unemployed, offer greater opportunities for women to acquire 2012-13 2014-15 2017-18 girls and women, compared to 61 percent has played out: an increased gap in expen- 7 million are engaged in unpaid work, and 10.5 market-related skills. on boys and men – 10 percent less than diture on male and female education. million are part of the augmented labour force. Share of labour income in GDP in 2015–2016. Government priorities ap- Ratio FIGURE 4.16 pear clearly tilted towards educating boys Health 0.5 and men, with a share of 70 percent of Marginalization of the female labour force 0.3 171 public expenditure spent on boys’ prima- In 2017–2018, 13 percent of the Govern- ry education, and 56 percent on boys’ and ment’s current and development expendi- 0.1 Femal labour force young men’s secondary education (figure ture was spent on health, up from 10 per-

2012-13 2014-15 2017-18 4.17). The deprivation in expenditure on cent in 2015–2016. Public expenditure on girls’ and young women’s education is one general hospitals and clinics, maternal and Conventional labour force Augmented labour force Ratio Human capital key reason why the majority of Pakistan’s child health care and facilities, and preven- 7 out-of-school children – between 5 and tive health measures accounts for 80 per- 5 63 Unemployed Contributing family workers Mainstream employment 16 years old – are girls. The trends clearly cent of Pakistan’s total development and indicate a lack of funds for infrastructure current expenditure on health. 3 and facilities for girls’ and young women’s When analysed from the viewpoint 1 education. of gender-sensitive budgeting, in 2017–

2012-13 2014-15 2017-18 The overall picture of public spending 2018, the Government spent 52 percent of The gender-based Labour Development adopting systematic gender-sensitive bud- on education in 2017–2018 is one of in- this budget on facilities related to women’s Index affirms what most Pakistanis already geting in national and provincial policies, % Incidence of decent work creasing gender inequality, which has wors- and girls’ health, while the greatest single Gender-sensitive public know: gender-based inequality is rife in programmes, and projects. This is also cru- ened compared to 2015–2016. Only 34 proportion of the budget (56 percent) was 18 spending on education 39 the labour market. Concrete policy mea- cial for Pakistan to achieve SDG targets percent of the development budget, and 40 spent on general hospitals and clinics (fig- 14 decreased from 2015 to sures need to be developed and, crucially, by 2030, and to uphold its commitments percent of the current budget, is spent on ure 4.18). Breaking down the first figure 10 2018; only 34 percent of its implemented to eliminate gender-based to the international conventions it has rat- female education. The 18th Constitution- by budget types reveals that 50 percent of 6 development budget and 40 discrimination. ified on women’s rights, human rights, and al Amendment in 2010 introduced Article the development budget, and 53 percent percent of the current budget is 2 equality. Targeted interventions are vital 25-A into the Constitution, affirming the of current budget, was spent on facilities 2012-13 2014-15 2017-18 spent on female education. Gender-sensitive budgeting for greater inclusivity in both economic state’s responsibility to provide free, com- linked to women’s and girls’ health. Source: UNDP calculations based on Pasha and social development processes. pulsory education for all children between Gender-sensitive health planning in 2019 and multiple years of LFS. The discussion above on gender-based The NHDR 2020 analyses public ex- 5 and 16 years old. While this should have Pakistan requires more of an emphasis on indices provides a clear justification for penditures on basic services in Pakistan, motivated budgeting for gender-specific the provision of health facilities, as well as

96 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 97 FIGURE 4.18 Women’s economic empowerment is vi- 8 Government of Pakistan 2018a. GDI from gender parity, 100 - |GDI – 1|. tal for reducing inequalities like the gender 9 The LFS does not report data on children under the age Group 1: 2.5 percent or less = high equality in HDI Gender-based public health expenditures, of 10. achievements between women and men. (2015-2016 and 2017-2018) wage gap. Policy interventions should in- clude the provision of interest-free, small 10 The Constitution of Pakistan in Article 3 specifies: “the Group 2: 2.5–5 percent = medium to high equality in HDI state shall ensure the elimination of all forms of exploita- achievements between women and men. General hospitals and clinics Mother & child health and medium-term loans, coupled with spe- tion and the gradual fulfilment of fundamental principle, Group 3: 5–7.5 percent = medium equality in HDI achieve- % Health facilities and preventive measures cial facilities for women entrepreneurs, en- from each according to his ability and to each according ments between women and men. 70 suring equal pay for women and men, pro- to his work.” Article 11(3) states: “No child below the age Group 4: 7.5–10 percent = medium to low equality in HDI 60 tecting women’s rights in workplaces, and of 14 years shall be engaged in any factory or mine or achievements between women and men. 50 ensuring conducive workplace conditions any other hazardous employment.” The Employment of Group 5: Absolute deviation from gender parity of more 40 and terms of employment for women work- Children Act of 1991 and Article 11(3) of Pakistan’s Con- than 10 percent = low equality in HDI achievements be- 30 ers. These include separate toilets, mater- stitution expressly prohibit the employment of children tween women and men.

20 nity leave, upholding the minimum wage, below the age of 14 in any factory, mine, or any other 31 UNDP 2018. decent working hours, curbing workplace form of hazardous employment. Government of Pakistan 32 Fertility rates for women aged 15 to 45 per 1,000 women. 10 harassment, and crèches for child care. A 2012a and 1991. Government of Pakistan 2008b and 2019g. 0 Female Male Female Male system of quotas for women in jobs could 11 UNDP calculations based on the Labour Force Survey 33 Government of Pakistan 2019g. 2015-16 2017-18 also be established. Civil society must play 2017–2018; Government of Pakistan 2018b. 34 Both legislative frameworks were initiated and imple- a key role in supporting women in the in- 12 These results are based on data from the Labour Force mented in the Musharraf era. See Government of Paki- Source: UNDP calculations based on multiple years of PRSP and Survey 2017–2018 using the methodology of the ILO’s stan 2002a. Government of Pakistan 2018j. formal sector to organize themselves and Global Wage Report regarding the average gender pay 35 Batool 2019. form women-focused trade unions. Pro- gap, adjusted for the percentage of employed persons. 36 UNDP 2016b. vincial governments should complement on preventive measures, such as immuni- 13 Preston 2017. 37 Government of Pakistan 2016c. these efforts through legislative reform to zation. Imbalances in the health facilities 14 Government of Pakistan 2018a. 38 Government of Pakistan 2018c. available for women and children are re- explicitly protect women engaged in infor- 15 See Technical note 8 for the detailed calculations and 39 Microfinance institutions offer clients a wide variety of flected in the country’s high infant mortal- mal jobs, in line with the example set by the methodology used. loan products and services, ranging from livestock loans ity rate, of 62 infant deaths per 1,000 live Sindh Home Based Workers Act of 2018. 16 See Technical note 8 for detailed information on calcu- to purchase sheep, goats, and buffalo, to loans for the births, and its under-five mortality rate, of lations. purchase of knitting and sewing machines, and loans to 17 UNDP 2017b. start or expand businesses. 74 deaths per 1,000 live births (80 deaths 18 Government of Pakistan 2014a; Government of Pakistan 40 Kandker 2005; Mushtaq and Shahnaz 2011. among boys and 68 among girls). Low Notes 2018a. 41 Pitt and Khandker 1996. levels of public spending also expose the 19 Ibid. 42 Pakistan Microfinance Network 2020. health sector’s considerable dependence * Name changed to protect the informant’s identity. This 20 UNDP 2017b. 43 Read more on financial inclusion as a mechanism for re on the private sector, which needs to be story was shared during the NHDR focus group discus- 21 See Technical note 8. ducing poverty and inequality in the special contribution addressed. sion in Rahim Yar Khan, Punjab, on 13 November 2019. 22 Government of Pakistan 2018a. by Dr. Shamshad Akhtar in this report. Looking at human development The language used was Urdu. The quotes used in the st- 23 Despite the Bonded Labour Abolition Act of 1992, and the 44 See Statistical annex table 7. through a gender lens is a cross-cutting ory are approximate translations. Employment of Children Act of 1991, debt bondage and 45 World Health Organization 2020; Government of the Pun- issue. Pakistan can reduce gender-based 1 UNDP calculations using data from the LFS 2017–2018. child labour persist in Pakistan. jab 2010. discrimination by introducing specialized 2 Technical note 6 outlines the methodology used by the 24 World Bank 2006b. 46 See annex table 7A. health, economic empowerment, and ed- NHDR 2020 to derive the overall Child Development In- 25 World Bank 2020. 47 UNDP calculations based on LFS data for 2017–2018. ucation programmes that address gender dex. 26 Ibid. 48 Government of Pakistan 2018b. 3 See Technical note 7 for details on the methodology used 27 WEF 2018a. 49 Dawn 2019d. gaps in these spheres – gaps which over- to construct the Youth Development Index. 28 WEF 2020. 50 See annex table 4 for detailed results. whelmingly disadvantage women and 4 See annex table 5 for detailed numbers. 29 Refer to the standard methodology for GDI quantification 51 Ibid. girls. Targeted programmes should involve 5 ILO 2016. in UNDP’s global Human Development Reports. 52 Government of Pakistan 2017g and 2019i. expanding the conditional cash transfer 6 The minimum wage is the wage level appropriated by the 30 The GDI groups are based on the absolute deviation of the scheme under the Benazir Income Support Government in consultation with relevant stakeholders. Programme and the Ehsaas initiative, to 7 Under the Factories Act of 1934, no adult employee – de- provide incentives for immunizing chil- fined as a worker who has completed his or her 18th year dren and preventing child labour. Special- of age – can be required or permitted to work in any es- ized nutrition interventions are needed for tablishment in excess of nine hours per day and 48 hours pregnant and lactating women, newborns, per week. Similarly, no young person – that is, no one un- and children up to the age of five, as are der the age of 18 – can be required or permitted to work food fortification initiatives for basic food in excess of seven hours a day and 42 hours per week. items.

98 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Special measures of inequality 99 PART 2 Power

100 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 101 CHAPTER 5 The political economy of inequality

102 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 103 CHAPTER 5 The political economy of inequality

When Maria* was in her teens, she lost both her legs in a car accident in Islamabad. She was determined to continue her education because, she says, that’s the only way “people like me can work in places other than KFC or beauty parlours.” But university was not easy for Maria, now 28. Initially, the administration ignored her requests to install ramps on campus, to shift her classes to the ground floor, or to provide an accessible washroom. It took Maria months of persistent campaigning – letters, phone calls, and in-person visits – before they finally agreed. Her difficulties didn’t end there. It’s hard enough being a woman in Pakistan, Maria says. “Having a disability on top of that makes life twice as difficult, because men know that you can’t physically defend yourself.” After being groped when her wheelchair was being hoisted onto a bus, she has not used public transport. Without a car of her own, this means she is mostly homebound. Her education and writing skills have enabled Maria to find work online and support her elderly parents. Access to the internet allows her to learn, work, and shop from the safety of her home. It also connects her to a larger community through social media channels like Facebook. “Through them, I have learned that my disability does not define me, my abilities do.” Like Maria, 6.2 percent of Pakistan’s population – around 12.8 million people – have some form of disability.1 The discrimination and lack of accessibility they face, day in and day out, fan the flames of social and structural inequality.

Power as a driver of inequality sivity of the tax system. The third section looks at public expenditure priorities to determine what the state spends on public The Pakistan NHDR 2020 highlights services and social protection programmes, three core drivers of inequality: Power, compared to the resources pre-empted by People, and Policy. vested interests. In the process, it identifies Power refers to the groups who exploit people’s access to different services. loopholes, networks, and policies for their own benefit. In many ways, structural in- equality in Pakistan is both exacerbated and reinforced by these groups, whose aim The powerful and their is to accumulate power, wealth, and priv- privileges ilege. This happens at the expense of the relatively deprived majority. The political economy of inequality relates This chapter outlines three key com- to the sources, nature, and dimensions of ponents of Power as a driver of inequality. privilege. Vested interests are able to ac- The first section discusses the powerful and quire these through the political process their privileges. It focuses on the benefits in a democratic system, or through patron- enjoyed by selected wealthy and powerful age in an autocratic one. This is sometimes groups in the country, in order to estimate referred to as ‘state capture by the elite’. It the share of resources captured by vested involves special and favoured treatment of interests. The second section examines the the privileged in laws, rules, and regula- incidence of taxes to analyse the progres- tions, along with preferential treatment by

The political economy of inequality 105 public institutions. This preferential treat- the country’s political ideology, in order to SPECIALBalochistan CONTRIBUTION and Khyber Pakhtunkhwa. Mustafa Talpur State capture by the elite ment may be based on the perceived im- move towards a more egalitarian system, involves special and favoured portance of the role of a particular vested frequently through a broad-based people’s How power structures affect inequality treatment in laws, rules, and interest in the process of economic growth. movement. regulations. It may also be the result of lobbying with Figure 5.1 classifies the various types of Inequalities in societies like Pakistan are the result of the imbal- tions and wrong interpretations of religion and tradition, continue to the senior echelons in public office or the privileges and special treatment that char- ance in the distribution of economic and political power. The British hold back any progress. Empire promoted the landed aristocracy, coupled with a bureaucratic The economic elites often use their wealth and power to influence political leadership, sometimes on the ba- acterize state capture by the elite. It identi- structure and laws to rule the vast area under its control. In Pakistan, government policies, political decisions, and public debates in ways sis of large payments ‘on the side’. It may fies the different special interests that ben- this structure has not been dismantled in the last seven decades to that lead to a greater concentration of wealth. Money buys political also involve a conflict of interest on the efit most from these privileges. The types lay the foundation of a fair society. clout, which the richest and most powerful use to further entrench part of key government functionaries. and magnitude of privileges enjoyed by In a country starting with such unequal access to power and their influence and advantages. To explain the large gap between the different vested interests are described in wealth, where a privileged few upheld by colonial rulers set the rules Many of Pakistan’s wealthiest people today have made their for- income and wealth of the elite versus the general terms below for 2017–2018 and, of game, the majority’s access to political power, wealth, and resourc- tunes thanks to exclusive government concessions, tax exemptions, majority of the population, it is essential wherever possible, for more recent years. es has been limited. This historical configuration gives a head start to sweetheart contracts, land concessions, subsidies, privatization to understand the political economy of in- Details are provided in the footnotes. those with inherited wealth, money, and connections. (even in the education and health systems), corruption, and the mo- equality. This root cause of inequality re- A number of fiscal incentives – espe- Those fortunate enough to be born to a few rich families are able nopoly of power. Private health care providers, and a few organized flects the alignment of political forces and cially those related to the promotion of to provide their children and future generations with access to good private education institutions, have become so powerful in recent groups in a country. Such inequality tends exports, investment, and the development education, a path to continue and strengthen their power. This histor- years that the Government is unable to trim their influence and pro- to persist, and even grow, unless fundamen- of underdeveloped areas – may also confer ical trend explains the low social mobility in Pakistan. While a small vide equal access to quality education and health care for all – both window is always open in the political and bureaucratic structure to of which are essential to address inequality. tal changes are made in the power structure benefits in the form of increased employ- tap talent, those from underprivileged sections of society who get an Powerful elites also use their money, power, and influence to cap- and a radical transformation is affected in ment and labour income. opportunity find it hard to challenge the existing power apparatus, or ture the media and other spaces to shape narratives and public de- FIGURE 5.1 to become part of it. bate. They use this influence to promote ideas and norms that sup- Basically, people and geographical areas with less voice, power, port the economic and political interests of the privileged. As a result, Sources of privileges of different vested interests and wealth have been systematically discriminated against in Paki- there is considerable public misperception about the scope and scale stan. They are less likely to have equal access or the ability to catch of inequality, as well as its causes. Types of privilege Feudal Corporate Exporters Large High net worth Military State owned Total up in the near future. A conspicuous example is half the country’s To create a just and equal society, it is essential to break the cycle class sector traders individuals establishment enterprises population: women. of power and privilege linked to the concentration of wealth, and to The existing unequal power structure makes things difficult for so- democratize the economy and politics with the equal participation TAX SYSTEM 12 ciety as a whole, but particularly for women, who have less political of women and other vulnerable communities. Rather than clamping Tax exemptions 4 and economic power. It is hard to uplift society without the equal down on civic space, democracy, and gender equality, the Govern- participation of women in economic and political activities. Strong ment must reduce the undue power and privileges of the few who are Low effective tax rates 5 patriarchal norms reinforced by state policies, based on misconcep- holding back the progress of Pakistani society. Tax evasion 3 Mustafa Talpur is the Regional Lead for Asia of Oxfam International’s Inequality Campaign. CHEAPER INPUTS 7

Energy, water 2 possible. Intermediate inputs 2 The feudal class The most commonly acknowledged The feudal elite have Machinery 3 disproportionate access Only 92,919 people are part of Pakistan’s benefit that the feudal class enjoys is an to political representation HIGHER OUTPUT PRICES 6 feudal elite, just 1.1 percent of the total extremely low tax rate on agricultural in- come. For example, the highest marginal in National and Provincial Favourable pricing formula number of farmers in the country. Yet they 3 Assemblies, and enjoy a minimal have an individual farm size of over 50 income tax rate per acre is 1.7 percent of High effective protection 1 3 tax burden. acres, and own 22 percent of the nation’s the net income generated. This means Monopoly / cartel 2 farm area. Each of the richest 0.2 percent that the total annual revenue yielded by the tax, in all four provinces combined, is less PREFERENTIAL ACEESS 7 of these large-scale farmers owns a farm 2 than PKR 3 billion. If agricultural income Land 1 whose average size is over 400 acres. They also have disproportionate access to politi- was taxed at the same rate as non-agricul- Capital 5 cal representation in the National and Pro- tural income, the potential revenue yield in Infrastructure/ services 1 vincial Assemblies. Consequently, most 2017–2018 would have been PKR 88 bil- lion, according to updated calculations by TOTAL 6 8 6 2 3 4 3 32 manage to safeguard the tax benefits and special concessions granted to them, and Pasha and Ghaus-Pasha (2012). Therefore, Source: UNDP calculations based on sources mentioned in text and footnotes. even to obtain new privileges whenever these low tax rates on agricultural income

106 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 107 FIGURE 5.2 effectively imply a tax break for the feudal tax rate of just 8 percent. Once more, this all paid-up capital of the corporate sector. placement (BMR) reduced tax liability by 10 Distribution of privileges class of over PKR 85 billion. benefits large-scale farmers who own most The also quotes almost PKR 44 billion. granted to the feudal class, The second area of favoured tax treat- of the tractors in Pakistan and thus enjoy a large number of these companies. Over- Independent power producers (IPPs) worth PKR 370 billion, ment is the land revenue system. The rates a tax break of PKR 18 billion on annual all, large companies account for almost 60 received a remarkable allowance when the (2017-2018) per acre are small and have remained un- tractor purchases.6 percent of the value added in the industri- energy policy of the mid-1990s offered changed for a decade. The total national The Government sometimes keeps pro- al sector, and all of the value added in the them a lifetime concession. This com- Favourable prices Lower taxation revenue yield from land revenue tax was curement and support prices higher than banking sector. pletely exempts both domestic and for- Preferential access PKR 12 billion in 2017–2018, with an an- the landed price of imports in order to Multinational companies largely op- eign companies from corporate income 11 7% nual growth rate of just 3 percent. If these raise the production of major crops, like erate in Pakistan in import-substitution tax. Currently, this tax break is valued tax rates had been subjected to full infla- wheat, sugarcane, and cotton. In 2017– projects behind high tariff walls. Large as- at almost PKR 55 billion per year. Cumu- tion indexation, the revenue yield would 2018, for example, the procurement price sociations protect and promote corporate latively, this implies a revenue loss to the 31% 62% have nearly doubled to PKR 21 billion. of wheat was PKR 1,300 per 40 kilograms interests, and various embassies in Paki- federal exchequer of over PKR 1 trillion. This implies a tax break of PKR 9 billion. (kg), while the equivalent landed price was stan protect the interests of multinational More recently, the lifetime tax break has Similarly, stamp duty is charged on land significantly lower, at just PKR 940. This companies based in their home countries. also been extended to Chinese companies transactions with grossly understated val- means a large income transfer, with the Umbrella bodies like the Federation of Pa- that invest in CPEC. Furthermore, many ues. combined incomes of large-scale farmers kistan Chambers of Commerce & Indus- smaller companies engage in tax evasion.12 Another source of benefits for the feu- rising by over PKR 23 billion.7 A similar try (FPCCI) and the Overseas Investors Pakistan also gives multinational com- Source: UNDP calculations based on sources mentioned in text and footnotes. dal class is their access to cheaper inputs. A approach applied to sugarcane yields an Chamber of Commerce & Industry (OIC- panies a special tax break for new invest- Multinational companies leading example of this is the extremely low estimated increase of PKR 37 billion in CI) have close access to the corridors of ments, reducing the corporate income tax largely operate import- rate of the irrigation water charge, known incomes. The Government withdrew the power, as do industry-specific associations rate from 30 to 20 percent. In addition, substitution projects behind locally as aabiana.4 Currently, the extent support price for cotton in 2008–2009. like the All Pakistan Textile Mills Associ- there are tax holidays of between five and high tariff walls. of operations and maintenance (O&M) Large-scale farmers also enjoy preferen- ation (APTMA), the All Private Schools 10 years for companies, both local and for- cost recovery is only 8 percent, with reve- tial access to bank credit. Farms that cover Management Association (APSMA), and eign, that invest in underdeveloped areas. nues of PKR 4 billion nationwide. There is 50 acres or more pre-empted as much as 56 the All Pakistan Cement Manufacturers The combined loss of revenue due to these also a need to finance the replacement cost percent of agricultural credit, of PKR 972 Association (APCMA). Businesspeople policies exceeds PKR 20 billion each year.13 of the irrigation system. As such, the wa- billion, in 2017–2018. Interest rates are are also frequently members of federal and In terms of indirect taxes, extraordi- Privileges of large-scale farmers ter subsidy is large, amounting to PKR 46 relatively low, implying a credit subsidy of provincial cabinets. This creates a conflict narily high levels of protection are provid- include higher output prices and billion. Over 40 percent of irrigation and PKR 27 billion to these farmers.8 of interest, especially when these business- ed to some import-substituting industries lower input prices. canal water is pre-empted by large farms, Overall, the magnitude of the benefits people hold economic portfolios. through the regime of customs tariffs. A which are generally located at the top of that Pakistan’s feudal class enjoy is PKR The corporate sector receives a large classic example is the automotive sector. watercourses. 370 billion (figure 5.2). In effect, each number of tax breaks and other conces- The import duty on complete built-up Electricity is also supplied to tube-wells member of this elite group enjoys privileg- sions. These are often justified on the (CBU) vehicles is as high as 60 percent.14 at a subsidized rate. The average electric- es of over PKR 3.2 million (US$19,088) grounds that ‘fiscal incentives’ are required Japanese companies engaged in automo- ity tariff in 2017–2018 was PKR 12 per annually, on average. This is over 20 times to increase production, exports, employ- bile assembly make exceptionally high kilowatt hour (kWh), compared to the av- the average per capita income in the coun- ment, investment, and the development of profits as a result. The return on equity in erage tariff of PKR 14.50 per kWh for all try. underdeveloped areas. this industry can reach up to 70 percent. other categories of consumers. The annual The corporate tax on profits was re- Moreover, these industries are character- electricity consumed by tube-well owners The corporate sector duced from 35 to 29 percent in recent ized by monopolies, contributing to higher is 9,222 gigawatt hours (GWh). The re- years, adding almost PKR 20 billion to profits in industries with relatively large- sulting subsidy to large-scale farmers (the The corporate sector consists of public and large companies’ net profits. Similarly, the scale effective protection and monopolies feudal class) who own most of these tube- private limited companies, both domestic ‘Super Tax’ on companies with big turn- – profits of almost PKR 111 billion in wells amounts to PKR 23 billion. Light and foreign. The large and growing num- over has been withdrawn, yielding tax sav- 2017–2018. Multinational companies also diesel oil (LDO) supplied to farmers also ber of owners and shareholders of Paki- ings of PKR 8 billion for these companies.9 frequently engage in transfer pricing.15 has a low sales tax rate. The implied reve- stan’s large companies are very much part Pakistan offers companies two major Many industries enjoy lower sales tax nue loss is PKR 5 billion. of the country’s elite. These large compa- fiscal incentives. The first is the initial rates on production and sales, in line with Then there is the subsidy of PKR 135 nies each have paid-up capital in excess of depreciation allowance. In 2017–2018, the Sales Tax Act of 1990. Perhaps the billion on fertilizers.5 Large-scale farmers, PKR 1 billion. According to the Securities this reduced large companies’ corporate best example of this is the influential sug- who account for about one-third of the and Exchange Commission of Pakistan income tax liability by PKR 32 billion. ar industry, which has a sales tax rate of 8 fertilizer subsidy, benefit by over PKR 45 (SECP), there are 471 such companies, Similarly, 10 percent tax credit for invest- percent, compared to the standard 17 per- billion. Tractors similarly have a low sales which have a 66 percent share in the over- ment in balancing, modernization and re- cent. The magnitude of this tax break in

108 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 109 FIGURE 5.3 2017–2018 was almost PKR 32 billion. and 5.4). These accrue to the owners and 2018–2019, import duties on raw mate- Board of Revenue’s attempts to better doc- Distribution of privileges This concession was withdrawn in the fed- shareholders of these companies, who con- rials and intermediate goods used by ex- ument transactions and broaden the tax granted to industry, worth eral budget of 2019–2020. stitute less than 0.7 percent of Pakistan’s port industries were eliminated. This im- base. PKR 528 billion, (2017-2018) The way electricity tariffs are set is an population. plied savings for these industries of almost As a result, traders enjoy a number of

Lower taxation Favourable prices example of a favourable pricing formula, PKR 24 billion in import duties on inputs de facto privileges. Given their low propen- with a cost-plus pricing procedure. This Exporters for domestic sales. Similarly, preferential sity to file income tax returns, they pay a adds an additional burden on consumers of treatment has been extended to machin- presumptive income tax (PIT) levied on PKR 60 billion.16 Monopolies and cartels The first four years of the PML-N gov- ery imports, leading to savings of PKR 15 electricity bills.26 Small monthly bills of also facilitate high profits for industries ernment (2012–2013 to 2016–2017) billion.22 Cotton imports are also exempt up to PKR 400 are exempt from this tax. 23 46% like sugar, petroleum refinement, cement, attached little importance to exports, fo- from taxes. Beyond this level, the presumptive income 54% and automobiles. cusing instead on maintaining a nominal- The sharp rise in electricity tariffs in re- tax rate rises with the size of the electricity A clear pattern of market segmentation ly stable exchange rate to keep the rate of cent years is, in part, a way of tackling the bill, reaching 12 percent for bills of more is visible in the banking sector. By and inflation low. Consequently, by the end of growing circular debt in the power sector. than PKR 20,000 per month. Traders enjoy a low tax large Pakistan’s two regulatory agencies, 2016–2017, the became It is also caused by rising fuel costs due to This report’s analysis of the relation- burden and often engage in the Competition Commission of Paki- overvalued by almost 27 percent in terms the depreciation of the Pakistani Rupee. ship between electricity consumption by Source: UNDP calculations based on large-scale tax evasion. sources mentioned in text and footnotes. stan (CCP) and the State Bank of Paki- of the real effective exchange rate (REER). However, a major decision taken in 2018 commercial consumers and trading in- stan (SBP), have not succeeded in ensur- This led to exports plummeting by nearly to fix the tariff on export-oriented units at come reveals that, on average, commercial ing competitive behaviour in industry or 13 percent. In tandem, the trade deficit the rate of 7.5 cents per kWh implied an consumers pay PKR 560 per kWh. The banking. Big banks with a strong clientele more than doubled compared to its level of annual subsidy approaching PKR 61 bil- presumptive income tax rate, therefore, Monopolies and cartels facilitate have thereby been enabled to enhance their US$15 billion in 2012–2013. lion.24 should be closer to 20 percent for electric- high profits for industries like benefits by over PKR 46 billion.17 Given the precipitate fall in reserves, the Export industries have also tradition- ity bills of PKR 20,000 or more for large- sugar, petroleum refinement, The banking sector also enjoys a host of policy towards exports has since changed ally been given access to a special credit scale traders. The present presumptive in- cement, and automobiles. privileges. Its first tax break was a corpo- fundamentally. Several incentives now ex- line from the for come tax system implies a revenue loss of rate income tax rate reduction from 58 to ist for exporters, starting with quantum concessional export financing. The annual almost PKR 40 billion to the exchequer.27 35 percent during the Musharraf era, when depreciation in the value of the Pakistani volume of credit is approximately PKR 0.5 In addition, many goods are not subject Exporters enjoy a host of fiscal banking officials were in leadership posi- Rupee by 15 percent in 2017–2018 and 35 trillion, with an interest rate substantially to a withholding tax at the manufacturing FIGURE 5.5 incentives, cheaper access to tions. On pre-tax profits in 2017–2018, percent in 2018–2019. below the prevailing market rate for loans. stage, which would otherwise be levied on credit, and a lower tariff on this implied a tax break of almost PKR 90 The first set of incentives for exporters Consequently, this subsidy is worth over the sales tax paid by traders. Considerable 25 Distribution of privileges electricity. billion, with the tax rate falling further to relates to tax breaks. A presumptive in- PKR 39 billion. Figure 5.5 summarizes tax evasion is a result of this arrangement, 18 granted to exporters, worth just 29 percent. come tax has been levied on exports, based the privileges enjoyed by exporters. Over- leading to a loss of revenue of PKR 92 PKR 248 billion, (2017-2018) A second example of favoured treat- on the value of export earnings at a fixed all, the Government and State Bank of Pa- billion, as estimated by the NHDR 2020 FIGURE 5.4 ment is the State Bank of Pakistan granting rate of 1 percent. By 2017–2018, rising kistan provide total support worth PKR from the Federal Board of Revenue’s year- Lower taxation Favourable prices commercial banks access to open market profitability led to a ratio of over 6 percent 248 billion to exporters. book on revenues from the withholding Preferential access Distribution of privileges operations, with the aim of providing these of net profits to exporters’ sales. With a tax levied on sales tax. granted to banks, worth PKR banks with the necessary liquidity to in- corporate income tax rate of 30 percent, Large-scale traders Commercial importers also enjoy sub- 15% 196 billion, (2017-2018) vest in government securities, mostly Mar- this implies a tax break of 0.8 percent for stantially favourable tax treatment. A with- Lower taxation ket Treasury Bills (MTBs). In 2017–2018, export sales, equivalent to over PKR 24 The trading community consists of com- holding tax is levied at the import stage at Preferential access this enabled banks to make a net addition- billion.20 mercial importers, and over 3 million a rate of between 1 and 5 percent of total Favourable prices al profit of PKR 60 billion. The State Bank Other tax breaks have also been offered, wholesalers and retailers in the domestic revenues, depending on the commodity 25% of Pakistan identifies a third tax break that catalysed by the lobbying power of the All market. Large-scale retail outlets with 10 imported. According to the Pakistan Bu- 60% 23% reduces the liability of non-performing Pakistan Textile Mills Association, and the or more workers account for approximate- reau of Statistics, importers have a trading loans. This is the tax deductibility provi- new vision of the importance of raising ex- ly 22 percent of employment in the trading margin of 20 percent. Excluding the net

46% sion to write off bad debts, as per section ports to stabilize the economy. The biggest sector, according to the Pakistan Bureau of costs of labour and operating costs brings Source: UNDP calculations based on 157of the Income Tax Ordinance.19 This concession is the ‘zero rating’ of domestic Statistics’ Economic Census of 2005. the estimated margin to 16 percent. The sources mentioned in text and footnotes. implies tax savings of almost PKR 17 bil- sales granted to five export industries, in- Given its large numbers and key role in highest income tax rate on Associations 31% lion according to the Banking Statistics of cluding textiles. These industries account sustaining day-to-day activities, especially of Persons (AOPs) or partnerships is 30 Pakistan for 2017–2018. for over two-thirds of Pakistan’s exports. in Pakistan’s metropolitan cities, the trad- percent, while the highest marginal tax Overall, the corporate sector enjoys a The resulting impact is a reduction of over ing community has acquired a measure rate on non-salaried income is 20 percent. Source: UNDP calculations based on colossal magnitude of privileges and bene- PKR 95 billion in the sales tax liability of political power. Its members have con- Thus, the potential additional income tax sources mentioned in text and footnotes. fits, totalling PKR 724 billion (figures 5.3 of these export-oriented industries.21 In sequently been able to resist the Federal revenue would be PKR 93 billion if the

110 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 111 FIGURE 5.6 withholding tax were raised to reflect net is characterized by a series of tax breaks last such assessment in many cities was un- ing health care and education, to the mili- FIGURE 5.7 returns. and loopholes. First, there are generous tax dertaken two to three decades ago. Con- tary’s rank and file. In effect, the military Distribution of privileges Distribution of privileges granted to larger traders, Furthermore, commercial importers deductibility and tax credit provisions for sequently, the revenue yield is only about establishment has emerged as a somewhat granted to high net worth worth PKR 348 billion, engage in considerable under-invoicing, investments in approved securities. The one-quarter of the potential revenue. In parallel structure to Pakistan’s civil gover- individuals, worth PKR 368 (2017-2018) frequently in collusion with customs’ au- tax credit provision reduces the personal 2017–2018, this implied a tax benefit of nance institutions. billion, (2017-2018) thorities. They do so to avoid paying the income tax liability of people who file tax PKR 54 billion to large residential prop- Pakistan’s military establishment essen- minimum combined tax liability of almost returns by approximately PKR 60 billion erty owners in urban areas. The other tially runs its business activities through 25 percent of the import duty, the sales per year.30 under-assessed tax is stamp duty, levied two entities: the (FF) tax, and the withholding income tax.28 The separate taxation of different types primarily on the trading of properties. and the (AWF). The 100% Figure 5.6 shows that the overall bene- of income represents another major con- The capital values of properties are based Fauji Foundation is a conglomerate of four 100% Lower taxation Lower taxation fit that accrued to large-scale traders and cession. The failure to institute a system on Deputy Commissioner rates (known fully-owned companies, and 21 associat- commercial importers in 2017–2018 to- of comprehensive taxation of personal in- as DC rates), which are also substantially ed companies. These operate in diverse talled PKR 348 billion. Commercial im- come has greatly reduced the progressivity outdated. The NHDR 2020 estimates that industries and services, such as fertilizers, porters pre-empted almost 62 percent of of Pakistan’s tax system. Income from secu- the resulting tax benefit is PKR 68 billion. cement, food, power generation, gas ex- Source: UNDP calculations based on this amount. rities, shares, bank deposits, and property Figure 5.7 presents the overall privileges ploration, liquefied petroleum gas (LPG) Source: UNDP calculations based on sources mentioned in text and footnotes. that is rented out are treated as separate enjoyed by high net worth individuals with marketing and distribution, marine termi- sources mentioned in text and footnotes. High net worth persons blocks of income. It is estimated that these non-agricultural income. These aggregate nals, financial services, employment ser- provisions have effectively led to a tax to PKR 368 billion. vices, and security services. The combined The richest 1 percent of Pakistan’s popula- break that results in a revenue loss of PKR estimated value of these companies’ assets tion pre-empts over 9 percent of personal 60 billion. The military establishment was PKR 443 billion (US$2.64 billion) in High net worth persons income in the country. In effect, the average Capital gains are exempt from taxa- 2017. These assets have grown rapidly, at a pay low taxes on unearned annual income of this 1 percent of house- tion only if the holding period exceeds The military establishment encompasses rate of over 13 percent per year.32 In 2017, capital income. holds is PKR 6.7 million (US$39,970) per three to six years, depending on the asset. the leadership of Pakistan’s army, navy, and the Fauji Foundation’s net profits amount- annum, over six times the income of an av- Therefore, the revenue loss is calculated air force. The armed forces of Pakistan are ed to PKR 33 billion, equivalent to a re- erage Pakistani household. on shares which are traded after being held responsible for guarding Pakistan’s bor- turn of 6 percent on turnover. One-third The Federal Board of Revenue’s tax di- beyond the holding period. For example, ders, and are engaged in fighting terrorism of these profits are used to finance welfare rectory reveals that the richest 1 percent of the value of shares traded in the seventh within the country. Over 10,000 soldiers activities for soldiers and their families.33 people who file personal income tax con- year is determined by the State Bank of have embraced martyrdom while perform- In addition, the military establishment tribute over 67 percent of Pakistan’s reve- Pakistan (2017–2018), with the cumula- ing their duties to provide security and a runs foundations like Bahria and Shaheen. nue. This contribution was an estimated tive increase in market capitalization de- more peaceful environment. Today, Paki- , owned by the military es- PKR 296 billion in 2017–2018. Howev- termined from 2010–2011 to 2017–2018. stan is a safer country due to efforts by our tablishment, facilitates access to finance. er, given the average annual income of the The realized capital gains are calculated on soldiers. This medium-sized bank offers advances richest 1 percent, their income tax contri- the basis of trading value to capitalization, The military has historically played a that total PKR 284 billion, largely to Fauji bution to the exchequer should amount to applying a minimal tax rate of 10 percent major role in Pakistan’s affairs, including Foundation companies.34 The interlocking PKR 619 billion. After excluding agricul- on the capital gain. When the exercise is re- times when the Chief of Army Staff has of finance with industry has enhanced the tural incomes, which are effectively tax ex- peated for the eighth and ninth years, and taken charge of the Government. Alto- competitive edge of these entities. empt, the potential revenue contribution up to the tenth year, the estimated revenue gether, four military regimes have ruled The Army Welfare Trust, formed in should be PKR 464 billion. Therefore, loss is low. A similar exercise is undertaken the country for almost 31 years in Paki- 1972, owns and operates 18 corporate en- there appears to be substantial tax evasion for capital gains on properties, based on stan’s 72-year history. As a result, the mili- tities. It has assets worth a total of PKR 30 in the reporting of income, largely by the the investment in housing, a cumulative in- tary’s diversified role, beyond safeguarding billion, and annual profits in the range of urban elite. This amounts to about PKR crease in rents, and a very low trading rate. security, has become institutionalized. PKR 2 billion. Currently, it provides al- 168 billion, as much as 57 percent of the The same 10 percent tax rate is applied on Today, the military establishment owns most 25,000 jobs. The Army Welfare Trust taxes that are actually paid.29 The scope the realized gains. The NHDR 2020 cal- the largest conglomerate of business enti- has sought income tax exemption on the for tax evasion is, of course, limited in the culates that the overall revenue loss that ties in Pakistan, besides being the country’s grounds that it is effectively a charitable case of salaried individuals due to the prac- results from this process amounts to PKR biggest urban real estate developer and institution that provides welfare services.35 tice of deducting tax ‘at source’. Therefore, 80 billion. manager, with wide-ranging involvement In terms of their economic role, De- The military establishment 31 self-employed professionals and business- Provincial tax systems are also prone to in the construction of public projects. fence Housing Authorities (DHAs) are is not only responsible for persons account for most of the underre- severe under-taxation. The urban immove- These functions often confer privileges to much bigger in scale than the Fauji Foun- national security, but is porting of income in Pakistan. able property tax is based on the assessment senior armed forces personnel, and enable dation or the Army Welfare Trust. Defence also engaged in diverse The current personal income tax system of gross annual rental values (GARVs). The the provision of extensive services, includ- Housing Authorities operate in eight of economic activities.

112 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 113 FIGURE 5.8 Pakistan’s metropolitan cities: Karachi, La- the form of unrealized capital gains.38 This PKR 3.4 trillion, with an overall net loss PKR 80 billion in 2017–2018. Pakistan FIGURE 5.9 hore, Islamabad–Rawalpindi, Bahawalpur, does not include the flow of income from of over PKR 191 billion. Only 10 state- Steel Mill is one of the key beneficiaries Distribution of privileges Distribution of privileges granted to the military Gujranwala, Multan, and Quetta. commercial properties, or the significant run enterprises are profit-making entities, of this support. In 2017–2018, the Feder- granted to state owned establishment, worth PKR When the British colonized India, they capital gains on vacant land. including the Oil & Gas Development al Government’s Budget Brief gave a grant enterprises, worth PKR 345 257 billion, (2017-2018) built areas more or less on the The military’s other major role is as a Company Limited (OGDCL), Pakistan of PKR 39 billion to Pakistan Railways, billion, (2017-2018) periphery of major cities. Over the years, contractor in public projects through the Petroleum Limited (PPL), Government and received dividends of PKR 70 billion urban growth has led to many of these can- Frontier Works Organization (FWO). A Holdings (Private) Limited (GHPL), and from state-owned enterprises.42 Figure 5.9 Preferential access tonment areas becoming centrally located. large and vibrant construction firm, the the Pak-Arab Refinery Company Lim- illustrates overall support by the Federal Favourable prices The prime land they control has, for some organization is engaged in the ongoing ited (PARCO). The largest and major Government for Pakistan’s state-owned 100% Preferential access time, been used for residential and com- construction of highways, bridges, infra- loss-making state-owned enterprises are enterprises. mercial development.36 As such, low-den- structure, dams, and water supply projects. the National Highway Authority (NHA), sity development activities in cantonment The estimated annual value of construc- Pakistan International Airways (PIA), Pa- areas have pre-empted the emergence of tion work by the organization is PKR 230 kistan Railways, and electricity distribu- The total cost of privileges 41% 59% central business districts in Pakistan’s ma- billion, yielding an annual net income of tion companies (DISCOs) in the power Source: UNDP calculations based on jor cities. approximately PKR 35 billion.39 Further- sector. To cover their losses, the federal sources mentioned in text and footnotes. Overall, the total benefits and privileges Cantonment boards, the mother enti- more, the National Logistics Cell (NLC) budget provides subsidies of over PKR 120 enjoyed by different vested interests in Pa- ties of Defence Housing Authorities, enjoy operates goods and transport vehicles, as billion.40 kistan amounted to PKR 2.66 trillion in two significant privileges. First, retail sales well as undertaking construction activities. These subsidies represent the bulk of Source: UNDP calculations based on 2017–2018 (figure 5.10). This amounts to sources mentioned in text and footnotes. by outlets established by these boards are Information is not available on its net in- support for state-owned enterprises, with over 7 percent of the country’s GDP. The exempt from the 17 percent federal sales come. the largest share going to the power sector. corresponding cost of social protection tax. In effect, all DHA residents enjoy this Figure 5.8 highlights the overall in- However, over 80 percent of these subsidies programmes estimated by Pasha (2019) exemption. Clearly, this impacts the sales come generated from the military estab- tend to be of an equalizing nature. That is, was PKR 624 billion. Therefore, if just The total cost of privileges and profitability of retail outlets locat- lishment’s economic activities, estimated they are used to finance losses caused by 24 percent of the privileges of the power- enjoyed by vested interests is ed outside of cantonment areas. Second, at PKR 257 billion in 2017–2018. low tariffs charged from very few domestic ful were diverted to the poor, this would PKR 2.66 trillion, equivalent to property tax collected in the DHAs is ear- consumers. In 2017–2018, the remaining double the benefits available to poor Paki- 7 percent of GDP. The corporate marked to the cantonment boards, which State-owned enterprises 20 percent of these subsidies totalled PKR stanis. sector is the greatest beneficiary do not share these revenues with munici- 23 billion. These went to the Utility Stores Figure 5.10 also ranks different vested of these privileges. pal or provincial governments. This is the Strongly entrenched state-owned enter- Corporation (USC) and the Pakistan Ag- interests in terms of the size of the bene- case despite the fact that municipal and/ prises (SOEs) are another claimant of sub- ricultural Storage & Services Corporation fits and privileges they enjoy. The corpo- or provincial governments provide trunk stantial privileges in Pakistan. Support for Limited (PASSCO), which procure wheat rate sector is the beneficiary of the greatest Reducing the privileges of 37 infrastructure to the DHAs. The revenue these entities is justified on the grounds and sell essential items at lower-than-mar- privileges, including both industry and the vested interests by just 24 loss that results from these concessions has that they provide services to a large seg- ket prices. As such, these subsidies are also banking sector. Next is the feudal class, fol- percent would double available not been quantified due to a lack of data. ment of the population. As such, they are of an equalizing nature. lowed by high net worth individuals. benefits to the poor Pakistanis. Residential land developed within the often characterized by substantial over- The federal budget’s other relatively DHAs is initially allocated to members, employment and strong trade unions with large transfers to state-owned enterprises FIGURE 5.10 a large number of whom are senior army political links, poor management practic- remain submerged in budgetary numbers Ranking of vested interests in terms of the magnitude of benefits and personnel, usually in the officer cadre. Plot es with implicit support, and sharing by a and are not transparent in nature. These privileges enjoyed by each, out of total PKR 2,660 billion sizes range from eight marla (approximate- compliant bureaucracy in various minis- include the payment of PKR 195 billion ly 200 square yards) to four kanals (almost tries. against contingent liabilities. The Federal 2,000 square yards). Today, over 10,000 Pakistan currently has 204 state-owned Government guarantees the debt taken on Corporate sector Banking 196 Industry 528 acres of land have been developed. Howev- enterprises, including 186 public sector by state-owned enterprises from the bank- Feudal class 370

er, no major low-cost housing schemes for companies, eight financial institutions, ing system. Given their inability to service High net worth individuals 368 Many state-owned enterprises non-commissioned personnel have been and 10 federal authorities. These enter- their debts and interest obligations, the re- Large traders 348 enjoy large subsidies implemented in the DHAs. prises play a major role in commercial ac- sponsibility rests with the federal Ministry and are characterized by The capital gains and rental income tivities, including in sectors like energy, of Finance.41 State owned enterprises 345 overemployment, inefficient (net of depreciation) are conservatively banking, insurance, industry, promotion Miscellaneous grants are another Military establishment 257 operations, and corruption. valued at a rate of 11 percent of the prop- and advocacy, trade, and transportation. non-transparent budget head. These are Exporters 248 erty value on an annual basis. Therefore, Overall, Pakistan’s state-owned enter- mostly ad hoc support transfers to state- PKR billion 0 100 200 300 400 500 600 700 800 the DHAs generate total annual income of prises employ 422,962 workers. In 2017– owned enterprises to cover operational PKR 170 billion, part of which accrues in 2018, their annual revenues exceeded costs, like salaries and wages, totalling Source: UNDP calculations based on sources mentioned in text and footnotes.

114 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 115 FIGURE 5.11 Figure 5.11 shows the share of the three while, tax breaks and concessions are given and, overall, 25 percent to indirect tax TABLE 5.1 main sources of benefits for vested inter- to powerful vested interests. revenues. Second, some basic food items – Distribution of privileges Pakistan’s tax-to-GDP ratio in percentage, (2012-2019) granted to vested interests, ests in Pakistan. The taxation system is Pakistan’s taxation system has one pe- like sugar, edible oil, pulses, beverages, and worth PKR 2,660 billion, the largest source of benefits, with a share culiar characteristic. The collection of in- tea, among others – are subject to different (2017-2018) of 50 percent. Higher output and input come tax relies on withholding taxes for taxes. This causes the tax system to become 2012-2013 2017-2018 2018-2019

prices account for 26 percent of benefits, up to 70 percent of revenues. These taxes regressive. Direct taxes 1.9 2.5 2.2 Tax system while privileged access to land, capital, or are mostly presumptive and fixed in nature. Higher output or Direct tax component of income tax 1.9 2.5 2.2 lower input prices infrastructure account for the remaining For example, income from interest is taxed Preferential access 24 percent. as a separate block, at the fixed low rate of The incidence of taxes Indirect taxes 8.0 10.2 9.4 Lower taxes predominantly benefit the 10 percent. Clearly, this reduces the pro- Indirect tax component of income tax 1.3 1.7 1.5 24% corporate sector, high net worth individu- gressivity of the direct tax regime. Scholarly research on the incidence of tax- Sales tax 3.7 4.3 3.9 als, and the feudal class. Favourable prices Consequently, there is a need to iden- es in Pakistan has generally concluded that Customs duty 1.0 1.8 1.8 largely benefit the feudal class, exporters, tify the component of revenues from in- 43 50% the tax system is only mildly progressive. and state-owned enterprises. The military come tax which is derived from direct tax- The tax levied on petrol in Pakistan is a Excise duty 0.5 0.6 0.6 establishment gains the most from prefer- ation, and the component which is derived good example of this, compared to pet- Petroleum levy + gas charges 0.8 0.6 0.6 26% ential access. from indirect taxation in de facto terms. rol taxes in other countries that are either Provincial indirect taxes 0.7 1.2 1.0 The former consists of voluntary tax pay- mildly regressive or mildly progressive. Total tax revenues 9.9 12.7 11.6 ments with returns, advance tax payments, Moreover, most research on the burden of Source: UNDP calculations based on Share of direct taxes 19.1 19.7 19.0 sources mentioned in text and footnotes. Pakistan’s taxation system demand raised after the audit of returns, corporate income tax is based on the as- advance tax on salaries, and taxation of sumption that a part of this falls on capital Source: UNDP calculations based on sources mentioned in text and footnotes. The preceding section highlights the tax unearned capital income. The indirect tax income, while the rest is passed on to con- privileges that vested interests enjoy in component includes presumptive taxes on sumers.44 contracts, imports, petroleum products, TABLE 5.2 Almost 70 percent of revenues Pakistan, which total PKR 1.323 trillion, The NHDR 2020’s analysis of the in- transport, electricity bills, and mobile from income tax are from equivalent to over 3.8 percent of the coun- cidence of taxes in Pakistan in 2017–2018 phone cards. This component in some tax- Contribution of different items and services to indirect tax revenues withholding taxes, which are try’s GDP. In 2017–2018, the tax system’s is based on several assumptions. First, the (PKR billion), (2017-2018) es accounts for the major part of revenues. mostly presumptive and fixed in total revenue amounted to PKR 4.467 tril- analysis assumes that consumers and own- Table 5.1 presents the revenues from nature. lion. This section aims to determine who ers of capital in the richest quintile (Q5) Major revenue contribution bears the burden of the country’s existing different taxes as a percentage of GDP. Pa- of the income distribution bear corporate Tax Indirect tax revenues () taxes. kistan’s tax-to-GDP ratio reached a peak income tax equally. Second, it is assumed General sales tax on goods – domestic 731*** Petroleum products (42); It does so by determining the incidence of 12.7 percent in 2017–2018. In 2018– that the burden of indirect tax on consum- electricity (7); cement (4); of taxes in Pakistan. The first part of the 2019, it fell to 11.6 percent of GDP, partly er goods and services is allocated among cigarettes (3); gas (3); sugar (3); analysis gauges the distribution of reve- due to the concessions on personal income the quintiles based on consumption pat- iron & steel (2); others (36) nues between direct and indirect taxes. tax. terns revealed by the Household Integrat- General sales tax on goods – imports 814 Petroleum products (32); The second part derives the incidence of Sales tax represents the largest contri- ed Economic Survey.45 Third, the NHDR machinery (15); iron & steel (8); vehicles (8); edible oil (5) others taxes based on some assumptions about bution to tax revenue in Pakistan, equiv- 2020 assumes that tax paid on intermedi- (32) who bears the burden of taxation. This is alent to 3.9 percent of GDP. The overall ate goods or machinery is linked to their Customs (import) duty 623 Vehicles (16); POL products (12); followed by an example of a decision in contribution by income tax (direct and in- use in the production of consumer goods, machinery (12); iron & steel (9); the Federal Budget of 2018–2019 that bla- direct) is 3.7 percent of GDP. Combined, based on the Input-Output Matrix of Pa- edible oil (5); others (46) tantly benefited large income tax payers, other indirect taxes – excluding the sales kistan.46 Figures 5.12 and 5.13 present the Excise duty 205 Cigarettes (33); cement (26); highlighting how powerful members of the tax, as well as indirect and direct income results of this analysis of the incidence of services (21) beverages (11); elite hold the tax system hostage. tax – are equivalent to 4 percent of GDP. taxes in Pakistan. others (9) The role of the tax system is crucial to Table 5.2 presents the contribution of dif- The burden of taxes rises gradually with Energy taxes 218 Petroleum products (82); gas (18) tackling inequality. This can be achieved, ferent goods and services to Pakistan’s total income. Therefore, as noted above, Paki- Sales tax on services* 223 Telecom (35); banking (14); first, by relying primarily on taxing in- indirect tax revenues, currently equivalent stan’s tax system is only mildly progres- restaurants and hotels (6); others comes in a progressive manner and, second, to 9.4 percent of GDP. sive. In fact, the Suits Index – with a value (45) by ensuring that the revenues generated are Several characteristics of the indirect ranging from -1 to +1, depending on the Withholding income tax** 581 Contracts (49); imports (24); largely used to provide basic services, like tax system need to be highlighted. First, progressivity of the tax system – accords telephone (8) electricity (6); others (13) health care and education, for all. Only 20 there is heavy reliance on the taxation of Pakistan’s tax system a value of just 0.081.47 percent of public expenditure in products. These products con- Overall, therefore, Pakistan’s tax sys- Note: *Provincial tax, ** Taxes of an indirect nature, *** Gross revenues. Source: UNDP calculations based on mutiple years of Pakistan’s Fiscal Operations, Ministry of Finance. is spent on human development; all the tribute 37 percent to sales tax revenues tem does not contribute significantly to

116 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 117 FIGURE 5.12 equivalent to over five times the country’s social services (16 percent), and in social increase was apparent between 2001 and per capita income. The maximum rate of protection and subsidies (4 percent) in 2007. Since then, a consistent increase Incidence of taxes by quintile, (2017-2018) 30 percent was reduced to 15 percent. 2018–2019 (table 5.3). continued, but at a lower rate. However,

Direct tax Indirect taxes As a result, the magnitude of the tax 2018–2019 witnessed a slight decline in Q5 3.8 10.8 break increased with the level of pre-tax National expenditure on social spending on social services due to econom- Richest income, contrary to all norms of taxa- services ic challenges and limited fiscal space for Q4 2.6 10.1 tion. The tax reduction was 2.5 percent development expenditure. Debt servicing and defence Q3 1.1 9.9 of income for a taxpayer who earns PKR Public expenditure on social services in While the gradual increase in expen- expenditure ‘crowd out’ spending 800,000 per year. This increased to a tax Pakistan has been gradually rising since diture on social services is commendable on human development and Q2 0.8 9.4 saving of 10.8 percent for a taxpayer with the early 2000s. Today almost 3.5 percent at the national level, it is important to social protection. Q1 0.5 9 an income of PKR 12,000,000. of GDP is spent on social services that are highlight that these allocations are still Poorest Looking at this example, the fundamen- dedicated to improving human develop- considerably lower than in most coun- % 0 2 4 6 8 10 12 14 16 tal conclusion is that Pakistan’s tax system ment outcomes.49 These include the sectors tries in South Asia, which have surpassed

Source: UNDP calculations based on sources mentioned in text and has been manipulated by special interest most relevant for human development, like Pakistan in terms of human development FIGURE 5.13 footnotes. groups who have sought, and obtained, a education, health, population planning, (figure 5.15). Compared to Pakistan’s al- large number of tax breaks and exemptions. and the environment, water supply and location on education, health services, and Tax revenues: The richest contribute more than half of reducing inequality in the country. This The result is that the tax system has played sanitation. The total expenditure on social social protection programmes, neighbour- Pakistan’s total tax revenues is primarily due to the low share of direct a very limited role in reducing inequality services in the 2018–2019 fiscal year was ing countries spend a higher share of their taxation, which stands at under 20 percent. and making the income distribution less PKR 1.349 trillion, roughly equivalent to GDP on human development. Only Ban- skewed. There is clearly a need not only to US$8.05 billion. gladesh allocates a lower share of GDP to Q1 The overall tax-to-GDP ratio of both di- 6.5% Q2 rect and indirect taxes is also very low, at move towards a more progressive tax sys- There has been a gradual increase in so- human development than Pakistan, while 9.3% just 11.6 percent of GDP (see table 5.1). tem, but also to generate more tax revenues cial sector expenditures as a percentage of countries like Nepal allocate 10 percent Q3 Q5 13.3% The United Nations Economic and Social by withdrawing special treatment, plug- GDP, as well as in terms of real per capita of their GDP. Pakistan’s low levels of in- 50.7% Commission for Asia and the Pacific (UN- ging loopholes, and reducing tax evasion. expenditure (figure 5.14). The most rapid vestment in human development are also Q4 20.2% ESCAP) estimates that the tax gap in Pa- TABLE 5.3 kistan is over 3 percent of GDP.48 This gap needs to be filled, particularly by develop- Level and composition of public Public expenditures priorities: Federal and provincial governments combined (PKR billion), (2009-2010 to 2018-2019) Source: UNDP calculations based on ing the income tax system with a view to expenditure sources mentioned in text and footnotes. reducing tax concessions and tax evasion. Share Share Share Share Only then will the tax system begin to con- Achieving inclusive growth opportunities 2009-2010a () 2012-2013b () 2017-2018c () 2018-2019 () tribute significantly to reducing inequality depends, to a large extent, on state expen- Debt servicing 642 21.1 991 20.6 1,500 20 2,091 25.1 in Pakistan. diture delivering affordable public services Pakistan’s tax system is only Securityd 477 15.7 742 15.4 1,389 18.6 1,593 19.1 mildly progressive and the tax that are of good quality. This is a debate A blatant tax concession Social servicese 386 12.7 682 14.2 1,344 18 1,349 16.2 gap is over 3 percent of the GDP. that grips both developed and developing countries as governments in this age of aus- Social protection & subsidiesf 237 7.8 431 9.0 222 3.0 323 3.9 The federal budget for 2018–2019 was terity and slow economic growth struggle Otherg 1,297 42.7 1,954 40.7 3,021 40.4 2,967 35.6 presented on the eve of Pakistan’s Gener- to increase budgets for public services, or Total 3,039 100.0 4,800 100.0 7,476 100.0 8,323 100.0 al Election in 2018. The ruling PML-N to provide quality health care and educa- government opted to offer a number of tax tion services to their citizens. Like many As percentage of GDP (%) breaks, including a major reduction in the other countries, Pakistan has historically Debt servicing 4.3 4.4 4.3 5.4 effective tax rates on personal income tax, invested less than the optimal amount in Security 3.2 3.3 4.0 4.1 especially for salary earners. This group delivering public services. This is partly Social services 2.6 3.0 3.9 3.5 represents the greatest number of tax re- due to the need to finance the debt servic- turn filers in Pakistan, and includes the ing of growing public debt, defence expen- Social protection & subsidies 1.6 1.9 0.6 0.8 executives of large domestic and multina- diture in a difficult security environment, Others 8.7 8.7 8.7 7.7 tional companies, alongside senior bureau- and spending on developing physical infra- Total 20.4 21.4 21.6 21.6 crats. structure to remove emerging constraints Note: a. The last year before the 7th NFC Award, b. Last year of People’s Party government, c. Last year of PML-N government, d. Expenditure on defence services and law and order The exemption limit was trebled in an to growth. Debt servicing and defence e. Expenditure on health, education, population planning, and environment, water supply and sanitation, f. Expenditure on social protection (BISP) and subsidies, g. Includes current unprecedented manner, increasing from expenditure on civil administration, economic services current and development spending. together pre-empt 44 percent, with a com- Source: UNDP calculations based on Fiscal Operations, PRSP expenditures data and multiple years of Pakistan Economic Survey, Ministry of Finance data. PKR 400,000 to 1,200,000 per annum – paratively lower budget share invested in

118 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 119 FIGURE 5.14 FIGURE 5.15 FIGURE 5.16 A small share of social protection ex- penditure is also allocated to Zakat Com- Expenditure on public services, in real per capita and as percentage of GDP, Countries with higher investment in Expenditure on social protection, mittees and Pakistan Bait-ul-Maal, while (2001-2019) education, health and social protection as % (2017-2018) of GDP tend to have a higher HDI another small share goes to employment Expenditure on public services as % of GDP generation programmes. These include PPP $ % Education and Real per capita expenditure HDI % training programs microcredit schemes that provide small, 3,000 4.5 1.000 10 Nepal PKR 41 billion 10.00% interest-free loans. Federal and provincial 3.9% Employment 7% Social security 3.5% education and training programmes also 2,500 3.5% 0.900 9 programs PKR 193 billion PKR 96 billion 15% receive small allocations. Collectively, Pa- 2,454 3.0% 2,286 31% kistan spends 1.8 percent of its GDP on 2,000 3.0 0.800 8 2.6% all of these programmes. Comparing this 2,053 Sri Lanka 2.3% to the 7 percent of GDP captured by the 1,500 1,678 0.700 7 Sri Lanka state’s wealthy elite highlights the power 7.10% 20% 1,388 India of the privileged, and the biased nature of India 1,000 1.5 Cash assistance Price subsidy 0.600 Bangladesh 6 6.30% the current system – designed to favour PKR 123 billion 27% PKR 171 billion Nepal Pakistan spends 1.8 percent of 838 Pakistan the rich, while a meagre share of public re- 500 its GDP on social protection in 0.500 5 Pakistan sources finds its way to the poor. 5.10% Source: Pasha 2019. the form of social security, cash 0 0 transfers, and price subsidies. 0.400 4 Bangladesh BOX 5.1 2001-02 2007-08 2012-13 2015-16 2017-18 2018-19 3.70% 0.300 3 Social protection: A potential lever for tackling inequality Note: Social services include health, education, population planning, and environment, water supply and sanitation. Real per capita expenditure is reported on the constant basic prices of 2005-2006. Source: UNDP calculations based on multiple years of PRSP expenditures data. 0.200 2 Since 1958, Pakistan has continuously received money from the 4. Invest in people for human capital formation. International Monetary Fund (IMF), accompanied by structural ad- The Government has launched some elements of Ehsaas, including justment programmes (SAPs). Largely based on austerity measures, Insaf Insurance Cards for people with disabilities. Other aspects are synonymous with a lower HDI value than 0.100 1 these programmes seek cuts in public expenditure, including selec- being developed. It is safe to say that Ehsaas is still in its nascent most countries in the region, highlighting tive tax hikes, and a reduction of labour protection and subsidies for stages, and evolving with time. While the comprehensive Ehsaas the importance of public investment in 0 0 the poor. Such measures often adversely impact people who already programme hits the bullseye in identifying target areas, marginal- this area. Global Human Investment in education, live below the poverty line, such as labourers, persons with disabili- ized populations, and much-needed interventions, it faces enormous Development Index health and social protection ties, older persons, and other disadvantaged groups. challenges. These include challenges related to mobilizing resources Expenditure on social protection as a of GDP Therefore, it is essential to develop social safety nets to mitigate for implementation, interprovincial coordination, and gathering mul- Source: Government expenditure on education as percentage of GDP the short-term effects of structural adjustment programmes, and re- tisectoral support. There are also internal challenges which can be In addition to providing public services, and domestic general government health expenditure as percentage duce external shocks to the most vulnerable population groups.* So- overcome over time by adopting better governance mechanisms (see of GDP are sourced from Data Bank of The World Bank. The years on Pakistan’s low investment federal and provincial governments also which data is reported for education expenditure in this table vary for cial safety nets are important tools for tackling inequality. The need chapter 6 for a more detailed discussion). in human development is deliver a range of social protection pro- each country based on the most recent data available. However, the for them has become increasingly urgent since the IMF approved a To mobilize more resources, Ehsaas could tap into charity revenue year for health expenditure is 2016 for all countries. The expenditure 39-month extended arrangement under the Extended Fund Facility collected in Pakistan, one of the world’s most giving countries. The synonymous with a low HDI grammes for citizens’ welfare. These can on social protection as a percentage of GDP was taken from the 2016 value. serve as a lever for tackling inequality (box report of . Social protection includes for Pakistan in 2019, followed by the coronavirus pandemic. World Giving Index ranked Pakistan 91st of 144 countries in 2018, expenditure on social insurance, social assistance and labour market The Government of Pakistan’s Ehsaas programme is a positive and among the top 10 countries in terms of the number of people 5.1). Such programmes include cash assis- programmes, with the most recent data reported for 2012. The data step in this direction. It aims to achieve the ruling Pakistan Teh- who donate money to charity.** Pakistanis contribute more than 1 tance – the most obvious example of which provided in this table varies slightly from the information given in this chapter for Pakistan, as international sources comparable across reek-e-Insaf (PTI) party’s long-term objectives of alleviating poverty percent of the country’s GDP to charity, far more than wealthy, devel- countries are often updated but not regularly. is the Benazir Income Support Programme and reducing inequality by uplifting marginalized population groups oped nations like the United Kingdom and Canada.*** A study con- – alongside employment generation and and districts that are lagging behind. An overarching umbrella of ducted by the Pakistan Centre for Philanthropy found that Pakistanis education programmes. Analysing these ees’ Old-Age Benefits Institution (EOBI) programmes aimed at creating a welfare state, Ehsaas has four key donate approximately PKR 240 billion annually to charity. The high expenditures, Pasha (2019) shows that and the Workers’ Welfare Fund (WWF). objectives: levels of charitable giving can be attributed to Islamic principles that Pakistan spent a total of PKR 624 billion The second largest share of social 1. Address elite capture and make the government system teach compassion and empathy towards those less fortunate, in the on social protection programmes in 2017– protection expenditure is spent on price work for equality of opportunity. form of zakat, sadqa, and fitrana. 2018 (figure 5.16). The greatest share of subsidies for low-income consumers (27 2. Provide effective and comprehensive safety nets for the By building rapport and a level of trust with the general public, Eh- this expenditure was spent on social se- percent). These primarily include price marginalized and the vulnerable. saas may be able to tap into this huge resource and direct it towards curity (31 percent), including pensions controls that apply to electricity, wheat, 3. Create livelihoods and jobs for the poor. poverty alleviation and inequality reduction initiatives. for low-level civil and military employees, and the sale of subsidized grocery items Note: *Independent Evaluation Office 2017; ** Charities Aid Foundation 2019; *** Shazia and Ali 2018. coupled with expenditure by the Employ- through the Utility Stores Corporation.

120 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 121 FIGURE 5.17 Expenditure on education and health Health expenditure ternal, infant and under-five mortality. As services has increased in Pakistan, access to Education dominates the noted above, there are 186 maternal deaths public services for all remains a challenge. total expenditure on social Education receives as much as 64 percent Budgets for health, the second top prior- for every 100,000 live births in Pakistan, This includes access to education, health services, (2018-2019) of the total expenditure on public services ity of provincial governments, have been while infant mortality is as high as 62 in- care, water, infrastructure, and digital ser- in Pakistan. After education, the Gov- on the rise over the years. The greatest fant deaths per 1,000 live births, and un- vices. Education Health der-five mortality stands at 74 deaths per Environment, water supply share of provincial health expenditure goes ernment’s second top priority is health, 50 & sanitation although it receives a substantially lower to general hospitals and clinics, ranging 1,000 live births. Access to education services Population planning share of the total public services budget, from 44 percent in Sindh, to 74 percent in After general hospitals and clinics, the 4% 1% 31 percent. The remaining two sectors get Khyber Pakhtunkhwa (figure 5.18). This, second largest share of health expenditure Despite a growing number of public and far less: the environment, water supply and of course, leaves little for other health goes to preventive health care. Currently, private schools in Pakistan, access to ed- sanitation sector receives 4 percent, while sub-sectors. Punjab allocates the greatest share of the ucation is not uniform across all income 31% population planning receives a meagre 1 The most alarming situation is that health budget to preventive care among groups. Table 5.4 presents the disparities 64% percent of the total expenditure on social of the maternal and child health sector, Pakistan’s province. Although this sub-sec- in access to different levels of schooling by services (figure 5.17). which receives a negligible share of pro- tor ranks second, the budgets assigned to income quintile in urban and rural areas, vincial budgets. Low expenditure in this preventive care are low. This has led to respectively. Education expenditure area is reflected in Pakistan’s slow progress the higher penetration of diseases, and There is also a quality dimension to poorer health outcomes among children consider in terms of access to education. Source: UNDP calculations based on PRSP in reducing child and maternal mortality, expenditures data, 2018-2019. Within Pakistan’s education sector, prima- the unavailability of trained health care and adults. Many health issues in Pakistan Poor families are only able to spend up to a ry and secondary education have always professionals, low vaccine coverage, a lack are linked to low standards of preventive maximum of 2 percent of their income on received the largest allocations. Secondary of awareness, and the generally poor health health care. The country’s dismal perfor- their children’s education. This precludes education’s share of the total education condition of Pakistan’s children. Poor in- mance in this regard can be gauged by the their access to private schools, which offer budget was initially lower than the share stitutional health care for women is a ma- fact that vaccination coverage is as low comparatively higher quality education. for primary education. However, with the jor cause of the country’s high rates of ma- as 29 percent in Balochistan. In Punjab, Overall, 23 million children are out of improvement in primary school enrolment where the vaccination coverage is highest school in Pakistan, and 22 million children (80 percent) preventive health care is still are enrolled in low-quality public schools. rates and the expansion of primary schools, FIGURE 5.18 provincial governments have started to not available for all, and the infant mortal- As a result, inequality is perpetuated on an ity rate remains high. intergenerational basis, as quality educa- shift their focus towards secondary educa- Health facilities and preventive measures Since primary enrolment tion. have been given increased priority in health Thus, the greater cost of managing tion remains inaccessible to so many. These rates have risen, provincial From an inequality perspective, both expenditure over the years, (2001-2002 to general hospitals and clinics takes up the 45 million children will grow up to join governments are focusing more primary and secondary education remain 2018-2019) lion’s share of health expenditure, while the labour force in less skilled and low-in- on secondary education. the most important sub-sectors of educa- other sub-sectors receive limited resourc- come jobs. By contrast, children educated General hospitals & clinics Mother & child healthcare es. A significant increase in resources is in private schools will be better-equipped tion, since a huge majority of Pakistan’s Health facilities & preventive measures Others students are enrolled in public institutions. needed for any comprehensive programme to earn higher incomes. In effect, the world Despite the recent growth in low-cost pri- 2018-2019 on maternal and child health care, and on of the two different Pakistans will contin- vate schools, the distribution of enrolment preventive health care, to achieve desirable TABLE 5.4 18% outcomes – including the aspirations of shows that most children still rely on the 51% public education system. 13% SDG 3 (‘Good health and well-being’). Net enrolment rates at different levels of schooling (%), (2013-2014) The sub-sector of teacher and vocation- Primary Middle Matric al training receives the smallest allocations, 14% 73% Access to public services less than 5 percent of total education ex- Urban Rural Urban Rural Urban Rural penditure in all of Pakistan’s provinces. 0.5% 2001-2002 This is alarming given the low quality of Beyond public expenditure, inequality Quintile 1 43 40 16 10 3 5 education provided by public schools. is also determined by access to services. Quintile 2 62 53 16 16 10 7 29% If anyone remains deprived of access to With the majority of students relying on Quintile 3 63 62 27 20 14 9 the public sector for primary and second- public services, they face a key form of in- Quintile 4 75 68 35 27 25 16 ary education, teacher training is a fun- equality: inequality of opportunity. This damental requirement to ensure quality prevents people from reaching their full Quintile 5 80 72 42 33 33 23 education for all students, including those 2% potential, and keeps them from improving Overall 66 53 29 18 20 10 their own, and their families’, well-being. from low-income households. Source: UNDP calculations based on PRSP expenditures data. Source: PSLM 2013-2014. Although public expenditure on social

122 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 123 ue for the next generation, maintained by rural areas often travel long distances to is not equitable in Pakistan. These facili- in the size of homes. Almost 28 percent disparities in access to quality education collect drinking water, which may or may ties include the water supply for irrigation, of poor households live in one room, fre- which perpetuate inequality of opportu- not be clean. It is estimated that around 12 housing and shelter, the road network, and quently with as many as eight family mem- nity –specifically, the opportunity to be- percent of households in rural areas and 6 electricity. The first three of these facilities bers. The quality of houses also varies be- come educated, skilled, and lift oneself out percent in urban areas spend 30 minutes or are discussed below. tween rural and urban areas. While rural of poverty. more to obtain water.52 areas largely use wood or bamboo for con- Limited access, and disparities in access Water for irrigation struction, which require frequent replace- Access to health services to health services, perpetuate inequality of ment, urban housing is of a distinctly more opportunity – specifically, the opportuni- Despite being home to one of the most permanent nature. The low quality and Access to basic health services remains very ty to live a healthy, productive life. developed irrigation systems in the world, limited size of housing units in Pakistan Almost 28 percent of limited in Pakistan. As a result, low-in- Pakistan is a ‘water stressed’ country. By reflects limited affordability, especially for households live in one room, come families faced with a major illness are Access to infrastructure service 2025, it will become ‘water scarce’. The to- poor households. This absence of decent frequently with as many as eight often compelled to take out loans to pay tal supply of water for agriculture, 134.77 places to live enhances inequality of op- family members. for health care. Ill-health can cause heads The provision of infrastructure facilities million acre-feet (MAF) in 2000–2001, portunity. of households to lose their jobs or suffer dropped to 127.40 MAF by 2018–2019. Improving the quality of life of the ma- a permanent loss of income due to physi- FIGURE 5.19 Access to water is also highly skewed. Large jority of Pakistanis, therefore, depends in cal impairment, with catastrophic conse- Richest households have higher access to farms usually lie at the head of watercours- large part on raising housing standards quences for themselves and their depen- health services as compared to poorest (%), es and pre-empt most of the water avail- and expanding the coverage of basic shel- dants. (2017-2018) able. This means that small farmers at the ter-related services, especially in rural ar- Figure 5.19 shows the substantial vari- tail end of watercourses only have residual eas. More private investment needs to be ation in access to basic health services, as Access to tap water access to water for irrigation. Extraordi- diverted to low-cost housing finance, while revealed by the Pakistan Demographic and Coverage of basic vaccinations of children narily low water charges (aabiana) apply to increasing public investment in the provi- Health Survey 2017–2018. It shows in- Child delivery in health facility just 8 percent of irrigation operations and sion of gas and tap water to households. equality in access to health-related services maintenance costs. To ensure the equitable between different income groups, includ- % distribution of water for irrigation for all Road network 100 ing limited access to tap water, a lack of ba- sizes of farms, there is a clear need both to sic vaccination coverage, and low levels of increase these charges, and to introduce a There are two broad categories of roads: births in health facilities. Access to health 92 metering system to improve the efficiency the ‘high’ type (highways), and the ‘low services varies significantly with the distri- of water use. type’ (farm-to-market roads). In an agrar- bution of wealth, highlighting how income 80 81 80 ian economy like Pakistan, roads of the and wealth directly impact the quality of 79 Housing and shelter ‘low type’ are essential for farmers and health care that people receive, including small-scale producers, as these link them mothers and children. In Pakistan, the 69 The greatest share of consumer expendi- to markets, and provide employment and 68 65 richer you are, the better your access to 64 60 ture in Pakistan is spent on house rent and livelihood opportunities. However, Pa- health services. The poor, meanwhile, have 51 the cost of utilities. Rent is either the im- kistan’s National Highway Authority fo- little or no access to the health care they 54 54 puted rental value of an owner’s accommo- cuses on national highways, motorways, need. dation, or the actual amount paid on rent- expressways, and the development of stra- Although there has been some progress 47 ed housing, coupled with electricity and tegic routes. Farm-to-market roads remain in recent decades in decreasing mortali- 40 42 gas bills. The share of expenditure ranges neglected, as a major chunk of the budget 38 ty rates and increasing the proportion of 36 from 18 percent in the poorest quintile to is spent on the expansion and maintenance skilled practitioners who provide maternal 28 percent in the richest. The Palma ratio of highways and motorways. Figure 5.20 health care, mortality remains high. is over 7 on the basis of per capita housing shows the length of ‘high’ and ‘low type’

Health-related facilities, such as access 20 expenditure. This implies that Pakistan’s roads in Pakistan. While highways are, of to clean and safe drinking water, have be- richest households are able to spend seven course, important, they should not be pri- come heavily-priced commodities in Paki- times more on rent than its poorest house- oritized at the expense of farm-to-market stan. As such, they are a luxury that only holds.53 With ever-rising housing and rent- roads. a small proportion of the population can al costs, and limited budgets to spend on Disparities in access to road networks afford. Around 21 million people in Pa- 0 them, access to housing is becoming unaf- also exist between Pakistans provinces. Q1 Q2 Q3 Q4 Q5 kistan have no access to clean drinking fordable for the poor. Punjab accounts for the lion’s share (41 51 water near their homes. Those living in Source: Government of Pakistan 2019g. There are also substantial differences percent) of the country’s total road infra-

124 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 125 FIGURE 5.20 economy has huge repercussions for mar- strong commitment to reducing inequality a significant role in determining levels of ginalized groups. Access to information by taking the significant steps needed to inequality, both in terms of the quality of A clear bias towards highways and mass transit has only recently changed, (2000-2018) technology makes many activities cheap- reduce the gap between the two different life among different sections of the popu- er and more convenient. It also increases Pakistans. lation, as well as the prospects for reduc-

% High Type Roads Low Type Roads the ease of doing business. Constraints to The provinces can learn from Khyber ing intergenerational inequality, especially 100 greater access to ICTs include digital mo- Pakhtunkhwa’s experience of devolution, with regard to youth’s access to different nopolies, sociocultural norms, existing in- as the province has put in place a two- levels of quality education. equality in terms of affordability, and lan- tiered structure of local government at the There have been no major studies on 80 guage barriers. district and Union Council/village lev- who benefits from different types of public els. The advantages of devolution include expenditure in Pakistan. The only paper is Required steps greater public accountability for the deliv- by Idrees and Shah (2018), who quantify 60 ery of basic services, and stronger linkages income deciles’ access to different levels In short, the time to act is now. Pakistan between taxation and benefits, which leads of education, gauged by the level of enrol- 55 40 does not have the luxury of waiting for a to greater tax compliance. As in Khyber ment in public education institutions. popular movement that leads to a new po- Pakhtunkhwa, Pakistan’s other provinces Globally, a major study was conducted litical consensus and a changed social con- could devolve basic services – such as pri- by Selowsky (1979) on who benefits from 20 tract to enact much-needed reforms – such mary and secondary education, and cura- public expenditure in Columbia. A report as withdrawing the undue privileges of the tive health – to the local government level, by Filmer (2003), based on research in dif- powerful, or improving access to, and the alongside municipal services like roads, ferent countries, examined the distribution 0 budget for, social services. Pakistan’s so- the water supply, and sanitation. Citizens of benefits accruing from public expendi- ciety and Government must act on their can also be engaged if Citizen Community ture on education and health. That report 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2010-11 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2000-01 Boards, formed under the Local Govern- finds that richer income quintiles have a Source: Government of Pakistan 2019o. FIGURE 5.21 ment Ordinance of 2001, are enabled. progressively higher share in total benefits Other measures can include the Pro- in virtually all the countries it covers. Ownership of mobile phones and access to vincial Finance Commission periodically structure. Sindh is second (31 percent), the internet (% of the population), (2018- Coverage of public expenditure 2019) giving five-year awards related to the dis- while Khyber Pakhtunkhwa (16 percent) tribution of resources between provincial and Balochistan (11.3 percent) are third Rural Urban and local governments, and among local Ruggeri (2003) was the first to formally de- and fourth, respectively.54 Balochistan is % governments. Criteria that could be used fine the methodology for quantifying the the least integrated of all four provinces, 70 include population size, underdevelop- benefits derived from public expenditure. despite being the largest province in terms 64% ment, the incidence of poverty, gaps in He identified two types of expenditure: of land area. infrastructure, and revenue generated. Sec- specific and general. Specific expenditure 60 ond, a ‘bottom-up approach’ for planning makes it possible to identify the beneficia- Access to digital services can be utilized, whereby provincial gov- ries of services like education, health, and 50 ernments prepare provincial development the water supply, among others. General The ‘digital divide’ refers to the gap be- plans to be aggregated into a national plan expenditure relates more to the nature of Access to digital services is tween those with access to information by the Planning Commission, with a con- public goods. Perhaps the best example of 40 low in Pakistan, especially in and communication technologies (ICT) sistent macroeconomic framework. such expenditure is the outlay from the rural areas. and those who do not have access. Today government budget on defence, and on more than ever, access to digital services 30 maintaining law and order. In the case of 26% can serve as a lever to alleviate inequality Who benefits from public such expenditure, suitable proxies must be (see the global HDR 2019 for a more de- 21% used. For example, it has been suggested 20 expenditure? tailed discussion). that security spending may be linked to Although access to digital services is 13% Based on the analysis in this section on in- wealth across different income quintiles, as improving in Pakistan, only 45 percent of 10 come quintiles’ access to different services, discussed below. its people own mobile phones, and just 17 it is possible to identify who benefits – and The approach that the NHDR 2020 percent use the internet. Access to digital adopts is to comprehensively examine, as 0 how much they benefit – from public ex- services in urban and rural areas is present- Mobile Phones Internet penditure. The incidence of public expen- far as possible, expenditure by Pakistan’s ed in figure 5.21. federal and provincial governments. Table Source: PSLM 2018-2019. diture on different income quintiles plays A lack of participation in the digital 5.5 lists the types of expenditure covered,

126 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 127 offering descriptions of each type and list- to economic services, benefits from elec- the power tariff differential subsidy, the expenditure by households on transport. ing corresponding data sources. tricity, transport, and irrigation are quan- subsidy on wheat procurement, and annual There is need to recognize a degree of Specific expenditure on social services tified for different quintiles, to the extent expenditure on the military and civil pen- subjectivity in the allocation of general includes spending on all levels of educa- that these services are provided publicly. sions are part of this quantification exer- expenditure benefits among income quin- tion. In terms of health, both allocations The coverage of public expenditure also cise. tiles. As highlighted above, expenditure on for curative and preventive services are cov- includes subsidies and social protection. General expenditure includes the large defence, and law and order focus on pro- ered. Expenditure on the water supply and The outlay on the Ehsaas programme and outlays on defence, and law and order. viding security. The assumption is that the sanitation are also included. With respect the Benazir Income Support Programme, Debt servicing and other forms of expen- benefits of security are greater for house- diture are also included. The methodology holds which have more assets and wealth,

TABLE 5.5 used is discussed below. Other expendi- and therefore, a greater need of protection. tures include the costs of administration Types of expenditure covered in the NHDR 2020 and other overhead costs. TABLE 5.6 With this exercise, the NHDR 2020 Allocators of benefits among quintiles Level of expenditure covers the entire gamut of public expen- 2018-2019 diture in Pakistan. The report selects the Type Description Sources (PKR billion) most recent year for which budgetary ex- I. Specific expenditures penditure data are available, 2018–2019. Type of expenditure Allocator Sources In this year, total expenditure by Pakistan’s A. Social services 1,244 federal and provincial governments aggre- I. Specific expenditures Expenditure on middle and high schools; PRSPa Education 785 A. Social services general and professional colleges and gated to PKR 8.345 trillion, equivalent to universities almost 22 percent of the country’s GDP. Education Enrolment PSLMa The shares of social services, economic ser- Health Curative and preventive health PRSP 414 Health Children fully immunized PRSP vices, subsidies, and general expenditures Water supply and sanitation Access to tap water and underground 45 Preventive Children fully immunized PSLM sewage are 15 percent, 7 percent, 14 percent, and 64 percent, respectively. Curative Number of visits to government facilities PSLM B. Economic services 606 Water supply and sanitation Access to tap water PSLM b Electricity Expenditure on transmission and Fed PSDP 132 Methodology for distribution of Access to underground drains distribution, payment against contingent benefits liabilities B. Economic services

PRSP b Transport Both Federal and Provincial roads, 401 For each kind of expenditure, the NHDR Electricity Level of household electricity expenditure HIES highways and mass transit 2020 identifies different allocators that af- Transport 50%: Household expenditure on goods HIES Fed BBc + PBDd 73 Irrigation PSDP on water resources + provincial fect the distribution of benefits across in- 50%: Household expenditure on transport expenditure on canal irrigation and tube come quintiles. Table 5.6 lists these alloca- wells Irrigation c tors. Some are, more or less, obvious – such Access to canal water by farm size AC II. Subsidies and social protection 1,173 as the share of enrolled children among II. Subsidies and social protection Ehsaas/BISP Cash transfers to the poor Fed BB 115 households across different quintiles at the Ehsaas/BISP Lowest quintile HIES Power tariff subsidy Low tariff of PKR 2 per kWh Fed BB 230 primary, secondary, and higher levels of Power tariff subsidy Lowest two quintiles by expenditure on HIES education. Food subsidy Wheat procurement + USC Fed BB + PBD 46 electricity For health, the share of fully-immunized Food subsidy Consumption of wheat flour HIES Pensions Federal and Provincial military and civilian Fed BB + PBD 782 children by quintile is used as an allocator, pensions d while expenditure on curative services is Pensions Distribution of government employees by DGAP, MOF and PBDe III. General expenditures 5,322 based on the number of visits made to pub- grade Defence, law and order Military + police expenditure Fed BB + PRSP 1,532 lic health facilities for medical treatment. III. General expenditures Debt servicing Federal domestic and foreign debt MOF, FOe 2,091 Expenditure on the maintenance and ex- Defence, law and order Imputed income + rental income from HIES pansion of the electricity transmission and ownership of property Other expenditures Administration expenditure and other MOF, FO 1,699 heads distribution system is linked to expendi- Debt servicing Sum of all service-related expenditures Derived ture on electricity at the household level. Total 8,345 Other expenditures Household income HIES In the case of transport, two allocators are Source: a) Government of Pakistan 2019i; b) Government of Pakistan 2019j; c) Government of Pakistan 2019e; d) Government of Pakistan used, both with equal weight. These are ex- Note: a) Pakistan Social and Living Standards Measurement Survey, PBS; b) Household Integrated Economic Survey, 2020c; e) Government of Pakistan 2019f. PBD; c) Agriculture Census; d) Demand for Grants and Appropriations, MOF, e) Provincial Budget Documents. penditure on transported goods, and direct

128 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 129 As such, the measure used here is the value to administrative services provided by gov- benefits for the richer echelons of society. TABLE 5.8 of property owned, both self-occupied and ernment entities. Therefore, income levels The overall annual incidence of ben- rented. may be used to determine the allocation of efits is PKR 40,198 per capita, as per the Percentage share of benefits under different types of expenditures, by income quintile, (2018-2019) It is less clear how the benefits of debt other expenditure. latest public expenditure estimates. For the servicing expenditure should be allocat- poorest quintile, benefits amount to just ed. In his comprehensive analysis of how Incidence of public expenditure PKR 28,641. They reach a peak of PKR Quintile Quintile Quintile Quintile Quintile Palma Type of expenditure 1 2 3 4 5 Total ratio benefits from different types of expendi- 74,747 for the richest quintile. ture should be allocated among quintiles, Using this methodology, the NHDR 2020 Table 5.8 shows how benefits are shared Social services 20.9 22.9 20.9 21.2 14.1 100 0.7 Ruggeri (2003) suggests that borrowing ei- estimates benefits across income quintiles among quintiles. The modified Palma ratio Economic services 7.9 11.6 15.8 21.2 43.5 100 5.5 ther takes place to maintain, or to expand, (table 5.7). The provision of social services is also given for each type of expenditure. Subsidies and social protection 31.6 20.9 14.1 15.8 17.6 100 0.6 different services. The allocation across favours lower-income quintiles, as richer The ratio is significantly lower in the case quintiles should be based on the total ben- quintiles largely prefer to use private ser- of expenditure on social services, subsidies, General expenditure 9.6 11.4 13.9 18.9 46.2 100 4.8 efits from specific kinds of expenditure: vices. As expected, subsidies favour the and social protection. The modified Palma Total public expenditure 14.2 14.5 15.1 19 37.2 100 2.6 subsidies and pensions, as well as expendi- poor. Economic services, however, sub- ratio is highest for economic services. This Income 9.2 12.9 13.6 21 43.3 100 4.7

ture on defence, and law and order. Sim- stantially benefit richer quintiles more affirms that social services and protection Source: UNDP calculations based on sources mentioned in text and footnotes. ilarly, Ruggeri argues that higher-income than poorer ones. Similarly, general expen- benefit the poor, while economic services households potentially have greater access ditures are more geared towards generating appear to favour the rich. The poorest income quintile’s overall ileges is almost PKR 2.7 trillion, almost TABLE 5.7 share in the incidence of public expendi- half of which is due to special tax breaks Social service provision favours ture is 14.2 percent, compared to 37.2 per- and concessions. This reflects the extent to poorer income quintiles, while Benefit of public expenditure per capita by quintile (PKR yearly/per capita), (2018-2019) cent for the richest quintile. Therefore, the which the political economy of Power is a economic services benefit richer overall modified Palma ratio is 2.6. Fortu- driver of inequality. Now, we turn to an- quintiles. Quintile Quintile Quintile Quintile Quintile Expenditure nately, this is less unequal than the distri- other aspect of Power and its implications Type of expenditure 1 2 3 4 5 Average (PKR billion) bution of income in Pakistan. Therefore, for inequality in Pakistan: governance and I. Specific expenditures public expenditure does make some con- institutional capacity. The per capita benefits of public tribution towards reducing inequality in A. Social services 6,262 6,847 6,260 6,346 4,211 5,986 1,244 expenditure are almost three the country. Nevertheless, attempts must Education 3,484 4,319 4,129 4,432 2,511 3,775 785 times greater for the richest be made to increase this contribution by Notes quintile than for the poorest. Health 2,658 2,374 1,926 1,676 1,334 1,994 414 raising basic services’ share in public ex- Water supply and sanitation 120 154 205 238 366 217 45 penditure, increasing cash transfers, and * Name changed to protect the informant’s identity. This B. Economic services 1,158 1,698 2,307 3,101 6,334 2,919 606 widening the coverage of pension schemes. story was shared at the NHDR focus group discussion in Recent developments in public finances Islamabad on 10 April 2019. The language used was Electricity 202 308 455 648 1,567 636 132 have fundamental implications for efforts Urdu. The quotes used in the story are approximate trans- Transport 780 1,127 1,498 2,013 4,238 1,931 401 to reduce inequality by expanding the lations. Irrigation 176 263 354 440 529 352 73 coverage of basic social services and pov- 1 Government of Pakistan 2019g. 2 Agricultural Census 2010. II. Subsidies and social protection 8,944 5,923 3,999 4,470 4,988 5,664 1,173 erty alleviation interventions. The rapid growth in the cost of debt servicing at the 3 Agricultural income tax in Pakistan is levied at extremely Ehsaas/BISP 2,769 - - - - 554 115 low rates, ranging from PKR 300 to PKR 500 per acre. In federal level tends to ‘crowd out’ spend- Power tariff subsidy 3,154 2,408 - - - 1,122 230 Punjab, the exemption limit is 12.5 acres of irrigated land, ing on social protection and employment and 25 acres of land that is not irrigated. The estimated Food subsidy 195 219 231 233 229 221 46 programmes. Provincial governments are income is approximately PKR 30,000 per acre of irrigat- Pensions 2,826 3,296 3,768 4,237 4,709 3,767 782 under pressure to generate larger cash sur- ed land, and the maximum tax rate is only 1.7 percent of pluses to limit the size of the consolidated III. General expenditures 12,277 14,596 17,832 24,225 59,214 25,627 5,322 net income. Consequently, the revenue collection of all budget deficit. As a result, there are limits four provinces combined was only PKR 3 billion in Defence, law and order 1,559 2,533 3,959 6,431 22,410 7,377 1,532 on the extent to which human develop- 2017–2018. The Agricultural Census 2010 gives the size Debt servicing 7,174 7,280 7,617 9,550 18,723 10,068 2,091 ment is funded. distribution of farms, both irrigated and un-irrigated, with Other expenditures 3,544 4,783 6,256 8,244 18,081 8,182 1,699 As this chapter shows, Pakistan’s elite the income derived by farm size on the assumption that there is little variation in net income per acre. The NHDR Total 28,641 29,064 30,398 38,142 74,747 40,198 8,345 enjoy a host of privileges, which are granted legitimacy by various changes in legislative 2020 applies the Federal Board of Revenue’s (FBR) in Note: Column totals may not exactly tally due to rounding off. frameworks and the tax code. The NHDR come tax schedule of non-agricultural incomes to esti- Source: UNDP calculations based on sources mentioned in text and footnotes. mate the full revenue potential of agricultural income tax. 2020 estimates that the cost of these priv- Similarly, revenue from the stamp duty levied by provin-

130 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 131 cial governments generates substantially less revenue cultural credit. They also pre-empt 56 percent of agri- cent, this implies that these companies had higher net on average, 6 percent of sales. This implies a tax reduc- because the declared value of land sold is only a fraction cultural credit (see SBP 2018a).The total agricultural profits of PKR 20 billion after tax, due to these high levels tion of PKR 2 billion. Similarly, the export exemption on of its market value. credit disbursed in 2017–2018 was PKR 972.6 billion, of protection. The food industry also enjoys significant information services is worth PKR 4 billion. This informa- 4 The water charge (aabiana) recovers only 8 percent of assuming this was made available at an interest rate protection and a large return on equity, of 32.1 percent, tion was extracted from the State Bank’s Financial State- the operations and maintenance (O&M) costs of Punjab three percentage points lower than from alternate sourc- while mineral products had a return of 21 percent in ment Analysis of Companies (Non-Financial). See SBP and Sindh’s irrigation systems, as stated in budget doc- es. 2018. Another type of protection provided is the ‘deemed 2019a. uments from 2017–2018. Furthermore, there is no pro- 9 Data extracted from the Financial Statement Analysis of duty’, which increased the profits of oil companies by up 21 There has been a ‘zero-rating’ of domestic sales by five ex vision in the water charge for the depreciation of the sys- Companies (Non-Financial), SBP 2019a. to 25 percent in some years. port industries, especially textiles, under the Sales Tax tem and the cost of replacement works, assumed to be 10 Certain provisions of the Income Tax Ordinance (ITO) of 15 There are widespread perceptions of monopolistic be- Act of 1990 (Government of Pakistan 2017b). Accord- half the overall O&M cost. It is also worth noting that the 2001 (Government of Pakistan 2001) effectively keep haviour in the form of price-setting and restrictive prac- ingly, the sales tax of 17 percent is exempted on such electricity tariff on tube-wells is PKR 8 per kWh. Based corporate tax rates low. The first is the 5 percent tax tices by some industries, such as sugar, cement, and con- sales. The State Bank of Pakistan’s financial data on on NEPRA’s State of Industry Report, this amounts to 61 credit on investment in balancing, modernization, and re- sumer products. Greater access to credit and technol- public limited companies indicate that the share of do- percent of the average tariff, putting the agricultural sec- placement. This incentive allows PKR 45 billion of the an- ogy gives multinational companies special advantages. A mestic sales is close to 45 percent. This tax exemption tor’s total electricity consumption at 10,128 GWh in nual revenue to be foregone. Another is writing off the particular form of price-setting behaviour is ‘transfer benefited the export sector by over PKR 95 billion in 2017–2018, according to the NHDR 2020’s estimates. depreciation profits of newly-installed machinery, with a pricing’, whereby intermediate goods or finished prod- 2017–2018. This information was extracted from the See Government of Pakistan 2017i. ‘carry forward’ provision of up to five years. The NHDR ucts are imported at higher prices. This enables the State Bank’s Financial Statement Analysis of Companies 5 Fertilizer is the main intermediate input which is sub- 2020 estimates a resulting revenue loss of US$10 billion parent company, or head office of the multinational com- (Non-Financial). See SBP 2019a. sidized. This subsidy is given in two forms, the first in the in 2017–2018, derived on the basis of the value of newly pany operating in Pakistan, to achieve greater profits 22 Machinery imports by export industries are effective price of natural gas supplied to fertilizer companies with imported machinery. The ITO estimates the admissible while domestic consumers pay a higher price. This is ly completely exempt from sales tax and import duties. an average tariff of PKR 123 per million British Thermal depreciation allowance at 10 percent, assuming that common in industries like pharmaceuticals, automobiles, In 2017–2018, textile machinery imports alone amount- Units (MMBTU), compared to PKR 600 per MMBTU for in savings in tax paid was 30 percent of the allowance and consumer products which multinational companies ed to US$3 billion. This has meant a substantial tax sav- dustry in general. The fertilizer sector’s total consump claimed. dominate. Similarly, a 10 percent component of transfer ing for the textile industry, estimated at PKR 15 billion tion of gas in 2017–2018 was 248,000 million cubic feet 11 The corporate sector gets various tax exemptions, for pricing can add US$100 million to multinationals’ global overall for all export sectors. This information was ex- (MMCFT). The second is a government subsidy, reported example tax holidays with a general duration of five profits. Refer to Christea and Nguyen 2015. tracted from the State Bank of Pakistan’s External Trade at PKR 25 billion in federal budget documents. This years in some underdeveloped areas. The Power Policy of 16 Independent power producers are a key example of the Statistics 2017–2018. See SBP 2018b. information is based on the Pakistan Economic Survey 1994 also accords a huge lifetime exemption to inde- favourable pricing formula, with their power tariff set 23 Textile exporters enjoy the benefit of zero duty and no for 2017–2018. See Government of Pakistan 2018e. pendent power producers. The Pakistan Economic Sur- so that the Government fully covers their capacity sales tax on cotton imports. This reduces the tax com- 6 Various forms of agricultural machinery are exempted vey 2015–2016 reported tax expenditure of PKR 50 mil- charges and fuel costs. This cost-plus practice of pricing ponent on domestic sales. The magnitude of this sav- from taxes at the import stage. In addition, the Sales Tax lion due to this exemption. Going by the cumulative rate has greatly reduced market risks for IPPs in terms of ing was PKR 14 billion in 2017–2018. This information Act of 1990 imposes a lower sales tax rate on tractor of inflation, this increased in 2017–2018. See Govern- the possible underutilization of capacity. Some have had was extracted from the State Bank of Pakistan’s External sales, of 5 percent compared to the standard rate of 17 ment of Pakistan 1994 and 2016d. a 25 to 30 percent return on equity (ROE) in different Trade Statistics 2017–2018. See SBP 2018b. percent. The total number of tractors sold in 2017–2018 12 There is probably less tax evasion by public limited years. The year 2017–2018 saw a major expansion in 24 Export industries enjoy lower electricity tariffs, of 7.5 was 52,551 according to chapter 2 of the Pakistan Eco- companies due to proper auditing and reporting of annual power generation capacity, which increased by over cents per kWh, compared to the normal rate for industry nomic Survey for 2018–2019. accounts. However, there is a high likelihood of pri- 3,600 megawatts (MW) for the first time in seven years. of PKR 18 per kWh. The estimated share of the export 7 The procurement price of wheat was PKR 1,300 per 40 vate companies underreporting. The SECP Annual Report This represented a 12 percent expansion of capacity. Ac- sector in the industrial consumption of electricity has kilogram (kg) in 2017–2018, while the landed price of im- 2017–2018 estimates that private companies in the cor- tual generation was 120,715 GWh, equal to about 94 been determined from the Census of Manufacturing In- ported wheat was PKR 915 per 40 kg. Therefore, the sub- porate sector had a 37 percent share in total paid-up percent of available capacity. Therefore, the extra capac- dustries 2005–2006 (see Government of Pakistan sidy was PKR 385 per 40 kg. In 2017–2018, the Gov- capital in 2017–2018. The return on equity is assumed at ity charges paid are estimated at PKR 60 billion, out of 2009a). The value of this benefit is calculated as PKR 61 ernment procured a total of 5.989 million tonnes of 17 percent in this year, with the extent of evasion in terms the total tariff billing of PKR 1,500 billion reported by billion. wheat. The marketed surplus of wheat produced is higher of declaring profits at 20 percent. See SECP 2018. NEPRA in its State of Industry Report 2018. See Govern- 25 The State Bank of Pakistan provides access to heaily- for large-scale farmers, that is, those with farms of 25 13 Various forms of machinery, especially for renewable en- ment of Pakistan 2018h. subsidized financing for exports, with an interest rate acres or more, who are estimated to market 40 percent of ergy, construction in infrastructure projects (such as 17 Commercial banks have a very skewed distribution of adv- that is nine percentage points lower than industry’s nor- the wheat crop. Sugarcane is not a traded commodity, CPEC), and medical equipment are exempt from import - ances. According to the State Bank of Pakistan, only mal borrowing rate. The State Bank of Pakistan reported and is sold directly to mills. However, its effective price taxes, as listed in the Third Schedule of the Sales Tax Act 1,854 of over 3.2 million borrowers accessed 51 percent the total quantum of export financing as PKR 500 billion can be determined from the global price of sugar, with of 2001. See Government of Pakistan 2017b. of bank credit in 2018. Almost 10 percent of loans were in 2017–2018, implying a subsidy of PKR 45 billion ac- an assumed conversion ratio from sugarcane to sugar. 14 There is high effective protection when a particular indus- made at low interest rates, of up to 5 percent, to large- cording to NHDR 2020 estimates. This yields a price of PKR 135 per 40 kg in 2017–2018. try is insulated from foreign competition by high tariffs scale borrowers alone, while the average interest rate 26 Given the difficulty in broadening the income tax base to The support price actually offered was PKR 180–182 per on imported substitutes. In Pakistan, the automobile in- was close to 12 percent in this year. cover the trading community, the ITO 2001 incorporates kg. The total quantity supplied to the sugar mills was 83.3 dustry is a classic example, where import tariffs on 18 Data from SBP 2019a. two withholding taxes. The first is levied on importers million tonnes in 2017–2018, 40 percent of which was complete built-up (CBU) vehicles come to 60 percent. 19 SBP 2017. and collected at the point of clearance of import consign- supplied by large-scale farmers. This information was ex- Consequently, the average return on equity was 31.8 per- 20 Exporters are subject to a presumptive income tax of 1 ments, along with the import duty and sales tax. The sec- tracted from the Pakistan Economic Survey for 2018– cent in 2018, as given in the State Bank of Pakistan’s percent on the value of export sales. Information services ond is charged on electricity bills. The basic problem 2019. publication on the Financial Statistics of Non-Financial represent the only sector that is exempt. The State Bank is that withholding tax rates are too low. The import tax is 8 Large-scale farmers have a preferential access to agri- Companies. Assuming that the normal return is 17 per- of Pakistan’s database indicates that pre-tax profits are, charged at a rate of between 1 and 5 percent, whereas

132 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 133 the net trading margin, according to the Pakistan Bureau (DHA) in eight major cities in Pakistan. Information on tax burden is borne by members of the richest income 50 Government of Pakistan 2019h. of Statistics, is 16 percent. With a flat tax rate of 30 per- the Defence Housing Authorities was obtained from their bracket), through to 0 (where a proportional tax is in 51 Water Aid 2018. cent, the average tax rate is 4.8 percent, while the actual respective websites. For example, the large Defence place), to -1 at the extreme of regressivity (where the en- 52 Government of Pakistan 2019g. tax rate is derived at 3.6 percent. The withholding tax Housing Authority in Karachi covers 8,797 acres. On the tire tax burden is borne by members of the poorest in 53 Government of Pakistan 2020d. on electricity bills is 12 percent. Based on net income per assumption that 60 percent of this land is used for resi- come group). See Suits 1977. 54 Government of Pakistan 2019o. kWh of PKR 30,000, the tax rate should range from 15 dential or commercial plots, the total developed area is 48 UNESCAP 2013. 55 Idrees and Shah 2018. percent to 20 percent. Therefore, the NHDR 2020 esti- 25.5 million square yards. The value of property is taken 49 Government of Pakistan 2019. mates that the extent of under-taxation in 2017–2018 as PKR 38,400 per square yard. This leads to an estimate was PKR 40 billion. of the capital value of property in the Karachi DHA of PKR 27 This is based on the ratio between value added in whole 979 billion. The combined annual rates of capital gains, sale and retail trade, and the revenue from electricity tar- rent, and net depreciation are taken as 9 percent. There iffs on commercial consumers. fore, the annual imputed income is PKR 88 billion. The 28 A major source of tax evasion is the under-invoicing of im- NHDR 2020 estimates the annual income from the seven ports by commercial importers. According to UNCOM other DHAs in Pakistan at approximately PKR 82 billion. TRADE (2018) the extent of under-invoicing in Pakistan This estimate does not include income from commercial was US$5 billion in 2018. The NHDR extrapolates that property and capital gains on vacant land. large-scale evasion in paying all import-related taxes was 37 Municipal authorities that serve cantonment areas – as much as PKR 123 billion in 2017–2018. which provide these areas with infrastructure in the form 29 There have been various studies on the distribution of of roads, water supply, and sewerage – receive no share income in Pakistan, discussed in the main body of the of property tax revenue. NHDR 2020. Here, an attempt is made to estimate the 38 Valuation of immovable properties by the Federal Board potential income tax revenue and obtain a handle on of Revenue and the Price Index of Investment in Housing personal income tax evasion. A conservative estimate from the Pakistan Economic Survey. Government of Paki- is that the richest 20 percent of the population has a stan 2018i and 2018e. share of 52 percent of non-agricultural net income. This 39 Frontier Works Organization. implies an average net income of PKR 1,155,000 per 40 The favourable pricing formula applied to state-owned earner at the top of Pakistan’s income distribution. The enterprises operating as monopolies benefits various tax liability for the average earner was PKR 54,500, ac- entities, including those in the power sector, railway, and cording to the tax schedule of 2015–2016.The total tax airlines, among others. Cost-plus pricing sustains sub- payment is PKR 490 billion. This is a low estimate which stantial overemployment and inefficient management. All ignores the progressivity of the income tax system. consumers, including those from lower-income groups, 30 A system of various forms of tax credits has reduced bear the burden of higher prices. Information in the body personal income tax by up to 15 percent of tax liabilities. of the text is extracted from Federal Footprint, SOE Annu- It is largely high-income taxpayers who take advantage of al Report 2017. See Government of Pakistan 2017d. this, obtaining tax savings of up to PKR 30 billion. More 41 The federal budget directly provides subsidies to many over, low fixed taxes of 10 or 12.5 percent are levied on state-owned enterprises, including the Pakistan Railway, unearned income, such as interest and dividends. Pakistan Steel Mills, the Pakistan Agricultural Storage & 31 Access to capital has enabled the military establishment Services Corporation Limited, and others. These enter- to set up various corporate entities. These include the prises also have access to credit guaranteed by the Gov- conglomerate of companies in the Fauji Foundation, the ernment. This requires provisioning for contingent liabili- Army Welfare Trust, the Shaheen Foundation, and the ties in the budget. Some state-owned enterprises, like the Bahria Foundation. Entities like the Frontier Works Orga- Oil & Gas Distribution Company Limited and Pakistan nization and the National Logistics Cell generate addi- Petroleum Limited, give annual dividends against these tional profits. Relevant information was obtained from subsidies to the Government. In 2017–2018, these divi- these entities’ websites (see the ‘References’ section of dends aggregated to PKR 70 billion. this report). 42 Budget in Brief 2017–2018, Ministry of Finance. Govern- 32 This information was extracted from publicly-available ment of Pakistan 2017c. data on the individual websites of these companies. 43 Malik and Saqib 1989; Wahid and Wallace 2008; Pasha 33 This information was extracted from publicly-available 1999. data on the Fauji Foundation’s website. 44 Datta 2010; Blackman 2010. 34 Askari Bank 2018. 45 Government of Pakistan 2016. 35 This information was extracted from the publicly-avail 46 Input-Output Matrix of Pakistan (2011–2012), Tax Reform able data on the Army Welfare Trust’s website. Project, FBR. 36 Privileged access to land in cantonment areas has led 47 Inspired by and related to Gini ratio, the Suits Index varies to the establishment of Defence Housing Authorities from +1 at the extreme of progressivity (here, the entire

134 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 The political economy of inequality 135 CHAPTER 6 Governance and institutional capacity CHAPTER 6 Governance and institutional capacity

Bashir*, in his 40s, lives in Quetta where he works as a low-level clerk at a private hospital. He is concerned about the poor access to public services in his locality. “The problem with Pakistan is that the merit system is finished,” he laments. It is common knowledge, adds Bashir, that there is extreme corruption in Balochistan’s capital city, pointing out that public schools sell exam papers for money, and invigilators ac- cept bribes to overlook blatant cases of cheating. He says that the police also accept bribes, especially for traffic offenses like speeding. When his mother needed emergency surgery, Bashir asked around at various hospitals, but the procedure could not be scheduled for weeks on end, as there were no doctors avail- able. Finally, a friend working in the administrative wing of a hospital used his contacts and suddenly, a doctor was available. “Everything here depends on either a reference or a bribe,” says Bashir. “Your health, your graduation, even whether or not you have to go to jail.” Corruption has long been a challenge at all levels of public life in Pakistan. The Corrup- tion Perception Index 2019 gives the country a score of 32 out of 100, where 0 signifies ‘highly corrupt’.1 This prevents the country from being a true meritocracy, and exacerbates inequality manifold.

Governance in Pakistan The World Bank’s Governance Indica- tors accord Pakistan a very low rating in Governance is the process through which most governance indicators (table 6.1). the state ensures the proper formulation Its lowest rating concerns the absence of and implementation of its policies and ob- political stability and the absence of vio- jectives.2 Good governance pays a huge de- lence, although its performance on both velopment dividend. When applied evenly, it can triple a nation’s per capita income in TABLE 6.1 the long-term.3 Inequalities, therefore, are World Bank governance indicators for Pakistan, values and ranking, not merely gaps in institutional processes (2006-2019) or the result of socio-economic phenome- na. They are also caused by gaps in policies, 2006 2016 2019 and the limited implementation of poli- Indicators Value Rank Value Rank Value Rank cies, that leads to the lopsided distribution of opportunities. This prevents vulnerable Government effectiveness -0.38 41 -0.65 28 -0.68 26 groups from engaging in the labour market Regulatory quality -0.48 34 -0.64 27 -0.64 = 27 or accessing essential services like quality Voice and accountability -0.89 25 -0.70 28 -0.84 23 education, health care, communications, Rule of law -0.86 23 -0.80 20 -0.67 26 utilities, and not least, power and justice.4 Control of corruption -0.81 22 -0.88 17 -0.85 21 As such, good governance is central to reducing inequality and significantly im- Political stability and no violence -2.03 3 -2.48 1 -2.25 3 pacting growth, while weak governance Note: *Estimated value, **percentile rank: lowest is 0 and highest 100 and are adjusted to 0 decimal places. shows leads to an increasing gap between the rich improvement, = shows no change. Source: The World Bank Governance Indicators 2020. and the poor.5

Governance and institutional capacity 139 fronts improved in 2019. Pakistan also apex policy body, the National Economic enterprises numbers 422,962.8 terprises place on the federal budget has receives a particularly low rating in terms Council (NEC), is meant to meet twice a The Ministry of Finance’s latest report, inevitably led to a ‘crowding out’ of funds of controlling corruption, enabling voice year to review economic policies and their for 2017, lists the total assets of state- for social protection and development and accountability, and government ef- implementation.6 However, the council owned enterprises as PKR 17.114 trillion projects. It is time, in the larger nation- fectiveness. Its performance on the rule met only once in 2018, despite constitu- (US$102.088 billion), with sales of PKR al interest, to decide on the future role of of law sub-index improved by 6 points in tional requirements. Similarly, while the 3.4 trillion (US$20.282 billion), and loss- state-owned enterprises. Each enterprise 2019 compared to 2016, while its regula- Planning Commission is mandated to es of PKR 191 billion (US$1.139 billion).9 will need to be assessed in terms of wheth- tory quality rating worsened in 2016 and frame policies in consultation with rele- Only 10 out of the country’s 186 public er it should be closed, restructured, or pri- has remained constant ever since. Pakistan vant stakeholders, the Ministry of Finance sector state-owned enterprises made sig- vatized. ranked relatively better in terms of govern- appears to have taken over this role. As a nificant profits, mostly those involved in ment effectiveness under an authoritarian result, the ministry formulates economic the power, oil and gas, and financial ser- regime in 2006, compared to democratic policies, manages the budget, and approves vices sectors. Project planning and regimes. other finances.7 This results in short-term Most state-owned enterprises produce The World Economic Forum’s Glob- policy-making instead of following the ob- goods and services that are consumed by implementation al Competitiveness Report 2019 presents jectives formulated by the Planning Com- the majority of Pakistan’s population. a somewhat mixed picture of Pakistan’s mission for national plans in the short, me- These include the production and distri- Until the early 1990s, the Planning Com- performance on governance indicators. In dium and long-term. bution of energy, transportation – includ- mission regularly prepared Five-Year Plans terms of institutional pillars, the country’s It appears that other approving fora ing the national airline, railway, ports, and that were, more or less, faithfully imple- ranking has improved slightly, moving up have not yet fulfilled their potential. These shipping – banking, insurance, develop- mented. However, these plans largely fo- Pakistan’s ranking on the cused on accelerating growth, with little Global Competitiveness Index from 109th of 140 countries in 2018, to include, for example, cabinet committees ment finance, and the trading of agricul- 107th of 141 countries in 2019. This mi- on sectoral issues like privatization and in- tural commodities and basic consumer emphasis on achieving more inclusive improved slightly to 107th out growth. Now, the practice is to rely more of 141 countries, largely due to nor improvement can be attributed to ini- vestment: the Executive Committee of the goods. The total outstanding debt of tiatives that may lead to better governance National Economic Council (ECNEC), The losses of state-owned enterprises on Annual Plans. institutional reforms. The Federal Public Sector Develop- state-owned enterprises – most over time, like the Right to Information the Central Development Working Party have grown exponentially. In 2018–2019, of which is guaranteed by the Act of 2017, reforms in financial auditing (CDWP), and the Departmental Devel- the federal budget gave them subventions ment Programme (PSDP) incorporates allocations for each project in a sector Federal Government – is PKR and reporting standards, and an increas- opment Working Party (DDWP). A gap of almost PKR 647 billion, equivalent to 1.394 trillion. ingly independent judicial system. in the overall integration, inclusivity, and 1.7 percent of Pakistan’s GDP. Currently, that has been given a development allo- There is a clear need for open discus- sustainability of policies may be attributed their total outstanding debt is PKR 1.394 cation in a particular year. Based on the sion in various fora, as well as in the media, to limited good governance practices and trillion, growing by as much as 23 percent 18th Amendment to the Constitution, the on the extent, causes, and policies required technical capacity within government en- per year. The Federal Government guaran- PSDP generally focuses on large trunk in- to overcome inequality and poverty. In tities. tees most of this debt. frastructure projects, while the provinces particular, the mechanisms and costs of The generally poor performance of focus on expanding the coverage of eco- inequality that stem from the privileges of state-owned enterprises has seriously af- nomic and social services. vested interests need to be highlighted, so fected the quality of the services they pro- Large projects are required to have a Performance of state-owned feasibility document, known as the PC-II, as to build public pressure for their with- enterprises vide. Their losses are primarily caused by drawal. inefficient management, corruption, and which is a precondition for approval by the overemployment. Many of the services Central Development Working Party or As discussed in chapter 5, there are three they offer are used by relatively poor seg- the Executive Committee of the National types of state-owned enterprises in Paki- ments of the population. Perhaps the best Economic Council.The project document The institutional process stan. Of the total 204 state-owned enter- example is Pakistan Railways, which has PC-1 contains the project’s cost-benefit prises in the country, the majority (186) been unable to provide adequate services analysis, its quantification of social ben- Governance can be improved by addressing are public sector companies, 10 are fed- at a reasonable price because of limited, efits with indicators, and its employment the issues that hinder its effectiveness, so eral authorities, and eight are develop- outdated rolling stock and track systems. generation (direct and indirect) and envi- that policies lead to intended outcomes. To ment finance institutions. While 48 play a This compels people to resort in greater ronmental impact assessment. Thus, PC-1 this end, it is necessary to choose correct non-commercial role, 138 are commercial numbers to more expensive private trans- documents are designed to ensure a focus and consistent strategies, make the neces- in nature. State-owned enterprises oper- port. Similarly, state-owned enterprises on benefits to the populace. In practice, sary institutional arrangements, support ate in various sectors of the economy, in- that service the agricultural sector, espe- however, the approval process is frequent- the technical capacity of institutions, and cluding energy, financial services, industry, cially small-scale farmers, have played only ly tilted towards projects with a large for- ensure sound political leadership. services, trading, and transportation. The a marginal role. eign assistance component, projects that Pakistan’s constitutionally-mandated total workforce employed by state-owned The huge burden that state-owned en- are located within the constituencies of

140 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 141 powerful elected representatives, or ini- tor, 89 percent of the sectoral allocation Pakistan’s income tax system, including the progressivity of the income tax system, tiatives that have a large construction cost has gone to new projects. By contrast, the withholding taxes, accounts for roughly 35 as discussed in chapter 5. component and a potential for kickbacks planning and implementation of projects percent of FBR revenues. In 2019, there Other indicators affirm the relatively from contractors to ministry officials who appears to be working relatively well in the were 2.6 million income tax filers in the low quality of tax administration in Pa- supervise project implementation. hydel and highway sectors. country. In effect, only one in every 12 kistan. First, after an audit, the Federal The PSDP project portfolio Perhaps the biggest problem in imple- For the Planning Commission to work households files an income tax return in Board of Revenue’s Inland Revenue Ser- contained as many as 1,063 menting the Federal Public Sector Devel- efficiently and effectively towards reduc- Pakistan – far lower than in neighbour- vice (IRS) was able to raise demand of only projects in 2019–2020, causing opment Programme today is the process ing inequality, the Federal Public Sector ing countries, for example, compared to 8 percent of income declared in returns. In it to be ‘spread too thin’. of ‘spreading too thin’. For example, the Development Programme needs to be ra- one in four households in India. Evident- earlier years, this was as high as 21 percent. project portfolio in 2019–2020 contained tionalized. That is, it should prioritize ly, the Federal Board of Revenue has not Second, there is considerable overreliance as many as 1,063 projects.10 This stretch- the completion of ongoing projects, and yet succeeded in broadening the tax base on withholding taxes, many of which are es available funding and affects projects’ projects in the water resources and power or promoting the documentation of the regressive in nature, as discussed in chap- completion rate. As a result, benefits to distribution sectors, while reducing the al- economy. ter 5. Third, the Federal Board of Revenue potential beneficiaries are substantially de- location for highways. It should avoid the This is reflected in figure 6.2, which has tended to withhold the refunds due layed. There are also large cost overruns. over-centralization of service provision, illustrates the wide variation in sectoral on sales tax returns in order to artificially Figure 6.1 highlights two key indicators in favour of local involvement in sectors income tax revenues as a percentage of in- boost revenue. Tax reform is a prerequisite for related to sectoral allocations. The first is like population planning and preventive come. The average ratio is 4.8 percent. Two Reforming tax administration is a pre- raising the tax-to-GDP ratio and the status of completion of ongoing proj- health. In terms of data, the Pakistan Sta- sectors – domestic trade and transport – requisite for raising the tax-to-GDP ra- reducing inequality in income ects. This is measured by the ‘throw for- tistical Council (PSC) should be made have extremely small ratios of below 1 per- tio, and for reducing inequality in income distribution nationwide. ward’ (unspent allocations) of the project into an autonomous body that reports to cent, compared to 13 percent in manufac- distribution nationwide. To this end, the cost, and indicates the costs that have still Parliament, in order to ensure the objective turing and over 17 percent in banking and World Bank recently launched a major to be incurred. The second indicator is the collection, analysis, and dissemination of insurance.11 Large-scale traders and private project to support tax system reform in Pa- share of new projects in sectoral PSDP al- key statistics. transporters appear capable of evading kistan. locations. most of their tax liabilities. This reduces Good governance is essential to great- The food security sector is an extreme er equality. Pakistan faces a three-pronged example of an excessively large project Quality of tax administration FIGURE 6.2 challenge in terms of mechanisms that fa- portfolio. This is a vital sector from the vour vested interests and uphold the status Income tax collection as a percentage of perspective of tackling inequality. While Tax collection agencies play a key role in value added by sector, (2018-2019) quo: state capture, power structures, and only 20 percent of project costs have been mobilizing revenue to finance the provi- their impact on governance. The state can incurred on ongoing projects in this sec- sion of basic services, as well as in ensuring % become stronger by enhancing its capacity that the tax burden is distributed in a pro- 20 and implementing unbiased policies. 17.4 FIGURE 6.1 gressive manner. As such, they have a hand 18 In terms of policy, there is a need to re- in determining levels of inequality among 16 vive the Planning Commission’s role and Completion status of ongoing projects and funding allocations for new different segments of the population. 14 13.2 improve its technical capacity as a policy projects, (2019-2020) The Federal Board of Revenue (FBR) is 12 think tank to build synergies across all pol- 10 9.2 8.9 Throwforward as % of project costs Pakistan’s premier tax collection agency. It icies. The Government, through the Min- 8 % of sectoral allocation to new projects is responsible for raising revenues from all istry of Finance and the State Bank of Pa- 6 4.3 kistan, can develop an online early warning federal taxes, including income tax, sales 4 Highways system using an information network to tax, customs duty, excise duty, and the pe- 2 0.9 0.6 anticipate economic crises. Improvements Hydel troleum levy. The Federal Board of Reve- 0 nue mobilizes almost 91 percent of Paki- in interministerial coordination through Water resources stan’s national tax revenue. the Economic Committee of the Cabinet, Transport particularly in areas like managing circular

Railway A number of indicators can be used to Construction assess the quality of tax administration. Manufacturing debt, would also enforce good governance Power The first is performance on the tax revenue Electricity and gas practices. Banking and insurance

Food security target set in the federal budget for a par- Wholesale and retail trade ticular financial year. In 2018–2019, there % 0 10 20 30 40 50 60 70 80 90 100 was a major shortfall of almost 14 percent Community and personal services

Source: Government of Pakistan 2019j. in this regard. In earlier years, the gap was Source: Government of Pakistan 2019m. usually less than 5 percent.

142 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 143 Role of regulatory authorities Electric Power Regulatory Authority, and different sectors of the economy, and to FIGURE 6.3 the Oil & Gas Regulatory Authority. borrowers of different sizes. As a result, ac- and monopolies cess to credit has become one of the main The average interest earned by big banks is over 10 times higher than small banks, (2018) State Bank of Pakistan sources of income and wealth inequality in Worldwide, regulatory authorities are es- Pakistan. Mark-up interest earned (in billion PKR) Return on equity (ROE) sential for ensuring fair and competitive The State Bank of Pakistan’s role includes This is evident in the outstanding stock prices, preventing monopolies, and curb- maintaining the country’s monetary poli- of credit held by commercial banks, which PKR billion Top five commercial banks % ing unfair practices – such as overpricing, cy and acting as a regulator for the finan- totals PKR 20.6 trillion (US$122.88 bil- 160 30 selling substandard products, colluding or 12 cial sector, thereby ensuring its stability. lion). The share of credit given to the 140 cartelization (forming lobbies to influence Despite tremendous economic pressures, Government has increased substantially, 25 prices), and hoarding to hike-up prices. including the country’s role in the ‘war on from 41 percent in 2002, to 61 percent in 120 20 The burden of unfair practices falls on terror’, the State Bank of Pakistan has his- 2019. As government borrowing has ris- 100 end-consumers, while companies who en- torically been one of its few effective regu- en to finance exponentially growing fiscal 80 15 gage in such practices enjoy higher profits. latory bodies, keeping the banking sector deficits, there is less credit left for private 60 This exacerbates income inequality. afloat. However, the creation of a credit sector actors engaged in productive eco- 10 It is especially essential to regulate monopoly in Pakistan has thrown the State nomic activities. This is a clear manifes- 40 state-owned enterprises that, without 5 Bank’s regulatory role into question, with tation of the ‘crowding out’ of the private 20 checks and balances, can develop into mo- respect to creating a competitive market sector. 0 0 nopolies. Industries or firms that require environment in the financial sector. This Differences in access to credit abound HBL UBL MCB Allied SCB Bank immense initial investment need to pro- indirectly contributes to worsening in- between different sectors. It is evident, for -5 duce at a large scale and increase their mar- equality. instance, in the higher proportion given to ket share in order to keep the costs of pro- The financial sector may not be con- the manufacturing sector compared to the -10 duction low and become profitable. This sidered a natural monopoly, as it involves agricultural sector. While the agriculture Bank Summit Al Samba MCB -15 makes it less lucrative for new entities to many players that provide basic services, contributes 21 percent of Pakistan’s GDP, Islami Bank Baraka Bank Islamic enter the same business and compete with such as giving credit and taking deposits. its share of credit is a mere 5 percent. By Bottom five commercial banks existing enterprises. An entity that enjoys However, it often creates market segmen- contrast, the manufacturing sector, which disproportionate market power because it tation and maintains a credit monopoly. A contributes almost the same proportion to Note: Banks categorised as small and big based on their total equity Source: SBP 2018c. Credit monopolies lead to is the only one in business becomes a nat- credit monopoly occurs when large banks, GDP, receives a 44 percent share of avail- market fragmentation which ural monopoly. When monopolies collude in pursuit of higher profits, start lending at able credit. Small and medium-sized enter- exacerbates income inequality. to keep others out, they become cartels. rising rates to high-end borrowers (big cor- prises only have a 7 percent share in credit, FIGURE 6.4 Countries where natural monopolies and porations and investors) who offer better while housing finance has an even lower cartels have developed urgently need to collateral as guarantees. share, of less than 1 percent. Distribution of bank credit by size of borrower, (2019) enact regulations to control their abuse of Figure 6.3 presents the impact of the Figure 6.4 reveals that small borrowers market power. Size of loan Less than PKR 100,000 credit monopoly in Pakistan. Large banks represented 46 percent of all the borrowers PKR 100,000 to less than PKR 1 million Natural monopolies tend to form in the that offer higher interest rates with higher in Pakistan as of June 2019, yet they had PKR 1 million to less than PKR 10 million public sector, especially linked to utilities collateral enjoy higher returns on equity access to less than 1 percent of bank cred- PKR 10 million or more like water, electricity, oil, gas, credit, loans, than small banks. As many low-end con- it. At the other extreme, just 1 percent of Percentage of accounts Percentage of credit and railway infrastructure. This is the case sumers cannot afford to take out credit at borrowers have access to 85 percent of the 6.3% 1.3% 0.8% in Pakistan. Dedicated regulatory agencies 6.8% higher rates, they remain deprived of cred- credit available, having taken out loans of 7.4% control entities in each of these spheres. it facilities altogether. Thus, money cir- more than PKR 10 million. 46.4% 46% This section discusses some of these culates almost entirely between big banks Unequal access to credit is the most natural monopolies in Pakistan, and exam- and a few high-end borrowers. The market pronounced form of inequality identified 85% ines whether regulatory agencies have kept fragmentation caused by the credit mo- among the indicators that the NHDR these monopolies from posing a threat to nopoly aggravates income inequality. 2020 uses to gauge inequality. This is ev- consumers and the economy at large. A ident in its extraordinarily high Pashum number of specialized regulatory agencies Skewed distribution of credit between ratio, of 22.6, and its Gini coefficient of 91 are taken as case studies: the State Bank different sectors percent. of Pakistan, the Securities & Exchange The injustice of credit-based inequality Commission of Pakistan, the Competi- It has proven challenging to regulate the is further aggravated by the fact that small Source: SBP 2018c. tion Commission of Pakistan, the National flow of credit from commercial banks to depositors – who comprise over 99 percent

144 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 145 FIGURE 6.5 SPECIAL CONTRIBUTION Dr. Shamshad Akhtar practice after Pakistan’s banks were dena- tionalized. Financial inclusion: Adopting innovative mechanisms geared towards Pakistan’s poorest Capital market profits accrue to only 0.11 The nationalization of banks in the percent of the population, (2019) mid-1970s by the country’s first PPP gov- Financial inclusion offers the best market mechanism to reduce pov- co-sponsored by UK Aid and the Bill and Melinda Gates Foundation – ernment was a reaction to the emergence of Population of Pakistan erty, which in Pakistan is in the range of 29 percent at US$1 a day, has launched Digital Financial Services (DFS) programmes to attain Pakistan’s ‘22 richest families’. These fam- and of 50 percent at US$2 a day. Well-structured, inclusive financial the goals and targets of the Government’s strategy. To harness DFS, Proportion of individual investors in corporate share market ilies simultaneously owned banks and in- approaches require broad-based access to financial products and Karandaaz provides financial and technical support to the central 0.11% services for individuals and micro, small and medium-sized enter- bank to develop a real-time, low-cost payment gateway to signifi- dustrial units which borrowed from these prises (MSMEs). The availability, accessibility, and affordability of cantly reduce transaction costs and promote interoperable digital banks on a preferential basis. After dena- 99.89% inclusive and sustainable finance for all helps to promote economic payments. tionalization, Pakistan has reverted back to growth and prosperity. This will enable government-to-people and people-to-government past trends: money is being accumulated in Worldwide, close to one-third of adults (1.7 billion), and in Paki- (G2P/P2G) digital payments of salaries, transfers of safety net pay- very few hands as the boards of directors of stan around 100 million people, remain unbanked. Small and medi- ments under the Benazir Income Support Programme and Ehsaas, banks, and of large industrial units, over- um-sized enterprises (SMEs), which contribute to enhanced job gen- and public savings/investible funds through the Central Directorate lap. eration and productivity, remain underserved, currently accounting of National Savings, along with eventually transacting between the for only 7.5 percent of total outstanding loans. The gender gap in fi- directorate and individuals’ bank accounts. The digitization of na- Securities & Exchange Commission of nancial inclusion is quite high (13 percent) even though women rarely tional savings will enable customers to conveniently subscribe to its Pakistan default. Providing credit to women can change their destiny and that products and ATM withdrawals. of their families, especially when coupled with financial advice and To enhance the payment network system, Karandaaz supports the The capital market, comprising compa- business training. implementation of the DFS ecosystem to effectively transform and Universal financial access across countries will go a long way to- develop internal and external digital capabilities. This ecosystem nies registered with the Pakistan Stock wards reducing inequalities through low-cost transactional accounts involves getting policy and regulations to align with, and reinforce, Exchange (PSX), plays a major role in Source: UNDP calculations based on Central Depository Company’s Annual Reports, 2019. that offer adequate returns on savings, as well as finance for people’s the payment system, in order to effectively catalyse a broad range mobilizing domestic resources for invest- needs and businesses. Technology and competition have the power of financial inclusion services. Ecosystems and payment systems ment, and utilizing these resources to in- to competitively scale up access and delivery across regions, while require regulators who coordinate with all players, service providers, crease national productivity.13 The Securi- 68 percent, while decreasing from 34 to helping to manage the cost of credit. and telecommunication systems to improve their game. Providing ties & Exchange Commission of Pakistan 32 percent for individual investors. This Moving forward, it is critical is to adopt a holistic approach to re- communities with financial and technological literacy will further (SECP) regulates this market. As such, it is reflects the degree to which money in Pa- form the financial inclusion system. Recognizing this, Pakistan has help financial inclusion. meant to protect investors and companies kistan circulates between very few hands.14 recently developed a National Financial Inclusion Strategy 2018– Pakistan has begun the process of acquiring technology and a DFS from unfair trade practices, maintain the 2023, which envisages a target of 65 million active digital accounts ecosystem, with the potential to offer all citizens digital transactional sustainability of the stock market, reduce Poor performance on core functions by 2023. accounts. Providing sustainable finance through modern financial -in systemic risk, provide a platform for rais- Scaling financial inclusion to new heights is now possible with clusion policies and modalities will facilitate self-empowerment and ing capital, and ensure competitive market There are 558 companies listed on Paki- technology-enabled solutions that go beyond mobile and govern- employment. This requires incentivizing and building the capacity of stan Stock Exchange under the Companies ment payments to promoting delivery mechanisms like financial financial institutions to effectively allocate and deploy finance. Time- practices. 15 technology solutions (Fintech) – start-ups that rely on modern tech- ly access to competitive finance that reaches the poor is a powerful While the capital market is good for Ordinance of 1984 , compared to 765 in 16 nologies and related software to provide automated, flexible, and tool to enhance job generation and provide better opportunities, in- economic growth, its profits contribute 2000. The number of companies has not fast services. Public-private partnerships can also help to scale up comes, and services. hugely to income inequality, especially only decreased over the years, it has also financial inclusion to a level where it addresses inequality by reach- To reduce poverty, Pakistan must adopt exemplary strategies and when the Securities & Exchange Commis- remained between 558 and 560 over the ing unserved enterprises and low-income populations that remain models through better federal and provincial government coordina- sion cannot discharge its core functions last five years.17 This decline may be at- unbanked. tion, so as to enhance the coverage of financial inclusion across all and ensure the regulation of markets. For tributed to the merging of companies, or To this end, Karandaaz Pakistan – established in 2014 and regions. example, market capitalization (the share their de-listing due to forced or voluntary Dr. Shamshad Akhtar is a former Under Secretary-General of the United Nations, Vice President of the World Bank, Director General of the Asian Devel- of profits) accrues to individual and large liquidation, defaulting, or bankruptcy. opment Bank, and the former Governor of the State Bank of Pakistan. corporate investors – fewer than 0.2 mil- The Securities & Exchange Commission lion people, accounting for just 0.11 per- of Pakistan’s inability to attract new com- cent of Pakistan’s total population (figure panies may be due, in part, to the limited Since 2009, market of all depositors, with accounts that con- their own assets. 6.5). Although the number of both types implementation of regulatory laws. Re- capitalization for corporate Inequality in access to credit tain less than PKR 1 million – contribute Until the 1990s, the State Bank of Pa- of investors has increased over the years, cords show that Initial Public Offerings investors has increased from is the most pronounced form as much as 44 percent to bank deposits. kistan finalized an Annual Credit Plan in higher profits generally accrue to large cor- in FY2014 listed just five new companies, 66 to 68 percent, reflecting the of inequality among the NHDR Pakistan’s banking system is, therefore, a consultation with commercial banks. This porate investors, compared to the few in- compared to eight in 2015, five in 2016, concentration of wealth in very 2020’s indicators. source of inequality. The elite access al- specified targets for distributing incre- dividual investors in the country. Between four in 2017, and six in 2018 –reflecting ei- few hands. most all bank credit, using the savings of mental credit among different economic 2009 and 2019, market capitalization for ther a slight decline, or no improvement.18 the lower and middle class to augment sectors. The State Bank discontinued this corporate investors increased from 66 to Clearly, the Securities & Exchange Com-

146 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 147 mission needs to do more to discharge its profits by passing on a huge chunk of their BOX 6.1 core function of attracting new company costs to consumers, in the form of higher Pakistan’s sugar industry: A bitter reality listings. prices for their products and services. The Securities & Exchange Commis- While the Competition Commission of Almost every Pakistani government in the past 20 years has weath- to purchase sugar at higher prices. sion has also struggled to raise enough cap- Pakistan is responsible for ensuring com- ered a sugar crisis. These crises have led to governments paying bil- In February 2020, the Prime Minister of Pakistan formed an inquiry ital for existing new listings. In FY2013, petitive pricing and fair trade practices, lions in subsidies. Despite this, sugar remains costly, with high sugar commission to investigate sugar shortages and price hikes across for instance, the shares of only three com- non-competitive markets with rising mo- prices burdening the populace. Meanwhile, a recurring blame game the country. The subsequent report by the Sugar Inquiry Commission panies were offered to the public, raising nopolies and oligopolies abound in Paki- and perpetual conflict between the two main sugar industry stake- (SIC) in April summarizes the reasons behind the surge in sugar pric- PKR 7.606 billion in capital. In FY2018, stan. Their elevated prices crush ordinary holders – millers and farmers – continue to plague the industry, due es. It identifies market manipulations, the practice of satta (specula- the public offerings of five companies were citizens. The NHDR 2020 analyses non-fi- largely to protectionism and fraudulent measures related to it. tive or imaginary advance sales that constitute a form of gambling), Pakistan’s sugar industry is a classic example of cartelization. The hoarding, and underreporting by powerful sugar industry owners to only able to raise PKR 6.48 billion. Simi- nancial data to examine the existence or powerful business community involved in sugar production repeated- secure maximum profits. For example, the report reveals that sugar lar challenges are apparent in terms of the formation of potential cartels. As noted ly uses the ‘protectionism argument’ to continuously fix higher profits was exported in 2018–2019 even though sugarcane production was Securities & Exchange Commission’s sec- above, cartelization occurs when firms col- for themselves. Over the years, they have managed to pressure gov- low during the harvest season, barely enough to meet Pakistan’s an- ond core function of attracting investors lude to fix prices, in order to capture larger ernments into passing several statutory regulatory orders to ensure nual consumption demand.*** and boosting their confidence in the stock shares or higher profits. low taxes and higher pricing for sugar, alongside a higher import duty Over the past 20 years, sugar prices in Pakistan have remained market. There are only 231,793 investors The NHDR 2020 identifies an industry to discourage imports of low-priced sugar (table 6.2). This protec- relatively higher than prices worldwide. Aided by government sub- in Pakistan today, accounting for just 0.11 as a potential cartel if all of the companies tionism has led to cartelization in Pakistan’s sugar industry.* sidies, millers are only able to export sugar when there is ‘excessive percent of the population.19 in the industry earn consistently high- production’. Thus, continued sugar exports in January 2019, despite TABLE 6.2 While higher profits are not bad for er profits (with low variation) in specific low levels of production, led to a sugar shortage and price hike in Pa- kistan, costing consumers over PKR 100 billion. Sugar barons gained the economy per se, a lack of capital gen- years. Based on these criteria, from 2007 Statutory regulatory orders enabling the build-up of the eration, a lack of competitiveness, money to 2018, several industries appear to have sugar mafia maximum profits on both ends through these exports alone. circulating in few hands, and unfair market been potential cartels for at least four years There is also an immense difference in the amount of sugarcane crushed and the amount of sugar produced. In 2018–2019, 48.23 practices are decidedly problematic. These each: the cement, sugar (box 6.1), and mo- SRO Details million tonnes of sugarcane were crushed, while only 4.81 million phenomena benefit people who already tor industries (figure 6.6). The potential S.R.O.1074(I)/2006 Imposition of 5% Regulatory duty on import of sugar tonnes of sugar were produced. The Sugar Inquiry Commission’s au- have the money to invest in risky markets, cartelization which these findings suggest SRO 563(I)/2006 Fixation of Crystalline Sugar value at import stage at dit of sugar mills confirmed one reason for this significant gap: the while keeping potential investors away. warrants further investigation to confirm USD 0.44 per kg off-the-book purchase of sugarcane, that is, transactions that are not This harms the economy and increases in- this phenomenon. The NHDR 2020 also reported in accounting books. This adds to the cost of production SRO 1043 (I)/2014 Add 20 percent of import duty on Sugar come inequality. identifies the greatest number of industries and raises the ex-refinery price of sugar. Off-the-book sugar produc- with potential cartels in 2012, 2015, 2016, Source: Government of Pakistan 2019n. tion also leads to the official underreporting of millers’ profits. This Competition Commission of Pakistan and 2017. implies that the production and sale of off-the-book sugar does not The NHDR 2020’s findings indicate Although minimum support prices are meant to protect farmers contribute towards GDP, nor is any tax paid on it. As a result, price Six industries per year are The Competition Commission of Pakistan that six industries each year, on average, and encourage them to continue harvesting sugarcane, farmers’ rep- hikes skyrocket, harming consumers and the national economy at characterized by cartelization (CCP) is a specialized authority, estab- are characterized by potential cartelization resentatives complain that they never get to sell sugarcane at the large. and deceptive market prices, lished in 2007 to regulate monopolies and and deceptive market practices. The Com- minimum support price, and that they face delayed payments.** This The manipulation, exploitation, and malpractice exposed in the on average. misuse of legal measures has not only caused losses to the economy Sugar Industry Inquiry Report raise serious questions about the ensure competition and fair trade practic- petition Commission of Pakistan filed just 20 worth billions of Rupees, it has also spawned immense quantities of credibility and role of regulatory authorities, such as the Competition es. However, given the massive inequality four cases on average, indicating a poten- ‘black money’. This takes a heavy toll on consumers, who are forced Commission of Pakistan. of profits within the corporate sector, it FIGURE 6.6 may not be doing enough to stop monopo- Note: *Gilani and Javed 2009; **Business Recorder 2020; ***Government of Pakistan 2020g; information in this box draws on the Sugar Industry Inquiry Report, extracted from provincial governments and the Federal Board of Revenue. lization in the capital market. Number of times various industries were For instance, 10 percent of total market identified as potential cartels, (2007-2018) capitalization accrues to just two compa- tial worrisome lapse in its performance. merits and demerits, protectionism needs nies: the , and Food Products Overall, the Competition Commission to be implemented in a way that prevents the Oil & Gas Development Company Fuel & Energy has either been unable to detect, or has ig- the creation of cartelization. In Pakistan’s Limited. The top 10 companies in the sec- Chemical & Pharmaceuticals nored, unfair market practices, such as the case, powerful influencers have often used tors of fuel and energy, banking, manufac- Information, Comm. & Transport misuse of protectionism. Protectionism is protectionism to advance their agendas turing, and food, hold 27.4 percent of total Motor Vehicles, Trailers & Autoparts an economic policy intended to protect and earn higher profits. 21 market capitalization. As much as 50 per- Cement Industry domestic industries from undue pressure The Competition Commission of Pa- cent of market capitalization accrues to 47 Sugar Industry from competition with international mar- kistan does not appear to heed statutory companies out of a total of 551 enterpris- kets, through regulations like fixing im- regulatory orders (SROs) that award un- Source: UNDP calculations based multiple years of SBP data. es.22 These corporate giants earn higher port pricing and import quotas. With its targeted concessionary subsidies to various

148 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 149 industries, such as automobiles. They do NEPRA BOX 6.2 not do so in the framework of the poverty The circular debt monster: A self-inflicted punishment eradication agenda; rather, they are the re- The National Electric Power Regulato- sult of pressure from the powerful business Limited regulation by the National Electric Pow- FIGURE 6.7 23 ry Authority (NEPRA) is responsible for community. Protectionism and statuto- regulating power tariff rates, in order to er Regulatory Authority in terms of determining Payment flow in the energy sector ry regulatory orders have caused losses of ensure that prices remain competitive and competitive tariff rates has led to outstanding lia- bilities for power supply companies. In FY2007, the billions of Pakistani Rupees to the econo- do not favour or burden either investors or Government stepped in to support the power sec- GOP my, increased inflation, and allowed illegal 25 end-consumers. However, it has not been tor, leading to a rising ‘circular debt monster’ which (Subsidy payments on power money to be generated (see box 6.1 for a able to control the misuse of market power, Power consumers and POL products) Power consumers similar case). stood at PKR 453 billion by August 2018. HH/industries/strategic HH/industries/FATA/strategic encourage efficiency in the power sector, Pakistan’s power sector has a complex value consumers/KW&SB/govern- consumers/government or create a competitive market environ- chain of payment flows (figure 6.7). Circular debt ment departments departments Legal barriers arises when there are high electricity losses in the ment. In fact, it has indirectly contributed KESC to increasing inequality (box 6.2). distribution system, through theft and inefficiency, (Own generation and It is important to examine barriers or Inefficiencies in the power sector re- and power companies are unable to recover the purchase from PEPCO) Pepco Gencos/NTDC/Discos shortcomings in legal frameworks that may quire effective reform, the implementation total billed amount from consumers. As a result, prevent the Competition Commission of of reforms, and a shift in focus towards electricity distribution companies (DISCOs) in the IPPs Pakistan from acting effectively. supply chain cannot honour their payment obliga- OMCs e.g. Hubco cost-effective and less import-intensive en- WAPDA Hydel e.g. PSO The earliest law on competitive pricing ergy sources – that is, towards renewable tions to independent power producers (IPPs) and power generation companies (GENCOs). These are, in Pakistan, the Essential Commodities energy and hydropower. First and fore- in turn, unable to pay their dues to national or inter- Act (III), was passed in 1957, followed most, this will require the National Elec- Refineries: by the Monopolies and Restrictive Trade national fuel suppliers and banks. Gas distribution companies e.g. PARCO tric Power Regulatory Authority to move SNGPL/SSGPL Practices Ordinance (MRTPO) in 1970. This affects the supply chain, resulting in op- away from a cost-plus pricing approach and erational bottlenecks and creating a liquidity Exploration These laws did not apply to state-owned become aggressive in terms of pricing. This crunch for all of the entities involved. When the companies OGDCL etc. enterprises, and made no mention of con- will facilitate the full utilization of genera- supply chain system comes to a halt, the Govern- sumer protection. Modern competition tion capacity, thereby promoting econom- ment keeps the power sector running by literally Source: Based on information extracted from Faraz 2018. law appeared in Pakistan for the first time ic growth and breathing new life into the spoon-feeding it, and bearing the cost of this circu- with the Competition Ordinance of 2007. economy. Second, as surplus generation lar debt. The result is a huge dent in fiscal reserves. tric Power Regulatory Authority contributes to the inefficiency of power sector entities This remained a temporary piece of legisla- capacity exists, there is a need to adhere Circular debt becomes a punishment that the Gov- (DISCOs, GENCOS, and IPPs) in two ways: first by setting non-competitive tariff rates, tion until Parliament formally adopted the to the merit order of plants. Thus, old or ernment ultimately inflicts upon itself for not pro- and then by failing to regulate the market. 24 viding its power sector with an effective regulatory Competition Act of 2010. obsolete plants, and especially power gen- These are some examples of the National Electric Power Regulatory Authority’s inade- environment, which it needs to improve efficiency quate pricing strategy and inefficient regulation that puts upward pressure on electricity The Competition Act applies to all eration companies, should be closed, and The Competition Act applies undertakings, public or private, and all and productivity. production costs. Rising electricity prices and a lack of reliable access to electricity bur- to all undertakings, public or more efficient plants should be used more In essence, poor regulation by the National Elec- den consumers, hinder socio-economic development, and exacerbate inequality.26 actions with the potential to distort fair intensively. Independent power producers private, and all actions with trade practices in the market. It also en- the potential to distort fair established after the Power Policy of 1994 compasses consumer protection and gives have enjoyed very favourable terms for over trade practices. by the National Electric Power Regulatory the cost-plus regulation strategy. It uses the Competition Commission of Pakistan two decades, including a guaranteed rate of Authority in the presence of excess capac- this strategy to determine rates, assigning the authority to take concrete actions to return and a lifetime exemption from cor- ity. Moreover, monopolies in the form of pricing based on the general formula: prevent monopolies and investigate unfair porate income tax. The time has come for a DISCOs should not retain their exclusive trade practices. Article 33 gives the Com- new memorandum of understanding with rights in regional markets like Karachi. Cost-plus pricing = average production mission, during a proceeding or enquiry, these independent power producers. “the same powers as are vested in a civil court cost + fixed rate of return on equity Third, subsidies in the power tariff for Poor regulation of tariff rates for: (a) summoning and enforcing the atten- small domestic consumers need to be re- Such pricing encourages inefficiency. dance of any witness.” Article 34 gives the tained even if there is a general escalation The power sector’s tariff structure favours An entity that is reimbursed for its costs Commission “the power to enter and search in the tariff in 2020–2021. The electricity entities that invest in its value chain – and given a fixed rate of return based on premises”, while Article 35 grants it the subsidy for tube-wells should be reduced that is, in distribution, generation, pur- the cost of production is unlikely to be power of forcible entry. Despite the power and the tariff enhanced for large com- chase, and transmission – rather than the concerned about rising costs or improving NEPRA’s tariff-setting strategy vested in the Competition Commission, mercial consumers. Fourth, a competitive end-consumer (figure 6.8). Glitches in the efficiency. In fact, it will be more inclined does not work for a natural this regulatory authority remains relatively market should gradually be created for tariff-setting strategy of the National Elec- to report higher production costs, as the monopoly like the power sector inactive. electricity. Wheeling should be permitted tric Power Regulatory Authority include return (profit for the entity) is based on because it fuels inefficiency.

150 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 151 FIGURE 6.8 lation of circular debt. OGRA the world where HSD oil costs more per Second, tariff rate components include litre than motor spirit – 1.098 times more, Pakistan is one of the few Tariff components at various stages of power supply chain countries where high-speed a ‘capacity charge’ for power generation The Oil & Gas Regulatory Authority compared to a ratio of 0.643 in Sri Lanka, diesel oil costs more per litre companies. This capacity charge encour- (OGRA) Ordinance of 2002 established 0.726 in Bangladesh, and 0.895 in India. Generation Transmission Distribution (retail tariff) than motor spirit, even though ages investors to increase efficiency and an independent regulatory body to ensure The lower price of motor spirit is pri- A. Capacity transfer charge A. Power purchase price maintain a continuous supply of electric- marily due to its lower import duty of 3 the latter is used by high-end Capacity transfer charge that oil and gas tariff rates (prices) remain Land purchase; design, procurement 27 consumers. & construction; taxes & duties; fees Energy charge ity. Countries like Argentina, Chile, In- competitive, so that they do not favour or percent, compared to 11 percent for HSD and infrastructure; insurance; admin Variable O&M donesia, the Republic of Korea, and the oil. Moreover, the petroleum levy is some- & utilities; financing fee; debt Use of system charge unfairly burden investors or end-consum- servicing charges; return on equity United Kingdom also levy such charges. what higher on HSD oil. B. Distribution margin ers. NHDR 2020 fact-finding reveals that B. Energy charge O&M cost; salaries, wages and other However, in Pakistan’s case, power genera- The lower taxation of motor spirit is benefits; depreciation; other the Oil & Gas Regulatory Authority has Price of fuel; thermal efficiency operation expenses; return on rate tors use the capacity charge as a pretext not clearly a concession to the elite who own including of ageing and cleaning; not succeeded in creating a competitive base; other income output; heat rate; caloric value; and to improve their efficiency, and not to pro- market environment. As such, it has indi- motor cars, and to the middle class who partial loading C. Transmission and distribution duce to their full capacity. The State Bank drive motorcycles. The higher price of losses (allowed) rectly contributed to growing inequality. C. Variable operation and of Pakistan finds that power producers re- HSD oil implies higher transport costs maintenance (O&M) component A. Use of system charge D. Prior year adjustments ceive capacity charge payments even if they Skewed petroleum pricing: Harming for the movement of goods which are con- End-consumer tariff (ABCD) do not sell a single unit on the national the poor sumed more by the poorer segments of the 28 Source: Government of Pakistan 2018h. grid. Once more, it is the end-consumer population. The taxation policy on petro- who bears the increased costs and electric- The end-consumer price of petroleum leum products needs to change fundamen- ity shortage. products is based on cost-plus pricing sim- tally in order to bridge this inequality gap. this cost. The higher the cost, the higher ilar to the pricing used by the National In terms of the Oil & Gas Regulatory the returns. Rather than affecting power Decreasing subsidy for low-income Electric Power Regulatory Authority. Box Authority’s performance, it is important to producers, higher costs are passed on to consumers 6.3 describes how petroleum products are highlight three major points. First, the pet- the end-consumer. priced, while the text below highlights the rol levy and general sales tax on all petro- Pakistan’s power sector is characterized The good news is that tariff rates are pro- ways in which these components are not leum products may be a useful policy mea- by immense transmission and distribution gressive in nature and vary by units of con- working for Pakistan’s oil sector. sure for certain luxury items, but for others losses, as noted above. Figure 6.9 shows sumption. Those who consume more units The taxation policy for petroleum it leads to overpricing. The petrol levy on the gap between units of electricity pur- pay more, compared to those who consume products determines who bears the bur- diesel, of PKR 20 per litre, is higher than chased and sold. The overall combined less. This difference in rates is maintained den of these taxes. The taxation of the two for motor spirit, at PKR 15 per litre. The loss for electricity distribution companies by the subsidies that the Government pro- major petroleum products, motor spirit general sales tax of 17 percent is the same was 19 percent in 2017–2018, lower than vides to electricity distribution companies and high-speed diesel (HSD) oil, is a ma- for all petroleum products.30 After 2014, 28 percent in 2005–2006. Significant loss- for low-income households, which con- jor source of revenue for the Federal Gov- this has caused HSD oil prices to rise be- es reflect a lack of investment in replacing sume fewer units of electricity. ernment. In 2018–2019, these products yond those of the motor oil (petrol) used and modernizing the power distribution FIGURE 6.9 A major share (85 percent) of federal generated combined revenue of PKR 376 in light vehicles and motorcycles (figure system, as expanding electricity generation subsidies go to the power sector, with a billion. 6.10).31 This has impacted the industrial Losses in the power sector, capacity has been the sector’s leading pri- view to benefiting low-income end-con- Pakistan is one of the few countries in sector and domestic users, especially those (2005-2018) ority. sumers. This includes almost 77 percent The power sector’s other losses relate to to the Water and Power Development Au- BOX 6.3 Distribution losses the under-recovery of billing. This was esti- % Billing losses thority (WAPDA) and the Pakistan Elec- OGRA pricing formula for petroleum products 45 mated at 12 percent in 2017–2018, slight- tric Power Company (PEPCO), as well as 40 11 ly more than 11 percent in 2005–2006. Ex-depot price = ex-refinery price + IFEM + distribution margin + petrol levy + GST 35 9 percent to Karachi Electric (K-Electric). (end-consumer price) This amounts to the non-payment of bills 30 12 12 However, instead of increasing subsidies Ex-depot price: The price charged to the end-consumer. Distribution margin: The profit per litre earned by oil marketing com- 25 28 worth PKR 170 billion in 2017–2018. to offset the adverse impact of inflation on panies (OMCs) on end petroleum product sales to both industrial and 20 Together, losses from under-recovery, and 20 19 the poorest segments of society, successive

Total Losses Ex-refinery price: The price based on the import landing price, the retail clients. 15 from transmission and distribution, in 10 governments have slashed this subsidy – by price of oil purchases, and operating expenses. 5 2017-2018 account for a system loss of 31 46 percent for WAPDA/PEPCO consum- Petroleum levy (PL) or petroleum development levy (PDL): The flat 0 percent. These losses fundamentally affect ers, and by 67 percent for K-Electric con- Inland freight equalization margin (IFEM): The charge used to create rate tax imposed by the Government of Pakistan on infrastructure de- the economic viability of the power sector. sumers.29 The subsidy provided to Baloch- a freight pool that equalizes the cost of transporting petroleum prod- velopment by statutory authorities. It is a levy on the import duty paid, 2013-14 2017-18 2005-06 They also have an impact on consumers, as istan for agricultural tube-wells dropped ucts from Pakistan’s 22 depot locations at the most economical and in addition to the sales tax, leading to double taxation. Source: Data extracted from multiple years losses are passed on to them in the form of most sharply, by 90 percent, between 2010 efficient rates. General sales tax (GST): The flat tax rate on petroleum product sales. of State of Industry Report: NEPRA. higher tariffs to prevent the rapid accumu- and 2019.

152 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 153 FIGURE 6.10 ‘deemed duty’ tax. This is meant to sup- tions performed by a Director General of in fostering equality. The 18th Amend- port capital expenditure on upgrading and Inspections. ment to Pakistan’s Constitution in 2010 Prices of petroleum products, (2018) expanding oil refineries. It continues to be includes Article 19-A, which affirms that: levied even when refineries do not use it “Every citizen shall have the right to have 1 June 2014 for its intended purpose. Thus, the costs Transparency and accountability access to information in all matters of public Motor Oil 1 July 2018 are passed on to consumers in ex-refinery importance subject to regulation and reason- prices (box 6.3).34 Worldwide, rising demand for transparen- able restrictions imposed by the law.” Kerosene Like power, the oil and gas sectors have cy and accountability is pushing govern- Following up on this constitutional ineffective pricing mechanisms and poor ments to address these critical aspects of amendment, the ap- High Speed regulation. It is safe to conclude that, as good governance. This, in turn, is central proved the Right of Access to Information Diesel long as these pricing methodologies pre- for effective state affairs and citizen-centric Act in October 2017, overriding previous vail, natural monopolies will continue decision-making. Without these measures, legislation in this sphere.39 Pakistan’s first Light Diesel Oil to misuse their market power and charge there can be no trust between a govern- freedom of information law was passed high prices for petroleum products. This ment (authority) and those it governs (cit- in 2002, as a Presidential Ordinance un- PKR 0 20 40 60 80 100 120 burdens low-income consumers most, and izens). Their absence results in corruption, der the military regime of General Pervez Source: HDIP 2018. worsens income inequality. social instability, and an environment that Musharraf. Subsequently, each province hampers economic growth and equality.35 passed its own right to information act from poorer backgrounds.32 Regulatory authorities: The impact of Pakistan has initiated various policy through Provincial Assemblies.40 Article Heavy vehicles that transport perish- two Ps actions to enhance transparency and ac- 19-A of the federal Act empowers citizens able goods use HSD as fuel. When the die- countability, starting with institutions to request information from the Govern- sel price rises, so does the cost of transport- Regulatory authorities in Pakistan have a like the National Accountability Bureau ment and public entities. It also mandates 36 41 Regulatory authorities in ing food items to the market. In turn, food hand in two key drivers of inequality: Pow- (NAB), created in 1999. In 2016, Paki- each public body to maintain records. Pakistan have a hand in two inflation increases, impacting low-income er and Policy, in ways that impair econom- stan joined the Open Government Part- However, it does not bind these bodies to drivers of inequality, Power communities. Another example is kerosene ic growth and fuel inequality. For instance, nership (OGP), which provides a platform report annually on what they have done to 42 and Policy, in ways that impair oil, a basic fuel source used by low-income ineffective Policy measures fail to regu- for states to develop coordinated multilat- implement the law. growth and fuel inequality. consumers for everyday cooking. Applying late natural monopolies and cartelization, eral and bilateral efforts to promote and The Right to Information Act enables the same general sales tax on kerosene as while excessive abuse of Power by natural uphold transparency, accountability, and the general public to obtain information on other petroleum products puts a huge monopolies or influential entities prevents responsiveness. within a specified period of time through dent in the pockets of low-income com- regulatory authorities from controlling After a process of rigorous consulta- a designated official: an Information Com- munities. In the 1970s, a subsidy existed monopolies. In these ways, ineffective Pol- tions, Pakistan’s Economic Affairs Divi- missioner. Empowered like a civil court, on kerosene oil. Similarly, there is need to icy and excessive Power ensure that money sion (EAD) finalized a National Action an Information Commissioner can sum- reduce the tax on compressed natural gas and resources circulate between a few rich Plan (NAP) in 2017 that includes nation- mon witnesses and enforce attendance, in (CNG) to benefit lower-income commu- hands, ultimately compounding income al and provincial OGP commitments.37 addition to compelling the submission of nities. inequality. These challenges are not un- However, the Cabinet has yet to approve oral or written evidence under oath. The Second, the Oil & Gas Regulatory Au- solvable, but there is a need for more polit- the National Action Plan for submission to Commissioner can also impose financial thority has not effectively regulated the ical will to resolve them. the OGP. To adopt international best prac- penalties on officials who wilfully create industry’s code of conduct or standards. One potential solution to strengthen tices in transparency and to combat cor- obstacles to the dissemination of informa- For instance, reports suggest that many regulatory authorities would be to make all ruption, Pakistan is also looking to join the tion, equivalent to one day’s or 100 days’ oil marketing companies take undue ad- regulatory authorities autonomous entities Organisation for Economic Co-operation salary. However, the independence of vantage of the tariff ’s inland freight equal- under their respective inclusive boards, and Development’s (OECD) Convention Information Commissioners is not suffi- ization margin (IFEM) component (box such that their members are selected by the on Combating Bribery and its Multilateral ciently protected.43 Moreover, under their 6.3).33 Charging deceptively high prices Senate with equal representation from all Convention on Mutual Administrative As- respective provincial Right to Information for freight rates is a longstanding practice provinces, in a way that prevents prior con- sistance in Tax Matters.38 Acts of 2013, only Khyber Pakhtunkhwa in the industry, whereby companies cite flicts of interest. These regulatory bodies and Punjab have established Information long distances even when products are would then report only to Parliament. To Right of Access to Information Act Commissions.44 being transferred nearby. Higher costs are keep unfair market practices in check, the 2017 The Status of the Right to Information reflected in higher prices for the end-con- Competition Act of 2010 can be amend- in Pakistan Report 201945 finds that feder- sumer. ed to establish consumer courts under the Information is power. The right to infor- al ministries are not proactive in disclosing Third, since 2002, the Oil & Gas Regu- jurisdiction of the Competition Commis- mation is a fundamental human right that information that is of public interest, such latory Authority has imposed a 7.5 percent sion of Pakistan, with prosecution func- helps people to develop Power, a key factor as information on budgets and expendi-

154 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 155 tures, information on officers’ perks and ability. On the other hand, inequality may more – such studies need to be properly in- FIGURE 6.11 privileges, inquiry reports, and details of promote corrupt behaviour as privileged corporated when conceiving of a project.49 the decision-making process.46 Moreover, vested interests engage in illicit activities Discrepancies and poor planning increase Asia Pacific-South Asia Corruption Perception Index ranking, (2012-2018) the types of information that citizens can to further their own interests, through opportunity costs, while making room for Top two Asia Pacific countries South Asian countries COUNTRY NAME / SCORE 47 access are limited. Section 5 of the Act deregulation, the transfer of public assets corruption in order to justify expenditures. Rank Rank Rank concerns the publication and availability at lower-than-market prices, profitable li- The situation worsens if there are time-re- 1 NEW ZEALAND / 87 1 NEW ZEALAND / 89 1 NEW ZEALAND / 87 SINGAPORE / 85 of records. censes, permits, or public contracts. lated or cost overruns. SINGAPORE / 90 SINGAPORE / 84 Many federal ministries appear to be Transparency International’s Corrup- Since social sector projects have a direct 10 10 10 Many federal ministries are unaware of the Act, or intentionally do tion Perception Index (CPI) for Asia and impact on the population, the opportunity

not proactive in disclosing not disclose information. At the provincial the Pacific identifies considerable public cost of spending on mega-projects must be 20 20 20 information of public interest, level, information disclosure varies great- sector corruption in the region (figure seen through the lens of social, economic, BHUTAN / 68 despite the requirements of the ly. Unlike other provinces, Balochistan’s 6.11). More than half of the countries stud- and environmental impacts. This is vital BHUTAN / 67 30 30 30 Right of Access to Information Freedom of Information Act 2005 does ied score less than 50 on the index, with an to reduce impacts that increase inequality, BHUTAN / 63 Act 2017. not even require basic information to be average score of 44 on a scale of 0 to 100, such as ‘mega corruption’. The proper jus- shared on government websites. where 100 means ‘clean’ systems and 0 sig- tification of projects, and proper planning 40 40 40 The way that some government de- nifies deep-rooted, systemic corruption.48 for projects and their associated costs, re- partments handle complaints belies their The fight against corruption is virtual- duces the likelihood of corruption at var- 50 50 50 The fight against corruption is claims of transparency. Discretionary ly at a standstill in the Asia-Pacific region ious levels.

virtually at a standstill due to powers in the hands of designated officials due to weak democratic institutions, limit- At the other end of the spectrum is retail 60 60 60 weak democratic institutions, leads to most complaints fizzling out. Giv- ed laws, and a lack of enforcement mecha- corruption – that is, corruption on-the- limited laws, and a lack of en the blockages, following the right to nisms. In 2018, Pakistan ranked 117th of ground which most directly impacts less 70 70 70 enforcement mechanisms. information process through to its conclu- 180 countries on the Corruption Percep- privileged social groups. One example is

sion generally requires more commitment, tion Index. The country’s score of 33 marks corruption within the police force, which INDIA SRI LANKA / 40 / 41 time investment, and persistence than the an improvement of one point compared to involves treating the poor and underpriv- 80 80 INDIA / 40 80 average citizen can afford. Furthermore, its performance in 2017. ileged very differently from the privileged. officials often use areas that are subject to The wealthy and well-connected are the 90 90 90 SRI LANKA / 38 SRI LANKA / 38 interpretation – such as finance, the econ- biggest beneficiaries of corruption, which National Accountability Bureau INDIA / 36

omy, and security – as a pretext to avoid undermines government capacity to dis- 100 100 100 disclosing information. Therefore, imple- tribute resources equitably. Weak gover- The National Accountability Ordinance menting the Right to Information Act re- nance is also responsible for corruption, in of 1999 set up the National Accountabili- 110 110 110 mains a challenge. that it permits vested interests to manipu- ty Bureau to eliminate corruption through MALDIVES / 33

late government policies, institutions, and awareness raising, prevention, and enforce- PAKISTAN / 32 PAKISTAN / 33 Corruption mechanisms, gaining benefits for them- ment.50 According to its website, as of July 120 120 120 NEPAL / 31 NEPAL / 31 selves at the expense of society. Wealth 2020, the National Accountability Bureau MALDIVES / 31 Gaps in transparency and accountabili- inequality is further exacerbated by biased has recovered over PKR 468.368 billion 130 130 130 ty lead to corruption, as the vacuum they tax systems and flawed accountability. through bank loans, collaboration with create leaves room for the privileged and the State Bank of Pakistan, indirect recov- NEPAL / 27 140 PAKISTAN / 27 140 140 those in positions of authority to break or Mega corruption versus retail eries, rescheduling and restructuring loans, BANGLADESH / 26 BANGLADESH / 28 mould the law to serve their own interests. corruption and court fines. While 57 percent of pros- BANGLADESH / 26 Without strong governance institutions, ecutions and 91 percent of inquiries have 150 150 150 corruption goes unchecked. Successive political regimes have had dif- been decided, some 179 inquiries into ‘me- The question is whether there is any ferent priorities about Public Sector De- ga-cases’ are underway.51 160 160 160 correlation between corruption and in- velopment Programmes at both the fed- As commendable as these steps are, per- equality. In general, corruption alone is eral and provincial levels. These priorities ceived bias in the selection of cases must be 170 170 170 AFGHANISTAN / 16 not responsible for growing inequality. It tend to revolve around social sectors or addressed to move towards full transpar- AFGHANISTAN / 8 is a two-way relationship. Corruption has infrastructure, such roads and highways ency. The accountability process can fur- 176 AFGHANISTAN / 15 180 180 the potential to increase inequality by af- (see chapter 5). Although the public sec- ther be strengthened if the federal Right to fecting income distribution, public policy, tor project appraisal and approval process Information Act is amended to merge and 2012 2017 2018 economic development priorities, expendi- requires pre-feasibility studies for me- empower the Wafaqi Mohtasib (Ombuds- Note: For 2012, ranking is from 176 countries and for 2017 and 2018 ranking is from 180 countries, respectively. ture, information disclosure, and account- ga-projects – worth PKR 50 million or man) to act as a Chief Information Com- Source: Based on multiple years of Transparency International Corruption Perception Index.

156 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 157 the opposition, it draws its membership missioner, and to create a high-powered Budget statement and charged Public Finance Management Act 2019 Federal Information Commission. The from all political parties and is mandated expenditures to examine the report submitted by the development and implementation of social Pakistan’s Parliament, at the request of the accountability tools, such as a Citizen Re- Auditor General to the President of Paki- Government financial institutions, like the Ministry of Finance, passed the Public Fi- stan and Parliament. port Card, can also help to generate feed- Controller General of Accounts, have im- nance Management Act in 2019 as part of back on public service delivery. However, the Public Accounts Com- proved the reporting and auditing of pub- an agreement with the International Mon- mittee has been unable to perform its Government financial lic accounts. However, loopholes facilitate etary Fund. Filling a gap that has existed watchdog role of countering institutional institutions, like the Controller challenges, such as withholding informa- since the Constitution was adopted in Public financial management corruption in government departments, General of Accounts, have tion and not providing full disclosure in 1973, the Act introduces provisions that among functionaries, and within state- improved the reporting and critical areas. Privilege comes into play in govern the procedure and scope of the owned enterprises. It is meant to be consti- An effective public financial management auditing of public accounts. the case of charged expenditures, exempt- budgetary process, including the roles of tuted after a new government takes office, system is necessary to improve governance. ing certain privileged offices from budget- legislature and the executive. It includes but political disputes tend to delay its for- Paragraph 10 of the Pakistan (Audit and 53 ary audits or approvals. Such expenses are rules to be applied whenever budgetary mation. The current committee is not en- Accounts) Order of 1973 forms the ba- The Public Accounts Committee charged to the Federal Consolidated Fund measures exceed prescribed limits. tirely functional; thus, it does not review sis of the country’s financial management has been unable to perform its and “may be discussed in, but shall not be With the aim of enacting fiscal disci- audit reports within the specified period. system. It requires the Auditor General to watchdog role of countering submitted to the vote of, the National As- pline and efficiently utilizing funds, the Its inability to develop good governance, prepare an annual summary of federal and 54 institutional corruption. sembly.” Public Finance Management Act ends discipline public accounts, and penal- provincial accounts.52These include two This privilege is so apparent that some in-practice systems. It curtails tax ize corruption affects the trust of foreign parts: consolidated funds and public ac- charged expenditures under Schedule I – expenditure, limits supplementary grants, investors and reduces the Government’s counts. Between 1996 and 2014, the Gov- a summary of grants and appropriations requires the preparation of a budget man- credibility. ernment of Pakistan and the World Bank segregated into charged and voted expen- ual, and restricts the movement of public While the Public Finance Management introduced various reforms under Projects diture – accounted for a staggering 91 money into scheduled banks. Act of 2019 is a step away from fiscal feder- to Improve Financial Reporting and Au- percent of the total expenditure of various Section 28 of the Public Finance Man- alism, the real challenge lies in framing and diting (PIFRA). 55 institutions in 2019–2020. agement Act is a key amendment, which implementing public finances to enhance introduces the positions of Chief Finance transparency and accountability. The new and Accounts Officers to assist Principal SPECIAL CONTRIBUTION Dr. Ali Cheema budgetary process can only succeed if it is Accounting Officers in financial manage- accepted and committed to, at both the in- How important is trust in the state when it comes to economic growth? ment. They replace the earlier positions of stitutional and political levels. advisors, whose portfolios included coun- To address inequalities induced by a Nobel Laureate Kenneth Arrow (1972)* posited that economic back- military forces (83.4 percent).† selling roles in various ministries. Now weak system of transparency in public ex- wardness in the world can be explained by a lack of trust. Subse- Can citizens’ endemic lack of trust in public institutions be over- authorized to control allocations, Federal penditure, there is a need to focus on es- quent work builds on this insight by focusing on two dimensions come? Recent evidence from Pakistan shows that this is possible. Secretaries no longer have to obtain the tablishing a results-based budgeting sys- of trust: social trust or the degree of trust between citizens**, and Delivering state services effectively appears to be a critical pathway Auditor General of Pakistan’s approval tem, as approved in the Public Finance institutional trust or citizens’ perceptions about the legitimacy, fair- not only to strengthen citizens’ trust, but also to build state legit- for each expense. In addition, rather than Management Act. For greater transparen- ness, and efficiency of institutions.*** This shows that both dimen- imacy by eroding the dependence on non-state actors. Embedding an input-driven approach, these officials cy, the National Assembly and Provincial sions of trust have a strong impact on economic prosperity and on community-based deliberative forums into public delivery systems are now required to develop a three-year state-building.**** appears to substantially increase citizens’ trust in state institutions.‡ Assemblies should be required to submit performance-based budget with various supplementary grants above a certain level, The problem of low institutional trust is particularly acute in Paki- Institutionalizing ‘benefit taxation’, which ties the delivery of services deliverables that are monitored through stan’s civilian state institutions and poses a fundamental challenge to taxpayer demands at the local level, has the potential to create a or in excess of 15 percent of their budget- quarterly reports.56 Independent audits or for the country’s development. In Wave 6 (2010–2014) of the World tax culture by increasing trust on account of the benefits of taxation ed amounts, for approval with a time limit investigations are required for cost or time Values Survey, a minority of Pakistani respondents said that they re- becoming visible to taxpayers.§ prior to the expenditures being incurred. posed “A great deal” or “Quite a lot” of trust in the police (20 percent), These pathways have the potential to spur development by en- overruns. Similarly, charged expenditures can be political parties (29.9 percent), civil services (37.3 percent), and abling the state to provide security, education, and health care for linked to a ceiling of growth, normally not courts (45.8 percent). However, these numbers pale in comparison its citizenry. Auditing: The Public Accounts Com- more than the prevailing rate of inflation. to the shares of trust in religious institutions (97.1 percent) and the mittee The pressure on public expenditure can further be reduced by abolishing discre- The Public Accounts Committee (PAC) is tionary funds. Dr. Ali Cheema is a Senior Research Fellow at the Institute of Development and Economic Alternatives (IDEAS) and Associate Professor of Economics at one of the National Assembly’s statutory the Lahore University of Management Sciences (LUMS). There is a risk that regional inequality Notes: *Arrow 1972; **Gambetta 1988; Hardin 2002; ***Rothstein and Stolle 2008; ****Knack and Keefer 1997; Guiso and others 2004; Acemoglu and organs, constituted at both the federal and 57 will increase between jurisdictions unless others 2020; †Inglehart and others 2014; ‡Cheema and others 2020; §Khwaja and others 2020. provincial levels. Headed by the leader of a policy of fiscal equalization is imple-

158 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 159 mented. Article 140(a) of the 18th Con- with law is the inalienable right of every FIGURE 6.12 the Government is able to enforce the rule FIGURE 6.13 stitutional Amendment states that each citizen. Wherever he may be, and of ev- of law, but few trust government officials province “shall by law, establish a local Pakistan’s ranking in dimensions of the Rule not to be corrupt. Thus, despite trusting No substantial change in ery other person for the time being with Pakistan's Rule of Law Index of Law Index is low regionally and globally, the Government’s power to maintain the government system and devolve political, in Pakistan. (2019) over time, (2015-2019) administrative and financial responsibility rule of law, the majority of Pakistanis do and authority to elected representatives of Article 10 (a): For the determination of Constraints on government powers / 0.52 Factor score not trust the formal justice system to pro- 0.7 Absence of corruption / 0.32 local governments.” For accountability at vide them with justice, largely due to per- 0.6 his civil rights and obligations or in any Open government / 0.45 all levels of government, stronger linkages criminal charge against him a person Fundamental rights / 0.38 ceptions of corruption. This trust deficit 0.5 between taxation and benefits need to be Order and security / 0.36 regarding the legitimacy of the judicial sys- 0.38 0.38 0.39 0.39 shall be entitled to a fair trial and due 0.4 ensured, as does greater tax compliance. Regulatory enforcement / 0.38 tem and its key players – lawyers, judges, process. Civil justice / 0.38 0.3 Permitting cities with metropolitan status Criminal justice / 0.35 and the police, among others –means that 0.2 to exercise fiscal powers vis-à-vis property 1 1 1 citizens often refrain from approaching the These articles reinforce citizens’ fun- 0.1 taxation and non-tax revenues will also be damental rights to inexpensive and expe- formal justice system. Below, we explore important. Granting more power over tax- 2 other reasons that keep people from access- 0 ditious justice, a fair trial, and equality 10 ation to local governments – in order to before the law without any kind of dis- ing the justice system. 2015 2016 2018 2019 3 broaden their tax bases to include agricul- crimination. Despite its importance, chal- 10 Source: World Justice Project 2019. ture, irrigation, and property – would pro- 20 Justice delayed is justice denied lenges within Pakistan’s rule of law system 4 vide them with the financial resources they prevent it from providing equal access to need to better perform their functions. 30 Beyond equal access to justice, there is a justice for all. 5 For public sector organizations to be Limited data exist on matters related to need for accessible and timely justice for more accountable regarding the utilization 20 all. In Pakistan, court cases tend to linger the rule of law in Pakistan. Nevertheless, 40 of public funds, there is a need to reinforce an inability to access legal services appears 6 across generations. Even minor cases, such Regional rank the roles of Parliament’s Public Accounts to particularly affect low-income and dis- as cases of tenants being evicted for not 50 Committee and the Auditor General’s advantaged groups. Their already limited paying their rent, can take up to a year or Office, so that these entities can perform more.60 economic resources prevent from seeking 30 audit functions in a timely manner. Paki- out the enforcement of their rights. While Lower middle-income 60 Pakistan has a huge backlog of pending stan’s public debt is currently more than 84 the rule of law exists in theory, a lack of countries rank court cases, almost 1.747 million in 2019 percent of GDP.58 To reduce this debt to (table 6.3).61 As just over 3,000 judges are access to justice exacerbates inequality in 70 the more manageable level of 60 percent of practice. responsible for handling these cases, there 62 GDP, public organizations should submit The World Justice Project’s (WJP) 2019 is a huge caseload per judge. Available 80 a detailed five-year plan of action to Parlia- Report ranks Pakistan very low in terms of data show that cases filed by expatriate Pa- ment, as mandated by the Fiscal Responsi- perceptions about the rule of law and its kistanis, many related to the illegal posses- Pakistan has a huge backlog bility and Debt Limitation Act. This will various dimensions. It accords the country 90 sion of property, are disposed of at a much of pending court cases, almost help the Government to divert resources a score of 0.39 on an index ranging from 1 faster rate than those filed by resident Pa- 1.747 million in 2019. to pro-poor social and development initia- to 0. Here, 1 is the highest possible score, 100 kistanis. Most cases filed by expatriate Pa- tives. reflecting strong adherence to the rule of law, and 0 is the lowest score, indicating 110 TABLE 6.3 limited adherence (figure 6.12). Rule of law The World Justice Project’s Rule of Law Court cases pile up to more than 1.7 million, (2019) 120 Index ranks Pakistan 117th of 126 coun- The rule of law refers to the authority and tries.59 Although its performance improved 126 (as of 31 August 2019) influence of the law in a society. It involves slightly between 2015 and 2019, it remains Global rank Pending Institution Disposal Balance

four universal principles: accountability, among the 10 countries at the bottom of Note: The low-middle income ranking is out of 30 countries, and the High courts 311,191 10,353 7,648 313,899 just laws, open government, and accessible global ranking is out of 126 countries. the index’s global ranking (figure 6.13). District courts 1,436,580 114,440 108,946 1,441,062 and impartial dispute resolution. The im- The index reveals that perceptions of the Source: World Justice Project 2019. portance of the rule of law is enshrined in rule of law in Pakistan are quite low com- Supreme Court 41,239 1,318 1,043 41,545 Pakistan’s Constitution: pared to its neighbours in the region – the Fewer than 50 percent of those sur- Federal Shariat Court 191 5 4 192 country only scores higher than Afghani- veyed in Pakistan by the Rule of Law Index Grand total 1,747,962 126,116 117,641 1,796,698 Article 4 (1): To enjoy the protection of stan, and considerably lower than other expressed trust in most dimensions of the Source: Law & Justice Commission of Pakistan 2019. law and to be treated in accordance low and middle-income countries. rule of law. Most respondents believe that

160 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 161 kistanis between June 2017 and May 2018 The World Justice Project Report 2017 The inefficient enforcement of prop- FIGURE 6.14 – 1,128 of 1,850 cases – were disposed of finds that only a few urban Pakistanis who erty rights and contracts adversely affects within a year. The rest are ongoing. 63 experienced legal problems in the past two business communities. Small business Incidence by type of legal problems, (2019) Whether delayed justice is due to re- years were able to obtain legal help, pri- owners are especially hard hit given their source gaps, or to inefficiency, is an issue marily through the support of informal limited economic resources. Land Employment that needs to be explored further. sources like friends, relatives, or religious Housing and community leaders. Access to justice is Societal divides Education A luxury for the rich likely to be even worse in rural areas. Al- Money & debt though more than 60 percent of Pakistan’s The World Justice Project’s 2019 Report Law enforcement Most of Pakistan’s population cannot population lives in rural settings, access to finds that most legal problems in Pakistan Accidental illness & injury afford justice. Costs are a major imped- services is poor. Thus, in all probability, in- are related to community and natural re- Family Citizenship & ID iment to accessing the formal justice sys- formation about legal institutions or access sources, followed by consumer issues, pub- Public services tem. They are particularly problematic for to legal recourses must be extremely limit- lic services, and citizenship and identifi- Consumer low-income and marginalized communi- ed for rural residents. cation. Lower and middle-income groups Community & natural resources ties. Costs include the expenses related to Although Pakistan has a two-pronged bear the brunt of these problems (figure % 0 10 20 30 40 50 60 filing a case, hiring a lawyer, miscellaneous structure for free public legal aid, it is 6.14) and, as discussed above, they most costs like paperwork and, often, travel and not well-implemented. Since 1999, the clearly lack equitable access to the rule of Source: World Justice Project 2019. lodging expenses. Technically, the rates for Pakistan Bar Council has run Legal Aid law. filing a court case are minimal, ranging Committees at the federal, provincial, and Civil and Political Rights (ICCPR), and from PKR 17 to 200, while criminal cas- district levels, alongside District Legal Em- Alternative means of justice the Convention on the Elimination of all The World Justice Project’s 2019 es are officially free of charge.64 Yet with powerment Committees (DLECs) since Forms of Discrimination Against Women Report finds that most legal no regulatory mechanism to ensure these 2011. The lack of a strong formal rule of law sys- (CEDAW). The judgement also addresses problems in Pakistan are related rates, legal expenses can be astronomical in These structures struggle with a lack of tem in Pakistan has enabled traditional, the plight of women and the marginalized. to community and natural practice.65 ownership, low capacity, ineffective imple- informal justice systems to flourish, such It allows these informal justice systems “to resources. Moreover, there is no mechanism in Pa- mentation, and weak accountability mech- as jirgas, panchayat, faislo or sulh68 , trib- operate within the permissible limits of the kistan to regulate lawyers’ fees, which vary anisms, making them far from effective. A al gatherings, and feudal councils. Nearly law to the extent of acting as arbitration, by case, individual lawyers, and the expect- 2012 research report, entitled Voices of the three-quarters (over 70 percent) of re- mediation, negotiation or reconciliation fo- ed length of a case. The starting cost may Unheard: Legal Empowerment of the Poor spondents to a 2015 study considered in- rums between parties involved in a civil dis- be PKR 20,000, with no upper limit. Addi- in Pakistan, finds that a very small per- formal justice systems faster and more af- pute who willingly consent to the same” but tional costs mount up with travel and lodg- centage of people have access to free legal fordable.69 Yet these systems are grounded declares that their decisions on civil and ing expenses for attending court hearings, aid: 3 percent in Punjab, 4 percent in Gil- in centuries-old traditions and patriarchal criminal matters are “illegal and against the alongside miscellaneous fees for paper- git-Baltistan, 5 percent in Khyber Pakh- values; as such, they do not follow inter- spirit of the Constitution.”70 work, with no transparent billing mecha- tunkhwa, 16 percent in Balochistan, and national human and legal rights standards. The prevalence of informal justice nism in place. All of these costs discourage 25 percent in Sindh.67 For instance, they uphold practices like makes it especially critical to improve ac- potential litigants from filing cases. vani or baad, which involve marrying off cess to the formal justice system. Based In 2019, Pakistan introduced innova- Property rights and contracts a young girl to end a dispute, often a mur- on international human and legal rights tive, affordable ways of accessing the for- der, and karo kari, killing in the name of norms, formal justice systems are central mal justice system, such as e-courts (online The timely resolution of legal matters re- so-called ‘honour’. to maintaining peace, enabling inclusive courts) and mobile courts. How successful lated to property and the enforcement of Jirgas and panchayat operate according growth, and upholding the fundamental these will be remains to be seen.66 contracts can help to foster investment, to the whims of their members; they can rights of all people. Recent attempts to trust, and productivity in the economy. choose to adopt procedures even if these fast-track access to justice include laws like Legal institutions and legal aid The Ease of Doing Business Report 2020 are detrimental to any party. In this respect, the Legal Aid and Justice Authority Ordi- ranks Pakistan 151st of 190 countries in the Supreme Court of Pakistan issued a nance of 2019, the Enforcement of Wom- The NHDR 2020’s focus group discussions terms of registering property rights, a rank- landmark judgement in 2019, which de- en’s Property Rights Ordinance of 2019, with marginalized communities reveal a ing that has worsened over time; in 2010, clared that jirgas and panchayat are viola- and the Letter of Administration and Suc- severe lack of information about legal aid. the country ranked 119th of 183 countries. tions of Articles 4, 8, 10-A, 25, and 175(3) cession Certificates Ordinance of 2019. When participants were asked how they However, there has been a slight improve- of the Constitution, as well as of Pakistan’s All of these are steps in the right direction, would seek legal assistance if they needed ment in its ranking in terms of enforcing international commitments under the although their implementation and impact it, a common response was: “We wouldn’t contracts, where it ranks 156th, up from Universal Declaration of Human Rights remain to be seen. even know where to begin to seek legal help.” 158th in 2010. (UNDR), the International Covenant on Concrete measures are needed to off-

162 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 163 set the imbalance in formal access to jus- change and its impact.” vere and frequent flooding, particularly in ric tonnes, reflecting a rising trend. While tice, which is so skewed towards the rich Pakistan’s vulnerability to climate 2010, 2011, 2014, 2015, and 2019. Severe it fares better than India (1.94 metric and powerful, and so inaccessible for the change is increasing at an alarming rate. floods in 2010 claimed nearly 2,000 hu- tonnes), it is considerably worse than Ban- poor and marginalized, that it creates a Out of 100 countries, the Global Climate man lives, affected 20 million people, and gladesh (0.56 metric tonnes).86 social divide which exacerbates inequality. Risk Index ranks Pakistan as the fifth most caused US$16 billion worth of damage.79 Household air pollution also impacts Access to Pakistan’s formal To strengthen the rule of law, a high-level vulnerable country to climate change. Be- Flooding lasted for up to six months in the environment, alongside people’s live- justice system is so skewed legal commission should be established to tween 1999 and 2018, climate disasters some areas, affecting 46 districts across all lihoods and health, especially of children. towards the rich and powerful examine existing laws and their implemen- cost Pakistan 9,989 lives, alongside US$3.8 four provinces.80 Low-income households More than half (51.17 percent) of Paki- that it fails to reach low-income tation mechanisms. To reduce court delays, billion in purchasing power parity. were hardest hit; an estimated 88 percent stan’s households used wood/sticks as fuel and disadvantaged groups. the number of judges needs to be expand- Natural disasters, rising temperatures, of flood-affected households had an aver- for cooking in 2014–2015; this was more ed at the Session Court and High Court depleting energy resources, worsening air age monthly income of under PKR 10,000. common in rural areas (73.37 percent) than levels. It is equally essential to strengthen quality, airborne and waterborne diseases, They lost half or more of their earnings in urban centres (13.30 percent).87 Differ- the enforcement of contracts, eliminate and food insecurity are examples of how due to the floods.81 Agriculture, livestock, ent kinds of household fuels expose fami- improper filing practices, and introduce humans have depleted natural resources and fisheries suffered the most severe dam- lies to respiratory illnesses, skin ailments, and maintain case timelines. To make the that were once abundantly available – ad- age, (valued at US$1.84 billion) followed and other diseases. The risk of under-five rule of law affordable, there is a need for versely affecting the environment, ecosys- by housing (US$982 million). Reconstruc- mortality associated with cooking fuel is strict mechanisms of adherence to pre-set, tems, biodiversity, and the climate. The tion cost millions more.82 In response, higher than the risk for other age groups, affordable case rates, plea filling rates, and result is a vicious cycle of persistently low Pakistan’s federal and provincial govern- as women in low-income households often a maximum fee for lawyers for similar civil outcomes and opportunities that further ments more than doubled their expendi- cook with small children nearby.88 cases to prevent the exploitation of clients. disadvantage the most vulnerable groups ture on addressing natural and climate-re- affected by disasters.74 In terms of safe- lated disasters, which rose to 57 percent of Governance and disaster risk guarding the environment, Pakistan’s per- expenditure under the Poverty Reduction reduction Managing natural disasters formance is poor. In 2018, the Environ- Strategy Paper between 2010 and 2012.83 mental Performance Index (EPI) ranked Events like the 2010 floods catalysed the

The reality of climate change Pakistan 169th of 180 countries, above Greenhouse gases, air pollution, and CO2 formulation of Pakistan’s National Cli- India (177th) and Bangladesh (179th) in emissions mate Change Policy, adopted in 2012. Climate change is a multisectoral and the region, but a rank below Afghanistan.75 The country ratified the Kyoto Protocol in multidimensional challenge worldwide. It As a signatory of the Paris Agreement of January 2005 and, as noted above, signed threatens all forms of life on this planet, Climate change events adding to in- 2015, Pakistan has committed to reducing the Paris Agreement on climate change in hampers sustainable development, and hin- equality in Pakistan up to 20 percent of its projected green- 2015. ders efforts to reduce poverty and inequal- house gas (GHG) emissions by 2030.84 Under the current Public Sector Devel- ity. The Global Climate Risk Index (CRI) Between 1999 and 2018, Pakistan wit- At the current rate, the country’s 405.07 opment Programme 2019–2020, Pakistan 2020 estimates that more than 12,000 ex- nessed 152 adverse climate events in dif- million tonnes of GHG emissions in 2015 has allocated PKR 7.6 billion to climate treme weather conditions between 1999 ferent regions – ranging from floods, to will rise to 1.603 billion tonnes by 2030. change division projects. This allocation and 2018 around the world caused the loss severe storms, heatwaves, and drought.76 The sectors that contribute most to rising represents 1.08 percent of total PSDP of nearly half a million human lives, and The country’s geophysical situation makes emissions are energy, agriculture, industri- funding, up from 0.12 percent (PKR 0.8 economic losses of US$3.54 trillion.71 it vulnerable to a range of hydro-mete- al processes, waste and land use, and for- billion) of PSDP allocations (PKR 6.75 The Global Risks Report 2019 lists orological, geophysical, and biological estry.85 billion) in 2018–2019.89 This increase in 77 extreme weather events, a lack of climate hazards. Such climate events expose the Air pollution and carbon dioxide (CO2) the budget is driven by the PKR 7.6 billion change mitigation and adaptation, and most vulnerable people in the country to emissions, largely driven by fossil fuel com- Ten Billion Trees Tsunami initiative. natural disasters as the top three risks to life-threatening situations. Those who sur- bustion embedded in current patterns of To mitigate disaster risks, the Govern- livelihoods worldwide.72 In Asia’s agricul- vive become increasingly vulnerable.78 consumption and production, impede hu- ment of Pakistan has established National tural economies, factors that determine man development, livelihoods, and envi- and Provincial Disaster Management Au- how much a region or country will be af- Floods ronmental sustainability. Carbon dioxide thorities (NDMA and PDMAs), as well fected by climate events include geography, is the most widespread greenhouse gas pro- as the Earthquake Reconstruction and trends in demography, the socio-economic In the past 50 years, Pakistan’s mean aver- duced globally, with 65 percent produced Rehabilitation Authority (ERRA). How- landscape, and poverty.73 To this end, Sus- age temperature has risen by 0.5 degrees by burning fossil fuels and industrial pro- ever, governance-related issues appear to tainable Development Goal 13 (‘Climate centigrade, with a five-fold increase in cesses, and 11 percent from forestry and be emerging between the national and pro- Action’) commits all UN Member States heatwave days per year. Precipitation in- other forms of land use. In 2018, Pakistan’s vincial authorities regarding the scope and to “Take urgent action to combat climate creased by 25 percent, leading to more se- CO2 emissions per capita were 0.98 met- domain of their work.

164 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 165 At the institution level, the Govern- mulating targeted policies to support in- 20 Established under the Competition Ordinance of 2007. of Information (FOI) Ordinance of 2002; the Balochistan ment can evaluate these disaster manage- vestment in green technologies, renewable Government of Pakistan 2007b. Freedom of Information Act of 2005; the Punjab Trans- ment authorities to determine whether energy, the construction of energy-effi- 21 These companies are Pakistan Tobacco Company Limit- parency and Right to Information Act of 2013; the Khy- they require enhanced support in the case cient buildings, and smart and green cities ed, the Oil & Gas Development Company Limited, Paki- ber Pakhtunkhwa Right to Information Act of 2013; the of shocks, especially when the military is and transport. The use of technologies and stan Petroleum Limited, Nestle Pakistan Limited, MCB Sindh Transparency and Right to Information Act of 2016; deployed for rescue and rehabilitation resulting new projects will create jobs and Bank Limited, , and the federal Right of Access to Information Act of Limited, , Philip Morris (Pakistan) 2017. work. There is need to develop mecha- develop new skill sets in these sectors. Limited, and Mari Petroleum Company Limited. 41 This was in compliance with the Secretariat Instructions nisms to make these entities more self-suf- Unmitigated climate change drives in- 22 This analysis of data is based on the Pakistan Stock Ex of 2004, issued by the Accountant General of Pakistan, ficient and less dependent on government equalities in human development in two change’s website, accessed on 6 November 2019. Paki- Revenues, in pursuance of Rule 5 (15) of the Rules of funding. main ways: differential exposure, and vul- stan Stock Exchange Limited 2019. Business of 1973 for the disposal of business in the Fed- 91 Resilience is an increasingly important nerability. Efforts to curb climate change 23 The abuse of statutory regulatory orders includes: eral Secretariat. Government of Pakistan 2019k. strategy for disaster risk reduction (DRR), and mitigate climate risks must go beyond 125(I)/2011 (zero rating), 549(I)/2008 (zero rating), 42 Centre for Law and Democracy 2017. in order to mitigate the damage caused by acting after a climate event occurs. The 646(I)/2005 (zero rating), 811(I)/2009 (zero rating), 43 Centre for Law and Democracy 2017. natural or man-made shocks. Building re- solution lies in preparedness – whereby 863(I)/2007(zero rating), the First Schedule of Federal Ex- 44 Anwar 2017. silience means helping people, communi- institutions strengthen systems, and ear- cise Duty (FED) [8 percent for sugar], 1007(I)/2005 [sales 45 Zahra 2019. ties, countries, and global institutions to ly warning systems are implemented to tax exemption], 164(I)/2010 [sales tax exemption], and 46 Ibid. prevent, anticipate, prepare for, cope with, protect the marginalized, the vulnerable, others. Business Recorder 2016. 47 Centre for Law and Democracy 2017. and recover from shocks. In fact, resilience and the poor, alongside infrastructure and 24 Under Article 89 of the Constitution of Pakistan, an ordi- 48 Salas 2018. nance is a temporary piece of legislation valid for 120 49 Government of Pakistan 2010f. Resilience is an increasingly goes further – its aim is not only to recov- sources of livelihood. 90 days, unless it is adopted by Parliament. After the Com- 50 The law was further modified on 26 February 2010 with a important strategy for disaster er, but to ‘recover better’. petition Ordinance of 2007 lapsed, similar ordinances view to making it more effective. See National Account- risk reduction, to mitigate In the event of a natural disaster, com- Notes were enacted in November 2009 and April 2010 before ability Bureau 2010. damage caused by natural or munities that are already marginalized Pakistan’s Parliament formally passed the law. Govern- 51 Government of Pakistan 2019d and 2019a. man-made shocks. suffer most. As a result, inequality grows. ment of Pakistan 2007b. 52 Revenues go to consolidated funds, while receipts and There is a need to integrate public policy * Name changed to protect the informant’s identity. This 25 The National Electric Power Regulatory Authority is con- payments go to public accounts. across the board to prevent and mitigate story was shared during the NHDR focus group discus- stituted as a regulatory body under the Regulation of 53 These offices include the Prime Minister’s Secretariat and the effects of natural disasters, to counter sion in Quetta, Balochistan, on 2 July 2019. The language Generation, Transmission and Distribution of Electric Parliament, among others. the effects of climate change, and to enable used was primarily Urdu. The quotes used in the story are Power Act of 1997. 54 Government of Pakistan 2019b. sustainable development. It is time that the approximate translations. 26 Zhang 2019. 55 These include Parliament, the Senate, the Pakistan Post, 1 Transparency International 2018a. Government recognizes climate change 27 A capacity charge entails the costs related to investments Pakistan Railways, the Ministry of Finance, Revenue 2 World Bank 2017. as a threat to food security, and develops in constructing power units, the guaranteed return on eq- and Economic Affairs, the President House, and the Wa- 3 World Bank 2006a. uity, and debt financing charges, among others. faqi Mohtasib (Ombudsman), as revealed in the Demands timely coping strategies in response. Like 4 UNDP 2013. 28 SBP 2019. for Grants and Appropriation section of the Annual Bud health insurance, a crop insurance scheme 5 Han and others 2014. 29 Government of Pakistan 2010c and 2019e. get Document 2019–2020. should be introduced to provide financial 6 Article 156, National Economic Council, Constitution of 30 Iqbal 2019. 56 These deliverables include policy, goals, previous and protection. Such a scheme would be a life- Islamic Republic of Pakistan. Government of Pakistan 31 Butta 2019. planned expenditures, outputs, outcomes, targets, and line for vulnerable farmers who are likely 2012a. 32 Moiz 2019. performance indicators. to be hit by floods and drought, while pro- 7 Pasha 2019. 33 Rizvi 2018. 57 Rule 171 (2) and 202, Government of Pakistan 2007a. viding compensation for livestock and hu- 8 Government of Pakistan 2016a. 34 Business Recorder 2019. 58 Government of Pakistan 2020h. man lives lost. 9 Ibid. 35 Transparency International 2018b. 59 World Justice Project 2019. Rapid urbanization and development 10 These projects have a total throw-forward of PKR 7 tril- 36 The National Accountability Bureau was established on 60 Lahore High Court & District Judiciary Punjab 2017. are endangering the environment, biodi- lion, equivalent to 10 years of development spending. 16 November 1999. 61 Law and Justice Commission of Pakistan 2019. 11 Government of Pakistan 2019m. versity, and ecosystems, while compound- 37 National commitments include fiscal transparency, ac- 62 There are 3,154 judges in Pakistan. The ‘highest load’ is 12 Banking Statistics by the State Bank of Pakistan as of the ing people’s vulnerabilities. As co-chair of cess to information, public officials’ asset disclosure, on the Supreme Court, with 2,749 cases per judge, fol- end of December 2019. citizen engagement and civil liberties, access to justice, lowed by 2,593 cases per High Court judge, 477 cases per the Green Climate Fund’s board, Pakistan 13 Government of Pakistan 2019h. strengthening accountability, improving the business District Court judge, and 38 cases per Federal Shariat can actively seek funding from the Green 14 CDC 2009 and 2019. environment, the use of digital technologies, and ad- Court judge. These estimates are calculated based on Climate Fund to implement projects in re- 15 SECP Annual Report 2018. dressing climate change. Provincial commitments in- data extracted from the Supreme Court of Pakistan 2018. gions that are vulnerable to climate change. 16 SECP Annual Reports, multiple years, 2000 and 2018. clude separate commitments by each provincial govern- 63 Supreme Court Report of Pakistan 2018. To secure the economy from the adverse 17 Economic Survey of Pakistan 2018–19. ment. Economic Affairs Division 2017. 64 The Court Fees Act of 1870, in place since colonial times effects of climate change, the Government 18 SECP Annual Reports, multiple years, 2015, 2016, 2017, 38 Accountability Lab Pakistan 2019. and adopted by Pakistan’s legal system, specifies the should look into transforming towards a and 2018. 39 Government of Pakistan 2017a. costs of filing various petitions: PKR 17 for property or ‘green economy’. This would involve for- 19 CDC 2009 and 2019. 40 Provincial right to information acts include the Freedom marriage disputes, PKR 100 for a constitutional petition,

166 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Governance and institutional capacity 167 PKR 200 for a Supreme Court case, and PKR 15,000 for 77 Asian Disaster Reduction Centre 2016. filing a review plea. 78 In 2018 alone, monsoons claimed 135 lives, with the 65 Sahoutara 2018. greatest number of lives lost in Khyber Pakhtunkhwa. 66 Dawn 2013 and 2019b. Another 134 people were injured and hundreds of dwell- 67 In 2012, the Insaf Network Pakistan and UNDP surveyed a ings damaged, including 928 houses in Khyber Pakh- random sample of 10,322 poor households across Paki- tunkhwa and 440 in Balochistan. See Government of Pa- stan’s four provinces and Gilgit-Baltistan, held 92 focus kistan and NDMA 2018. group discussions with 1,120 participants, conducted 79 Ahmad 2015. five workshops with supply side stakeholders, collected 80 Kirsch and others 2012. three case studies on urban slums, and held five consul- 81 Ibid. tative workshops with supply side stakeholders. 82 US$305 million for agriculture and US$1,051.8 million for 68 The term jirga denotes a traditional assembly of male housing. For details, see Asian Development Bank and tribal leaders in Balochistan and Khyber Pakhtunkhwa. the World Bank (2010). Panchayat denotes a village council, typically in Punjab, 83 Expenditures include both current and development ex- usually composed of five influential older men. Faislo or penditures. For details, see Government of Pakistan sulh denote similar traditional village councils in the prov- 2010h and 2014c. ince of Sindh. 84 UNCC 2015. 69 Shinwari 2015. 85 Government of Pakistan 2018a. 70 Supreme Court of Pakistan 2019. 86 World Data Atlas 2019d. 71 Eckstein and others 2020. 87 Government of Pakistan 2015c. 72 WEF 2019. 88 Naz and Agha 2017. 73 IPCC 2014. 89 Government of Pakistan 2017h and 2019. 74 Ibid. 90 Al-Riffai 2015. 75 Wendling and others 2018. 91 UNDP 2019. 76 Eckstein and others 2020.

168 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 PART 3 People CHAPTER 7 People’s perception of inequality

People’s perception of inequality 173 CHAPTER 7 People’s perception of inequality

Salima* is a transgender woman in her late 20s. She earns a living by offering her blessings at joyous occasions, like weddings and birth ceremonies. She is disheartened by the lack of opportunities that force members of her community to resort to begging, dancing, and sex work. Like most transgender people, Salima has a guru (teacher), whose role is to mentor and protect her. She gives her guru half of her income, but Salima is happy with the system, saying it allows her to feel safe and part of a large, vibrant community. Salima lives with a group of other transgender women in a small apartment in Quetta, Ba- lochistan. Many people refuse to rent out houses to members of their community, especially in what Salima calls ‘more respectable areas’. Her group has been forced into a neighbour- hood with poor security, and unreliable gas and electricity. Aware of their lack of options, she says the landlord charges them a higher-than-market-rate in rent. “We thought, once the Transgender Persons Act of 2018 was passed, things would be different. Institutionally, there has been some change, but people still don’t see us as peo- ple,” Salima says. The 2017 Census recorded only 10,418 transgender people in Pakistan, out of a total population of 208 million. Rights activists place this figure at closer to half a million. Re- gardless of their numbers, transgender people in Pakistan not only experience ridicule and exclusion, but are also often sexually assaulted and exploited. Inequality in Pakistan cannot be truly alleviated until such communities have the same access to opportunities as other citizens.

People as drivers of inequality tunities, and general quality of life, which ultimately exacerbates inequality. It is important to acknowledge that in- Of the three core drivers of inequality dividuals have multifaceted, complex, and that the NHDR 2020 explores – Power, Campaigns should be created fluid identities. While a woman may gen- People, and Policy – People refers to the to reverse low voter turnout in erally have access to fewer opportunities the northern areas, and make it deeply embedded belief systems that en- than a man in Pakistan, a wealthy female easier for women to register their courage bias against others based on their landowner is likely to have a better quali- CNICs so that they can vote. social identities. People can contribute to ty of life than a poor male farmer. This is inequality in the ways that they treat a com- Boxes like the one above, where intersectionality comes into play. munity or individual on the basis of socio- indicated by the bulb icon, Intersectionality is a tool that helps us cultural markers. For example, this means highlight the NHDR 2020 analyse how diverse social, cultural, or po- focus group participants’ investing less in a girl’s education, refusing litical identities overlap to create complex recommendations for a more to employ a Christian professional, or ig- systems of discrimination. In turn, such equal Pakistan. noring a transgender person at a hospital. analysis offers the opportunity to devel- Such differences in treatment are often op recommendations on how to counter expressed as bias, prejudice, or discrimina- inequality. This is the perspective that the tion against vulnerable social groups. All NHDR 2020 takes in speaking of ‘People’ this impacts their income, access to oppor- as drivers of inequality.

People’s perception of inequality 175 The NHDR’s qualitative research Inequality Perception Survey, conducted core themes, and key takeaways on each all Afghan refugees living in Pakistan un- with 386 participants from our 38 focus theme, are discussed below. der its umbrella. group discussions. Greater representation can create pos- No report on inequality would be com- The main goal of these discussions was Identity and representation itive change for people currently without Attempts should be made to curb plete without incorporating the thoughts, Refugees should be allowed to inflation and raise the minimum to enable members of marginalized com- advocates. During a focus group discus- register their companies and wage. aspirations, hopes, and fears of those who munities to share their lived experiences, Pakistan’s mainstream social narrative does sion in Quetta, women in mid-level careers carry out business like all other experience inequality on a daily basis. To in their own words. They have helped the not often acknowledge the identities of pointed to the case of a woman Member Pakistanis. this end, the NHDR 2020 team conduct- NHDR 2020 to explore more fully what it marginalized groups, like the transgender of Balochistan’s Provincial Assembly. She ed 38 focus group discussions (FGDs) with is like to ‘live with inequality’ in Pakistan. community or religious minorities, among vocally opposed being barred from bring- marginalized communities across Pakistan. Throughout this chapter, we reference the others. As a result, such groups are usually ing her young child to an assembly session. These provided access to the human sto- recommendations for reducing inequality unable to influence policies, trends, or how Her impassioned campaign and the en- ries behind statistics on inequality. Most proposed by our focus group participants. the media portrays or represents them. suing uproar led to the Chief Minister of consultations involved between 10 and 20 These, in conjunction with chapter 9 on One of the questions that the NHDR Balochistan agreeing to provide day care people at a time, with a community con- tackling inequality, form the basis of the team asked focus group participants was: facilities near the assembly, to enable par- tact present to act as an intermediary and NHDR 2020’s vision for a more equal Pa- do they feel acknowledged and represent- liamentarians with young children – both ensure participants’ comfort. Focus group kistan. ed in Pakistan? women and men – to attend sessions. Such participants included members of gender campaigns, no matter how small or limit- minorities, persons with disabilities, infor- Identity and representation are political ed, help to pave the way forward for under- mal workers, displaced persons, religious The five axes of inequality represented groups. and ethnic minorities, people living in The NHDR’s focus group discussions re- poverty, underprivileged children, bond- veal that many Afghan refugees in Pakistan Education and identity-based The NHDR 2020’s focus group discus- ed labourers, refugees, youth who are not find themselves in a Catch-22 situation. discrimination sions are structured around five axes of in education, employment or training, While some of the refugees who took part inequality, that is, the ways in which in- young mothers, white-collar workers, the in a focus group in Swat have Proof of Reg- Education helps to overcome prejudice. equality manifests itself in Pakistan. These upper classes, and workers in particularly istration (PoR) Cards – special identity Time and again, the NHDR’s focus group marginalized professions – such as farm- axes are: identity and representation, social “What do I say? There are cards that permit their temporary legal discussions highlighted this theme. Trans- “As traders we face many mobility, access to services, safety and so- many difficulties here. There ers in Punjab, miners in Balochistan, and residence in Pakistan –others have been gender women in Karachi said that it was issues in travelling to Punjab, “ cial comfort, and region of residence (fig- “ is no hospital – when it’s hard textile workers in Sindh. This chapter also unable to obtain these cards. This is large- only after an NGO began working with as hotels do not give us room ure 7.1). The reasons for focusing on these to find water to drink, having presents the results of the NHDR 2020’s ly because of recent requirements that de- them that they became aware of their without NICs.” a hospital to go to is a distant dream.” mand proof of legal residence in Pakistan, rights. Before, when they were unnecessar- Male Afghan refugee, 50, Swat, FIGURE 7.1 such as electricity bills or rental agree- ily targeted by police, or mocked in public, Khyber Pakhtunkhwa Male coal loader, 46, Spin Karez, ments. they accepted the abuse, unaware of their Balochistan The five axes of inequality of NHDR 2020 They voiced frustration at this contra- legal rights and the protections available to diction: not having a valid identity docu- them. Becoming aware of legal frameworks, ment makes it impossible for them to get especially the ground-breaking Transgen- a utility connection or a rental agreement, der Persons (Protection of Rights) Act of but without such proof of residence, they 2018, has empowered them to take a stand. Identity and representation cannot obtain identity cards. This lack of This shows how important it is to provide Region of proof holds them back from doing busi- contextual information to those who need residence ness, obtaining a driving license, or seeking it most. Figure 7.2 presents levels of educa- Social higher levels of education. It prevents them tional attainment by social marker, based mobility from buying, owning, or selling property on the NHDR 2020’s Inequality Percep- in their own name, or performing religious tion Survey. pilgrimages like Hajj or Umrah, which re- Safety and quire a passport to travel to Saudi Arabia. Regional insights social comfort Such refugees remain disenfranchised Access to even though Pakistan’s National Database In terms of identity and representation, the services & Registration Authority (NADRA) – most jarring differences are not between which issues computerized identification provinces, but between rural and urban ar- documents – has been attempting to bring eas. Women in urban areas are more likely

176 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 People’s perception of inequality 177 FIGURE 7.2 has improved overall, but it is still rare to far from home, they send money back to find ramps in libraries, Braille instructions their families. In turn, their children – par- Educational attainment of different social groups, (2020) in hospitals, disability-friendly parking ticularly their sons – attain higher levels of spaces at malls, or toilets for people with education, some even reaching the college Skills centres should be opened None Primary (Class 1 to 5) Secondary (Class 6 to 10) High school (Class 11 to 12) University and above Maternity services should be in rural areas to teach women disabilities in hotels. In some ways, people or university level. This allows them to se- more widespread and more Lady skills that they can use for home- with disabilities who have received a better cure better-paid, white-collar jobs. How- Health Workers should be hired based work. education and ostensibly more opportu- ever, to find such jobs, they are compelled to visit remote locations. nities feel that they have harder lives than to migrate to bigger cities in Khyber Pa- their parents who do not have disabilities. khtunkhwa, or even outside the province. Women Persons with Workers Refugees and Transgender disabilities displaced persons people These trends are driving social mobility Regional insights and evoking far-reaching social changes.

Climbing out of intergenerational pover- Access to services ty is an uphill battle in Pakistan. In Ka-

Religious and Youth People who receive Small and medium Upper class rachi, focus group participants included One key way that inequality affects people ethnic minorities remittances business owners children whose fathers are shopkeepers, is by limiting their access to basic services donkey-cart drivers, and fishermen, while – from utilities like electricity, gas, and Note: The confidence interval for any point estimate in the figure above is +- 20 percent of the reported magnitude. Source: UNDP calculations based on the NHDR 2020 Inequality Perception Survey. many of their mothers clean houses. Some water, to facilities like transport or sanita- of these children, most of whom are under tion, among many others. Education and 12 years old, already do small jobs around health care are exceptionally crucial, given to work, be educated, and marry at a lat- have never had this chance. For example, their localities. Leaving behind poverty their direct impact on people’s lives. The er age. Transgender women in urban areas all 14 of the married women who partici- will be a huge struggle for such children. NHDR focus group discussions sought are more likely to participate in public life. pated in the discussion in Mithi, in Sindh’s Figure 7.3 presents findings on wealth by to get a sense of what services people have These variations are hardly surprising. The district of Tharparkar, were married before social marker based on the NHDR 2020 access to, and to what extent this is deter- important takeaway here is that Pakistan’s the age of 16. Many male textile workers Inequality Perception Survey. mined by their sociocultural identity. “I wish girls had the marginalized groups seem to fare no better who took part in a focus group in Karachi Social mobility appears easier to achieve “We get saltwater regularly but “opportunity to travel for or worse in different provinces. Intoler- began working when they were 12. Such in Khyber Pakhtunkhwa, where remittanc- A lack of services and infrastructure “freshwater only once a month. education. My cousin is in ance towards vulnerable groups, therefore, experiences leave little room for people to es have contributed to far-reaching eco- There is no gas either, and we Lahore for his Bachelor’s. I is not a ‘regional’ issue, but a universally obtain a meaningful education, or to find nomic improvements for many families. ‘Ghost’ schools and health facilities usually use LPG, wood, or cow am not allowed, even though I Pakistani one. decently-paid work. In essence, limited dung to get by.” have better grades.” Focus group discussions in the province re- abound in Pakistan. As they only exist on opportunities hamper people’s capacity to veal that when men engage in menial jobs paper, their inclusion in records paints a Male business owner, 40, Mithi, Female student, 16, Rahimyar Social mobility achieve social mobility. Tharparkar, Sindh FIGURE 7.3 Khan, Punjab Individuals and groups who experience in- Non-inclusive progress Wealth of different social groups, (2020) equality also have limited prospects for so-

cial mobility. This is evident in how much Focus group participants have different Lower Middle Upper harder it is for those from the poorest seg- opinions about whether they have had bet- ments of society to escape intergeneration- ter opportunities than their parents. Young al poverty. One of the questions that the women who have matriculated in Akha- NHDR focus group discussions raised was gram, in Khyber Pakhtunkhwa’s district of

whether participants feel their lives have Upper Dir, feel that they have, as most of Women Persons with Workers Refugees and Transgender improved compared to their parents’ lives their parents toil in labour-intensive occu- disabilities displaced persons people in terms of opportunities, access, and eco- pations, with little or no formal education. nomic prospects. Some participants, particularly those with disabilities, disagree. Many feel that while Limited opportunities for development things have improved for the general pop- ulation, people with special needs contin- Religious and Youth People who receive Small and medium Upper class Better employment opportunities are one ue to be ignored. During a focus group ethnic minorities remittances business owners of the main ways to move up the social discussion in Islamabad, participants with Note: The confidence interval for any point estimate in the figure above is +- 20 percent of the reported magnitude. strata. Yet, many focus group participants special needs reported that accessibility Source: UNDP calculations based on the NHDR 2020 Inequality Perception Survey.

178 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 People’s perception of inequality 179 deceptive picture of progress. Youth from Access and solutions are culturally and where in a city they reside. Karachi, camps for months on end, relying on dai- Bara in the Newly Merged Districts of complex for instance, is rife with inequalities. Here, ly humanitarian rations. They returned to Khyber Pakhtunkhwa report that there is wealthier areas have far better access to find their land and infrastructure decimat- Seats should be assigned for only one basic health unit in their area and While access to services is poor in many services than impoverished localities that ed. Travel times increased manifold due to Lighting should be improved on transgender people on public even this is essentially non-functional. The parts of Pakistan, it is even worse for vul- suffer from more electricity load-shedding, multiple checkpoints, and electricity was the streets and police presence transport, in order to avoid larger Bara Tehsil Headquarter Hospital nerable groups. Transgender focus group poor waste disposal, interrupted gas sup- only available for a few hours a day. All increased at bus stops so that harassment and sexual abuse. further afield does not have the facilities plies, and poorly-maintained public trans- this was a huge departure from their earlier women feel safe travelling alone participants in Karachi report that hos- at night. to carry out minor surgical procedures, let pitals routinely turn them away, or treat port, to name but a few challenges. lives – lives that they had yet to rebuild. alone major ones. Residents must resort to them last. Some mentioned friends who The Newly Merged Districts of Khyber traditional herbal remedies for common are HIV-positive, but are unable to con- Pakhtunkhwa, by contrast, appear largely Fear of violence ailments, or travel hours to reach a special- tinue accessing medication due to hospital equal in terms of deprivation. Most focus ist hospital in Peshawar. Obviously, this se- staff ’s negligent or hostile behaviour. group participants complained of poor Violence, and the threat of violence, verely undermines their health outcomes. In many other focus group discussions, services, wherever they live. There is some keeps underprivileged communities from This is why transport is especially im- parents voiced discomfort about sending inequality in access to services within Bara, progressing and holds people back from portant when basic facilities are located their daughters to school, either because where better-off residents enjoy better ac- achieving their full potential. Women far from communities. Figure 7.4 presents of the long distances they would have to cess. However, the general consensus is domestic workers in Karachi report feel- findings on the ownership of at least one travel, or because many schools lack in- that the provision of facilities across the ing unsafe working in houses where other car by different social groups, based on the door toilets. In Pakistan’s broader cultural Newly Merged Districts is extremely un- women are not present, because men often NHDR 2020’s Inequality Perception Sur- milieu, girls are often not allowed to travel satisfactory. harass them. This limits their earning po- vey. far from their homes. As they are unable tential. Focus group participants from Azad to relieve themselves outdoors like boys, a Safety and social comfort Members of the Hazara community Jammu and Kashmir spoke of their fear school without toilets means a school that spoke about being targeted for their eth- of environmental shocks that they face on is effectively inaccessible to girls. Keeping A core aspect of living as a minority in no-religious identity. Ghettoized in the ne- a regular basis, such as floods, landslides, these cultural nuances in mind is crucial to Pakistan is negotiating the dangers that glected Hazara Town at the edge of Quet- and earthquakes. Not having robust di- improve access to services in Pakistan. come with it. Political unrest also caus- ta, the fear of violence prevents them from “Schools are far away, so only saster mitigation strategies in place means es considerable uncertainty and violence stepping out of the area, either for work “Any violence against “our sons are allowed to study. greater risks to their lives, livelihoods, and Regional insights in the country. The NHDR 2020’s focus or education. Other communities avoid “minorities in Punjab gets My daughters are enrolled in possessions. Launching long-term disaster group discussions delved into how unsafe associating with Hazaras for fear of their wall-to-wall media coverage. aalima courses, so at least recovery plans now would mitigate losses or threatened different groups feel as Pa- own lives. In one focus group discussion, a If something happens to they get a religious education.” People’s access to services largely depends Hazaras in Balochistan, in the future. on which part of the country they live in, kistanis. young Hazara man spoke about a bus driv- nothing gets reported.” Small farmer, male, 40, Multan, er who refused to let him board a bus to Punjab Armed militancy his university, because the driver feared he Male Hazara student, 20, Quetta, FIGURE 7.4 would become a target himself. Balochistan While armed militancy has declined in re- Car ownership of different social groups, (2020) cent years, it continues to be a part of life Regional insights

Personal Shared No in Pakistan. Its effects remain visible, both in terms of lives lost or displaced, and in Violence in Pakistan informs people’s lives the geopolitical concerns that accompany in crucial ways. It affects whether they de- such violence. It has also affected life in cide to send their daughters to school in Pakistan in countless small, but significant, the Newly Merged Districts. In Baloch- ways. istan, safety concerns prompt minorities Women Persons with Workers Refugees and Transgender disabilities displaced persons people Displaced persons from the Newly like the Hazara community to turn down Merged Districts spoke of life before and opportunities. Thus, violence and conflict after the rise of militancy in the region. perpetuate inequality, obstructing human Focus group participants said that their development. plight worsened significantly once the Figure 7.5 presents the results of the Religious and Youth People who receive Small and medium Upper class Zarb-e-Azb military operation began in NHDR 2020’s Inequality Perception Sur- ethnic minorities remittances business owners 2014. Scores of residents were displaced, vey, highlighting the extent to which dif-

Note: The confidence interval for any point estimate in the figure above is +- 20 percent of the reported magnitude. forced to leave behind their homes, jobs, ferent social groups are happy or unhappy Source: UNDP calculations based on the NHDR 2020 Inequality Perception Survey. and belongings. They remained in refugee with different issues related to inequality.

180 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 People’s perception of inequality 181 FIGURE 7.5 The survey’s results offer some interest- Region of residence ing findings, both obvious and surprising. The perception of inequality of different social groups, (2020) Members of the upper classes, and the own- Pakistan’s regions embody inequality in ers of small and medium-sized enterprises, different ways. Some provinces do poorly High schools and universities appear to be content with their access to in terms of gender development, while oth- should offer career counselling The size of this circle represents 100% happiness. so that youth have a better public utilities, education, and health care. ers have greater levels of multidimensional By contrast, women, persons with disabili- chance of supporting themselves Public Identity and Safety and Social Region of poverty. The focus group discussions ex- and their families. Utilities Education Healthcare Employment representation social comfort mobility residence ties, labourers, refugees, displaced persons, plored the extent to which regions of res- and the transgender community express idence impact people’s lives, incomes, and dissatisfaction with their access to essential Women opportunities. services. The transgender community and per- Regional differences and discrimination sons with disabilities are most unhappy Persons with disabilities with issues of ‘identity and representation’, Pakistan’s diversity should be its strength, feeling that they are not treated equally in but it is often a prominent basis for dis- society. It is interesting to note that the crimination. All too often, the variety of upper classes are also dissatisfied with how languages, ethnicities, and cultures in the Workers they are treated, perhaps underscoring the country become targets of region-based importance of cross-cutting, intersection- discrimination, expressed as cultural or eth- al identity markers – such as gender, age, nic discrimination. For example, Afghan and caste – in determining the way people refugees who settled in Swat, in Khyber Refugees and displaced persons feel about their place in society. Safety is Pakhtunkhwa – because the area’s culture, understandably a concern for the trans- religion, and traditions are similar to their gender community, labourers, and persons own – prefer to remain in the district de- with disabilities. For women, meanwhile, spite better opportunities in other regions. Transgender people a lack of employment opportunities is one This is because of the potential discrimina- “We have never felt scared being a religious minority in of their biggest concerns. Unsurprisingly, tion they would face in places like Punjab, “ Pakistan. We don’t even lock people who receive remittances all believe for instance, where they would stand out that they have a better quality of life than our doors when we sleep. Religious and ethnic minorities as ethnic minorities; they feel this discrim- Everyone looks after each their parents. Labourers and young people ination would outweigh any benefits. other.” feel differently, expressing dissatisfaction Pakistan’s deep-rooted tribal (baradari) with opportunities for social mobility. system can be another basis for discrimina- Hindu woman, 35, Mithi, Overall, the NHDR 2020’s Inequality Tharparkar, Sindh Youth tion. Focus group participants from Azad Perception Survey finds that youth are less Jammu and Kashmir explained that they ‘happy’ than most other groups, regardless often use their caste name or surname to of their income. This signals a fatalistic introduce themselves, as this helps with attitude towards their future. Similarly, People who receive remittances social recognition. It also improves their the upper classes also have lower than ex- chances of political representation, as most pected happiness scores across the board. baradaris are associated with political par- Groups that may be expected to be less ties. satisfied with the state of things, such as Small and medium business owners religious and ethnic minorities, generally Development for the developed scored higher – especially in the categories of identity and representation, and safety. In Pakistan, development is often for the Upper class Thus, the survey reveals the complexities already developed. In Quetta, focus group of people’s perceptions of inequality, and participants with disabilities acknowledge highlights the importance of this percep- that the city has some disability-friendly tion in expanding human potential and features, but point to the dire situation in Note: The size of the circle represents groups happiness with the key themes outlined above, out of 100%. Responses of unhappy and neutral are not included in the graph. The confidence happiness. interval for any point estimate in the figure above is +- 20 percent of the reported magnitude. the rest of Balochistan. Beyond its capital Source: UNDP calculations based on the NHDR 2020 Inequality Perception Survey.

182 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 People’s perception of inequality 183 city, the province is sorely lacking in basic Women FIGURE 7.6 facilities, such as accessible restrooms in Access to a laptop or computer among different social groups, (2020) schools or hospitals, many of which do not According to the Census of 2017, women Online job interviews, freelance even have wheelchairs. It should be mandatory for comprise 48.76 percent of Pakistan’s popu- Personal Shared No positions, and flexible work Textile workers in Karachi complain lation. Despite this, they have historically employers to provide training timings should be implemented opportunities for workers, that the Government ignores their areas had fewer opportunities for education and to improve opportunities for – ‘poor’ localities with inefficient sewage especially for women from people with disabilities. employment, coupled with a higher likeli- underdeveloped areas. and heaps of uncollected garbage, infus- hood of experiencing domestic abuse, pov- ing their neighbourhoods with a dreadful erty, and other deprivations. Below, we dis- Women Persons with Workers Refugees and Transgender stench and spreading disease. Roads are so cuss the main insights gained from women disabilities displaced persons people poorly maintained that a 15-minute jour- focus groups participants from across Pa- ney takes twice as long as it should. What- kistan. ever the reasons for the lack of investment in these areas, the focus groups reveal a A dual burden popularly-held belief: ‘poor’ areas are in- Religious and Youth People who receive Small and medium Upper class tentionally ignored. This narrative can Insights from the NHDR 2020’s focus ethnic minorities remittances business owners severely, perhaps irreparably, damage peo- group discussions challenge the notion Note: The confidence interval for any point estimate in the figure above is +- 20 percent of the reported magnitude. ple’s trust in the Government. that ‘working women’ – that is, women Source: UNDP calculations based on the NHDR 2020 Inequality Perception Survey. who earn money through a profession or Regional insights skill – necessarily represent a positive de- Silencing gendered narratives cerns of women across the board. velopment. In fact, many working women Regardless of where the NHDR 2020’s fo- in Pakistan are forced to take up domestic Persons with disabilities cus groups were held, one thing was clear: or home-based work because of financial Women are not a monolithic group. Their People are fiercely loyal to the places where pressures. The discussions indicate that needs and concerns change with factors they are born and raised. The only reason like income levels, education, religion, eth- About 11.2 million Pakistanis, or 6.2 per- many such women are married to men cent of the population of or over the age of “For disabled people, issues they leave, or conceive of leaving, is to pur- who are drug addicts, are unwilling to find nicity, age, and disabilities, among others. “As soon as a woman is with education are sometimes five, have some form of disability. Howev- pregnant with a girl, her in- “ sue better opportunities. work, or are unable to work because of The answers that different women in the “ issues of money. My parents er, the country has a poor track record of laws start saying, ‘Maybe next Participants also often betrayed igno- disabilities or poor mental health. Wom- NHDR’s focus groups gave to questions needed a car to transport me rance and misconceptions about life else- about harassment reveal a sharp difference protecting and empowering persons with time’. The baby girl gets less to school, but they couldn’t en also have more limited access to tech- disabilities. The Disabled Persons (Em- attention, less freedom, even afford one.” where. People in Balochistan view Karachi nology in general, which further limits in their priorities. less food.” as modern and full of employment oppor- A female bonded labourer from ployment and Rehabilitation) Ordinance their earning potential. Figure 7.6 presents of 1981 was only amended in 2015, add- Young man with a disability, 30, tunities, whereas Karachi residents lament findings on the ownership of a computer Umerkot recounted stories of women be- Young mother, 24, Rahimyar Khan, Islamabad the pollution, congestion, and lack of op- ing raped when their families were unable ing concessions related to tuition fees, the Punjab or laptop among different social groups, provision of special facilities – such as the portunities in their city. There is a sense based on the NHDR 2020’s Inequality to pay back debt bondage loans. Mid-level that some Pakistanis have very little aware- career women in Quetta expressed their delivery of passports and Computerized Perception Survey. National Identity Cards (CNICs) – and ness about, or exposure to, other parts of Whether or not they work outside the concern about glass ceilings, the loss in the country. earning potential after childbirth, and not new measures to ensure that the existing 2 home, most women in Pakistan are solely percent quota for persons with disabilities responsible for domestic care work, with being taken seriously at meetings. One woman reported feeling uncomfortable in federal, provincial, and district depart- little or no help from their husbands or ments is met. Despite these efforts, the ex- Social markers and inequality families. The fact that women do twice giving her phone number to clients because she has experienced harassment through periences of persons with disabilities who the work, usually without recognition or participated in the focus groups reflect the This section discusses the insights, percep- unsolicited calls. Yet, she “felt silly” speak- benefits, can hardly be hailed a positive de- law’s weak implementation in several ways. tions, and concerns of the different social velopment. In this sense, it is important to ing about these issues as they are “nothing groups consulted for the NHDR 2020. compared to the actual harassment faced understand the reasons why women go out Disability as invisibility The report classifies these analyses by so- to work in the first place, and the extent by women who are not as privileged.” A cial marker or social group, in order to bet- culture of minimizing women’s concerns to which this adds to their responsibilities Many focus group participants with dis- ter understand the issues faced by specific is rife in Pakistan. The spurious reasoning and burdens. abilities spoke of feeling invisible in soci- communities. that leapt out in the focus groups is that ‘other women have it worse’ – a narrative ety. They said that their presence makes that appears to silence the legitimate con- people feel uncomfortable, awkward, or

184 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 People’s perception of inequality 185 SPECIALBalochistan CONTRIBUTION and Khyber Pakhtunkhwa. Kishwer Zehra that they are denied the freedom to leave modern slavery in Pakistan. their homes, get a job, or even obtain an Focus group participants who work as Creating inclusive policies for students with special education needs education. Restrictions often stem from coal loaders in Spin Karez, Balochistan, concern, with families thinking that wom- seem unaware of health and safety risks. Policies should be implemented It is now widely understood that education creates quality human However, Pakistan’s policy makers have vacillated between exclu- en with disabilities are already ‘too vulner- Mired in extreme poverty, survival takes around workers’ rights, including resources and is the most important factor for any country’s social sive and inclusive education systems, leading to inconsistent policies able’. Restrictions are their way of trying to precedence over matters like lung disease medical insurance, transport and economic growth. The UN Convention on the Rights of the Child, that have worsened the situation. In 1988, integration was discarded protect these women from further suffer- or unsafe working practices. Similarly, allowance, paternity and adopted in 1991, calls on Member States to protect children’s rights as an impractical goal, and exclusive and separate programmes were maternity leave, and more. through inclusion in mainstream schools, jobs, culture, and recre- established for children with special needs. The National Strategy for ing. bonded labourers who participated in the ation. The goal of equality also needs to be incorporated at the core Special Education of 2002 revived comprehensive education, but the Some women with disabilities ex- focus groups said that they have no means of both education and social policies. Inclusion involves a cycle of re- National Action Plan of 2006 again dropped it. plained that their families view them as to contest their debt bondage. Some even forming and improving the school as a whole to address the needs of Planners need to understand that inculcating empathy, accep- a ‘source of shame’, as they have few mar- seem disinclined to do so. This reflects all children, in all their diversity, various circumstances, and abilities. tance, and understanding of diversity into an inclusive education pro- riage prospects. One participant recalled huge gaps in awareness around workers’ Thus, all nation states need to set national and international edu- gramme will benefit children from all communities, not just children that her mother repeatedly asked her to rights, as well as insufficient attempts to cational targets and empower their youth with the requisite knowl- with disabilities. To make this possible, adequate services need to get sterilized, or take pills, to avoid dealing secure these rights for all of the workers in edge, attitudes, and skills. It is also increasingly clear that schools be given to diverse groups. Also, school administrators, principals, with her monthly cycle. She felt that her Pakistan. and communities must work together to achieve their common aim parents, teachers, and students need to understand and endorse the femininity was being dismissed because of of a high-quality education for all. This goal is hindered in many parts concept. her disability. Underemployment and unemployment of the world, including Pakistan, by the serious disadvantages faced Transforming traditional schools into comprehensive schools by by women and people with disabilities. incorporating facilities and teacher training is often less expensive Labour Focus groups with informal workers reveal Pakistan has additional disadvantages – like millions of children than developing segregated special education centres. Such centres who are out of school and millions of young adults with inadequate are often poorly-run, isolated, and violate the principles of equality that many do not know how much money or no education. Obstacles to inclusive training include poverty, gen- laid down in Pakistan’s Constitution as well as in international con- Pakistan’s labour force faces major chal- they will make on a given day. They work der disparities, ethnicity, remoteness, language barriers, disabilities, ventions. lenges. As the previous chapters show, 12 hours a day, seven days a week, usually and natural disasters, as well as conflicts, humanitarian crises, and Research and on-the-ground experience both show that teachers most women workers in the country work performing manual labour or doing odd displacement. are critical to assessing the efficacy of inclusion. They are the work- in marginalized occupations, while those jobs on farms or at markets. Most have been ‘Inclusive education’ refers to a blueprint for the administration. It force responsible for implementing inclusive models of service pro- with higher education qualifications of- working like this since they were children. allows students with special education needs (SEN) to be placed in vision in educational institutes. The Government of Pakistan is also ten choose not to enter the labour market Their own children are already following “My expenses are more than mainstream classes, taught by mainstream teachers, with the avail- involved in raising awareness and promoting strategies for students at all. At the same time, many workers are in their footsteps, with similarly little hope “what I earn. I have to take out ability of additional aids and resources. with special needs. unprotected by labour laws if they work for their future earning potential. a loan every month to survive Politically, it aims to reduce asymmetries and eliminate prejudice. Both initiatives are being undertaken in cooperation with the same in the informal sector, and others – both Figure 7.7 presents data on monthly in- and also to pay my family’s debt instalment.” As the global dialogue calls on states to leave no one behind, it dis- organization that is responsible for public sector special needs pro- formal and informal workers – do not even come levels across different social groups cusses creative multisectoral solutions to ensure equality and equity grammes. While teachers generally have a positive outlook towards earn the minimum wage. Here, we explore based on the NHDR 2020’s Inequality in education. integrating students with special education needs, study findings re- Male bonded labourer, 50, Umerkot, Sindh Pakistan began moving towards inclusive education in 1986, when veal that more efforts are needed in Pakistan to teach such students. the insights of workers in Pakistan’s labour Perception Survey. the National Strategy for Disabled Rehabilitation was introduced. There also needs to be more collaboration between traditional teach- force. Many youths who took part in the fo- One of its key components is rehabilitating children with disabilities ers and special education teachers, including through workshops on cus groups are college graduates; some through adequate training in regular schools. educating students with special needs. Awareness of rights even have Master’s degrees. Most have been unable to find decent work in their home- Kishwer Zehra is a Member of the National Assembly of Pakistan, a member of the Board of Directors at the Sindh Institute of Urology and Transplanta- Workers’ rights in Pakistan require signif- towns, villages, or cities. Without oppor- tion (SIUT), and SIUT’s Chairperson for Resource Generation and Outreach. icant attention. Policies vary widely across tunities at home, many hope to migrate to public and private sector organizations, bigger cities in search of better opportuni- including those on annual paid leave, the even afraid. They shared stories about be- ties. A Hindu participant now employed at Women with disabilities minimum wage, medical insurance, occu- ing ignored in social situations, or being a textile factory in Karachi said that, when pational safety and health, sexual harass- overlooked for jobs because employers did he applied for jobs in the past, senior man- Women with disabilities have additional ment, maternity leave, and other labour not want the added expense and responsi- agers asked him about his religion. Despite Laws supporting persons vulnerabilities and need to overcome ad- issues. Child labour and bonded labour being qualified to operate machinery, he with disabilities should be bility of hiring a person with disabilities. ditional obstacles. One wheelchair-bound remain prevalent in the country; 9.9 per- implemented more rigorously, With most public and private spaces in was not offered a job. This led him to won- woman participant said that if she has to cent of the country’s children between the with feedback from the Pakistan inaccessible to persons with dis- der if the rejections were based on more community. leave the house, she avoids drinking water ages of 10 and 15 are engaged in work. No abilities, it becomes that much harder for than just his skillset. all day due to the lack of accessible wash- official statistics on bonded labourers ex- them to participate in public life and pub- rooms. During the NHDR’s focus groups, ist, but the Global Slavery Index 2018 esti- lic spaces. many women with disabilities revealed mates that around 3 million people live in

186 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 People’s perception of inequality 187 FIGURE 7.7 FIGURE 7.8

Monthly income levels of different social groups, (2020) Access to mobile banking in different social groups, (2020)

Afghan refugees should be The amount of government No Income Up to PKR 14,000 PKR 14,00 to 50,000 PKR 50,001and above Yes No allowed to have CNICs so that compensation for displaced they can better integrate into persons should be increased, Pakistani society. and efforts made to ensure that the previously promised amount is provided.

Women Persons with Workers Refugees and Transgender Women Persons with Workers Refugees and Transgender disabilities displaced persons people disabilities displaced persons people

Religious and Youth People who receive Small and medium Upper class Religious and Youth People who receive Small and medium Upper class ethnic minorities remittances business owners ethnic minorities remittances business owners

Note: The confidence interval for any point estimate in the figure above is +- 20 percent of the reported magnitude. Note: The confidence interval for any point estimate in the figure above is +- 20 percent of the reported magnitude. Source: UNDP calculations based on the NHDR 2020 Inequality Perception Survey. Source: UNDP calculations based on the NHDR 2020 Inequality Perception Survey.

ago, or have never lived in the country at among its most marginalized, forced to Refugees and displaced persons ever-present in their lives. For example, all, they do not consider Afghanistan their negotiate a life of ridicule, violence, and some public schools do not even admit the home either. sexual abuse. Members of this community Pakistan has seen a huge influx of refugees Pakistan-born children of Afghan refugees, have trouble accessing even basic services in recent decades. Afghan refugees began forcing them to resort to far more expen- Poor response to emergencies – health care, education, and transport, fleeing to Pakistan during the Soviet–Af- sive private schools, or to forego education among others – because of familial or so- “We are seen as foreigners ghan war in the late 1970s, followed by an- altogether. In 2019, the PTI government During one focus group discussion, inter- cietal attitudes. “When we returned to our “– both in Pakistan and other wave during American operations in allowed registered Afghan refugees in Pa- nally displaced persons from the Newly The NHDR’s research team finds a cu- “houses after displacement, Afghanistan. There seems Afghanistan post-9/11. kistan to open bank accounts using their Merged Districts spoke of the rise of mili- rious silence around transmen, that is, in- we found that they were to be no place for us in this The Zarb-e-Azb military operation by Proof of Registration (POR) Cards. How- tancy in their region in 2006, which forced dividuals born with female sexual organs completely destroyed. We world.” have not been able to recover the Pakistan Armed Forces against mil- ever, they are still obliged to provide vari- so many to flee their homes. Those who but who identify as male. Members of the from this.” Male Afghan refugee, 55, Swat, itant groups in the country’s north-west ous other forms of documentation – such stayed behind, primarily the poor, had to transgender community who took part in Khyber Pakhtunkhwa prompted an increase in the number of as rental receipts and utility bills – which evacuate in 2014. They only had a day’s focus group discussions were invariably Displaced man, 66, Upper Bara, internally displaced persons (IDPs) in Pa- many do not possess. As a result, several warning before the military operation be- transwomen – born with male sexual or- Newly Merged Districts of Khyber kistan. No official figures are available on focus group participants conduct transac- gan. For three years, they lived in tents in gans but who identify as female. Their in- Pakhtunkhwa their numbers, but the Internal Displace- tions through other people’s accounts. A an open field. Many had just two blankets sights reflect deeply disturbing attitudes ment Monitoring Centre – established in lack of access to banks obliges businessmen per family, and meagre rations – with no towards the transgender community in Pa- 1998 as part of the Norwegian Refugee and traders who are refugees to carry cash rice, ghee (clarified butter), or meat. Long kistan, particularly transmen. Participants Council (NRC) – estimates that there on their person. This makes them feel ex- queues for rations were the norm. pointed to transmen as ‘the worst victims were 121,000 internally displaced persons tremely unsafe, especially when travelling The Government allocated PKR of sexual abuse’, often sold into prostitu- in Pakistan as of 31 December 2019. Be- between cities and provinces. 400,000 (US$2,390) to each family which tion at a young age and never heard from low, we outline some findings from the Figure 7.8 presents data on access to returned to Bara – to homes in ruins and again. NHDR’s discussions with Afghan refugees mobile banking among different social possessions stolen. Many focus group par- and displaced Pakistanis. groups, based on the NHDR 2020’s In- ticipants said that they have yet to receive Exclusion and exploitation equality Perception Survey. this compensation, which they complain Uncertainty and belonging A lack of clarity on the repatriation of cannot even cover the costs of clearing away Pakistan’s third gender is ostracized at Afghan refugees makes them anxious and rubble and dismantling damaged walls. multiple levels. They are disowned by The Afghan refugees who participated in unable to plan for the future. They feel their families, mocked on the streets, and the focus group discussions earn decent in- like they do not really ‘belong’ in Pakistan, The transgender community routinely ignored in hospitals, courts, comes and generally like living in Pakistan. but most have lived in the country all their and schools. Many transgender people are However, the stigma of being a refugee is lives. As many fled Afghanistan decades Pakistan’s transgender community is pushed into sex work because of the lack

188 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 People’s perception of inequality 189 of opportunities available to them. Many preventive measures. This is exacerbated grounds speak to the importance of this gions; they often confuse Sikhs and Hin- ‘gurus’ take in young transgender people by the dismissive attitude of health care diversity, and of promoting learning about dus. Another participant said that, while to groom and mentor them; some sexual- professionals towards them, which the fo- these communities among the population he does not mind that children from the Separate windows for ly exploit their young charges. However, a cus group participants highlighted. at large. Sikh community learn about Islam in The process of lodging transgender people should number of transgender focus group partic- A lack of awareness is an issue not just school, he wishes that they also had the op- complaints – against employers, be created in hospitals and ipants spoke of their gurus ‘emancipating’ for the transgender community, but also The ‘othering’ of minorities tion to learn about their own religion. One tenants, or university faculty for government buildings, and them. for those in the ‘mainstream’. Many people mother revealed that her son was forced to discrimination based on religion awareness of HIV prevention The transgender community also finds are unaware that the term ‘transgender’ in The Shi’ite Hazara youth who participat- recite the Kalimah in class, although the – should be made easier. should be increased. it difficult to rent houses at fair rates. Pakistan includes transmen, transwom- ed in a focus group discussion in Quet- teacher knew that he is Sikh. Many find it similarly hard to own houses. en, the intersex community, and eunuchs. ta all live near Brewery Road in Hazara Clearly, while the dominant discourse Figure 7.9 presents data on house owner- Such basic information needs to be dissem- Town, a neighbourhood on the outskirts focuses on violence against minorities, ship by different social groups based on inated more effectively across Pakistan to of Balochistan’s capital. They feel that bomb blasts at places of worship, or other the NHDR 2020’s Inequality Perception bridge gaps between communities. discrimination against them is not based extreme instances of discrimination, per- Survey. on their religion or ethnicity, but on pol- sistent ‘everyday’ aspects of discrimination Religious and ethnic minorities itics couched in religio-ethnic terms. This also need to be addressed. Awareness and legal rights has grave repercussions. Not only are the Pakistan is home to several religions and Hazara targeted relentlessly, but even the The Transgender Persons (Protection of ethnicities, adding diversity to the coun- most mundane decisions in their lives – Inequality and cross-cutting Rights) Act, passed in 2018, contains some try’s sociocultural landscape. Exposure to like where to study or apply for jobs – have themes key anti-discrimination policies. It grants a minority group can help stem the tide been transformed by the threat of violence. transgender people the right to self-iden- of discrimination, allowing people to sep- Hazara Town, ostensibly designated The NHDR 2020 focus group discussions tify as ‘Gender X’ on national identity arate these groups from the prejudicial for the Hazara community for their own uncovered linkages between inequality cards for the first time in Pakistan’s history. views they might have been taught all their safety, suffers from poor access to services. and other domains that either enhance or However, most transgender participants in lives. Several regions of Pakistan are home Water can cost up to PKR 12,000 per tank- hinder the opportunities available to Paki- the focus groups were unaware of this mea- to large communities of specific minori- er here, compared to PKR 2,000–2,500 in stan’s most marginalized communities. “As children, our families sure, or of other anti-discriminatory laws ties, which is why an ethnic minority from other parts of Quetta. The closest govern- “There is no discrimination “would lock us in our rooms introduced by the Act. one region may not have the same experi- ment hospital is far from the neighbour- Technology “here. We go to the religious when relatives or proposals Many transgender people are also un- ence in another part of the country. The hood, forcing residents to travel long dis- festivals of our Muslim friends, came. We were a shame aware of crucial health care issues, such as focus group discussions with participants tances to access decent health care. They and they come to ours. At for our family, so we were Technology is often heralded as the great the end of the day, we are all abandoned.” the early detection of HIV, or curative and from different religious and ethnic back- feel excluded from society and penalized equalizer of our times. During the focus Pakistanis.” by being confined to Hazara-only colonies. groups, persons with disabilities described Transgender woman, 24, Karachi, FIGURE 7.9 how technology has expanded their choic- Hindu man, 45, Mithi, Tharparkar, Sindh Sindh The mundanity of discrimination es and opportunities in life. The internet House ownership of different social groups, (2020) allows them to do what they otherwise Different religious groups have very dif- could not, such as get jobs, take courses, Personal Shared No ferent opinions on whether they feel dis- and even shop without having to rely on criminated against as members of minority others. Blind participants browse the in- communities, or whether they feel well-in- ternet by using text-to-speech systems. tegrated in Pakistani society. Participants Young participants also see great value in from the Hindu community in Mithi, in technology; they rely heavily on the inter- Women Persons with Workers Refugees and Transgender Sindh’s district of Tharparkar, reported no disabilities displaced persons people net to job-hunt, connect with friends, and experiences of discrimination. Muslims in for entertainment. the area respect them, they said, and even For the less privileged, technology is so participate in their festivals and visit their expensive that it is a community asset. For temples. example, one woman in Akhagram, Khy- Members of the Sikh community in Religious and Youth People who receive Small and medium Upper class ber Pakhtunkhwa, uses her cousin’s com- ethnic minorities remittances business owners Swat reported similar experiences, but puter as her own family cannot afford one. pointed to some ‘subtle’ forms of discrim- Note: The confidence interval for any point estimate in the figure above is +- 20 percent of the reported magnitude. In this sense, while technology can help to Source: UNDP calculations based on the NHDR 2020 Inequality Perception Survey. ination. One participant spoke of people’s improve living standards, it is only avail- generally poor knowledge of other reli- able to those with a fairly high standard of

190 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 People’s perception of inequality 191 living in the first place. This Catch-22 in Climate change the prevalence of corruption as it relates People’s perception of inequali- Pakistan’s digital divide must be addressed to employment, education, and access to ty: Optimism or fatalism? in order to reduce inequality. Climate change is poised to be a catastroph- justice. In Sindh, women textile workers There should be a focus Figure 7.10 presents data on access to explained that, if a man hit his wife, he can The process for women to report ic challenge for Pakistan. Focus group par- The NHDR 2020’s focus group discus- on digital skills training for the internet among different social groups, ticipants have different perceptions about always count on bribing the police to get abuse or harassment should be Pakistan’s youth, and on based on the NHDR 2020’s Inequality away with it. Women home-based workers sions highlight People as a key driver of made easier, such as through providing better digital resources the urgency of climate change. Youth from inequality; they contribute to inequality the telephone, the internet, or by Perception Survey. Peshawar believe that it is a crucial issue to in Quetta lamented that their children will and computers in public libraries never be able to compete with the chil- when they base their perceptions of oth- anonymous means. to help bridge the digital divide. address in the country. Many are actively Youth dren of richer parents who can ‘buy’ public ers on deeply-embedded discriminatory trying to lower their carbon footprint by belief systems. This necessarily leads to an not wasting water and not using plastic wa- school exam questions, or bribe invigila- Youth from around Pakistan participat- tors to allow cheating. important concluding question: What do ter bottles; some even have solar panels at marginalized Pakistanis feel about the sta- ed in the NHDR 2020’s focus group dis- home. Young men from Peshawar report that cussions. Some are fairly optimistic about the only way to access a doctor or specialist tus of inequality in the country? Most participants, especially those from Many participants from different com- the future. Most agree that their lives are less educated backgrounds, do not under- in some hospitals is through a ‘reference’. better than their parents’ lives in terms of Participants from Kotli in Azad Jammu munities give the impression that the sit- stand what climate change involves or how uation in Pakistan is improving. They in- opportunities for education, greater expo- it will affect their lives. For example, while and Kashmir spoke of how nepotism and sure, and access to more tailored services. favouritism helps people secure low-level clude religious minorities, some of whom small farmers in Multan, Punjab, are acute- are relatively well-off, and mid-level career The few who are not as optimistic in- ly aware of the locust swarms that have government jobs. clude those with higher levels of educa- These perceptions indicate the lack of women in positions of some authority. decimated their cotton crop, they cannot People who have experienced significant tion, who are unable to find decent jobs in connect this to climate change. There is, equality in the country. While the priv- the smaller cities where they live. Some are ileged are able to maintain and even aug- intergenerational upward mobility are an- therefore, an urgent need to raise aware- other sizeable group optimistic about the unemployed or underemployed, or make ness of climate change across Pakistan, ment their privileges, those without re- money that is not commensurate with their sources have little hope of catching up. future – for instance, people whose parents and to implement policies to mitigate and were not literate and engaged in manual degrees. Youth from the Newly Merged adapt to its devastating effects. Districts feel that their potential has been Social protection labour, but still managed to educate their children. Having seen worse times is, in “There is so much ‘destroyed’ by the violence and uncertainty Corruption “It is not like we don’t have “unemployment in Pakistan. in their region. In many ways, it seems that Women bonded labourers who took part some ways, is an important factor underly- “opportunities. It is that we People my age with similar ing these communities’ optimism. are unable to pursue those Pakistani policy has not delivered oppor- Participants in almost all of the NHDR in focus group discussions in Umerkot, skills and education just tunities for such young people. Sindh, are all beneficiaries of the Benazir On the other hand, several focus group opportunities because of other cannot find jobs. Their anger is 2020’s focus group discussions highlighted duties and limitations.” Income Support Programme. They largely participants do not feel that inequality is understandable.” decreasing in Pakistan. They are members use the BISP’s quarterly payments to feed Male textile worker, 24, Karachi, of some of the country’s most marginalized Young professional, male, 25, FIGURE 7.10 their families. Unlike women in similar Sindh Lahore, Punjab contexts, they all have national identity communities, such as women domestic Access to the internet in different social groups, (2020) cards – a prerequisite for the BISP. This is workers, ethnic minorities like the Hazara, a significant departure from most low-in- the transgender community, and persons Yes No come women who participated in the fo- with disabilities. It seems that these vul- cus groups, whose husbands or fathers have nerable communities with special needs not allowed them to obtain Computerized – who have a greater need for change in National Identity Cards. social attitudes, investments in infrastruc- Some women from Rahimyar Khan in ture, or political reform – do not see much Women Persons with Workers Refugees and Transgender Punjab warned that BISP cash transfers progress in Pakistani society. disabilities displaced persons people can sometimes be dangerous for women. These findings point to a clear conclu- One participant spoke of cases where hus- sion: to solve people-centric inequality, bands or male relatives used threats and vi- Pakistan needs a people-centric response. olence to force women to hand over their BISP money. In a patriarchal culture, it Religious and Youth People who receive Small and medium Upper class ethnic minorities remittances business owners seems that men can co-opt even the most meagre benefits afforded to women. Note: The confidence interval for any point estimate in the figure above is +- 20 percent of the reported magnitude. Source: UNDP calculations based on the NHDR 2020 Inequality Perception Survey.

192 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 People’s perception of inequality 193 Notes ticipants chose from a list of 12 assets in the NHDR 2020’s Inequality Perception Survey. Each asset that they ticked received a score of one point. The points were then * Name changed to protect the informant’s identity. This sorted into three wealth categories: ‘lower class’ for 0–4 story was shared at the NHDR focus group discussion in assets, ‘middle class’ for 5–8 assets, and ‘upper class’ Quetta, Balochistan, on 1 July 2019. The language used for 9–12 assets. was primarily Urdu. The quotes used in the story are ap- 6 Government of Pakistan 2019g. proximate translations. Some of the transgender women 7 Government of Pakistan 2018c. who live with ‘Salima’ also participated in the focus group 8 Minderoo Foundation 2019. discussion and contributed to her story. 9 IDMC 2020. 1 Government of Pakistan 2018g; Ebrahim 2017. 10 Tribal News Network 2018. 2 Discussions took place in 2019 in Punjab, Sindh, Khyber 3 11 The Kalimah, often recited by South Asian Muslims, are Pakhtunkhwa, and Balochistan, as well as with people the formal declaration of a Muslim’s faith. from Khyber Pakhtunkhwa’s Newly Merged Districts. Con- 12 The increased frequency of cyclones in the Indian Ocean sultations planned for Azad Jammu and Kashmir had to and rising temperatures, both indicators of climate be postponed due to tensions along the border. These change, are believed to be behind the locust swarms that could not be held until early March 2020. Due to logistical have worked their way from the Horn of Africa to Pakistan constraints, the NHDR team was unable to hold consulta- and India. See Dune 2020. tions in Gilgit-Baltistan. 13 At the time that the focus group discussion was conduct- 3 NADRA 2020. ed, the BISP’s monthly stipend, linked to the Consumer 4 Dawn 2019c. Price Index, was PKR 5,000 per month. See BISP 2020. 5 Wealth is computed through an additive score index. Par-

194 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 People’s perception of inequality 195 PART 4 Policy CHAPTER 8 Growth and inequality: The impact of COVID-19 CHAPTER 8 Growth and inequality: The impact of COVID-19

Over the years, research has led to a grad- tile saw a larger increase in per capita in- ual shift in how policy makers regard in- come between 2007–2008 and 2012–2013 equality – from considering it purely in than in the preceding period, although this relation to economic growth, to viewing earlier epoch was marked by much faster inequality as a factor that hampers nation- economic growth. al development. Thus, the public policy With the existing dearth of long-term discourse has shifted from a ‘growth and research, the relationship between in- income inequality’ trajectory, towards a equality and growth remains unclear in pro-poor, inclusive growth narrative, in Pakistan’s case. An in-depth examination which growth and tackling inequality are of the relationship between growth and goals that go hand-in-hand. inequality is needed. That is the aim of The relationship between growth and this chapter, which examines Pakistan’s inequality is a complex one. Barro (1999) experience since the late 1950s. The first found little overall relationship between section develops a Macroeconomic Model inequality and growth in the countries he for Pakistan, with a set of policy and ex- studied, with high inequality constraining ogenous variables that impact a number of growth in poor countries, but encouraging endogenous variables. These variables lead it in wealthy countries. Only a few studies to different outcomes in terms of changes have attempted to estimate the long-term in the rate of GDP growth and the levels of relationship between poverty, growth, and inequality in Pakistan. This is perhaps the Research demonstrates a inequality (income distribution) in Paki- first time in Pakistan that a Macroeconom- bidirectional causality between stan, due to the limited availability of long- ic Model has been built which explicitly growth and inequality. term datasets. Most of these studies report FIGURE 8.1 a nonlinear relationship between growth, poverty, and inequality.1 Researchers also Growth incidence curves in Pakistan measured by the Palma ratio, (2001- highlight a bidirectional causality between 2019) growth and inequality. The construction of growth incidence 2001-02 to 2007-08 2007-08 to 2011-12 2011-12 to 2015-16 2015-16 to 2018-19 curves for different income quintiles re- 8 veals the variable nature of this relation- nnual growth rate in real per capita income by quintile 7.0 ship in the Pakistani context. Figure 8.1 shows that, under a military government 6 5.2 4.7 from 2001–2002 to 2007–2008, the 4.3 4.5 4.2 4 3.5 | 3.5 3.8 growth incidence curved, creating a steep 3.3 positive slope. During this period, while 2.7 2.6 1.9 the growth of real per capita income was 2 2.4 relatively high, it was much higher for the 0.9 1.2 0.6 richest quintile. 0.2 0.3 0 By contrast, the growth incidence curve Q1 Q2 Q3 Q4 -0.2Q5 sloped negatively from 2011–2012 to 2018–2019, a period in which the rise in -2 average per capita income was significantly Source: UNDP calculations based on multiple years of HIES data. lower. However, the poorest income quin-

Growth and inequality: The impact of COVID-19 201 incorporates the determinants of change in for Pakistan include equations on different BOX 8.1 income inequality among the population, components of GDP – that is, components Inequalities and types of government and their impact. related to the demand side, the balance of

The second section identifies factors payments, public finances, employment, Pakistan has witnessed long and alternating eras TABLE 8.1 which could lead to higher and more in- and inflation (figure 8.3). The Macroeco- of military governments, followed by democrati- clusive growth in the country. The NHDR nomic Model includes special modules on cally-elected governments. Military regimes have Inequalities and types of government in Pakistan, (1977-2018) 2020 undertakes simulations with the the determinants of corporate profitabili- generally implemented pro-growth strategies that Macroeconomic Model for 2019–2020 ty, inequality, and poverty. It uses the more rely on ‘trickle-down’ effects. Democratic govern- GDP growth rate Change in the level of inequality and 2021–2022, years during which Paki- sensitive nature of the modified Palma ra- ments have placed somewhat more emphasis on Type of government Periods () () stan will receive an extended fund facility tio to measure profitability. The Gini co- achieving a process of inclusive growth, with ex- from the International Monetary Fund. efficient and Pashum ratio could not be plicit pro-poor interventions. Military 1977 to 1988 6.4 -12 computed because detailed information There is also a perception that elected govern- Democratic 1988 to 1999 4.5 -6 on income distribution is not available for ments generally rely more on a broader support base, drawn from the population at large, while Military 1999 to 2008 5.2 34 earlier decades. Pakistan’s experience military governments may be more inclined to form Democratic 2008 to 2018** 3.6 -16 This Macroeconomic Model has nine partnerships with the ruling elite. Therefore, there Note: *Data is not fully available prior to 1977. ** Data on inequality only available up to 2017-2018. Figure 8.2 highlights Pakistan’s growth exogenous variables, 14 policy variables, is a greater likelihood that the privileges of vest- The relationship between Source: Kemal 2008 and SBP 2018c. performance and changes in inequality in and 43 endogenous variables. The NHDR ed interests will continue, and may even expand, Pakistan’s rate of GDP growth different epochs since the late 1950s. As 2020 estimates the Macroeconomic Model during the tenure of military governments. ture and extent of changes in the level of inequality as measured by the Palma ratio, are and the direction of change in it shows, the relationship between growth using data for Pakistan from 1990–1991 to In Pakistan’s history, there have been five long, given in table 8.1, from 1977 onward. inequality has varied greatly. and inequality has varied greatly. Three ep- 2017–2018. largely uninterrupted episodes of these two types The table indicates that the two military governments of General Zia-ul-Haq and Gen- ochs in the country’s history were marked of government. The first was 11 years of military eral Musharraf achieved significantly higher rates of economic growth. This was also by a relatively low GDP growth rate; yet, The role of inequality government under Field Marshal Ayub Khan, from the experience in the Field Marshall Ayub Khan era. This was also the period in which while inequality declined in two of these 1958 to 1969. The next period of dictatorship was Pakistan’s ‘22 families’ came to the fore, implying that inequality increased in the 1960s. under General Zia-ul-Haq from 1977 to 1988, with periods, it increased in one. A somewhat The Macroeconomic Model provides im- Another significant finding is that inequality declined in both democratic eras. It also a brief interruption between 1972 and 1977 when fell during the tenure of the Zia-ul-Haq government, but increased sharply during the The Macroeconomic Model for tentative conclusion is that higher growth portant insights into inequality’s role in in- a democratic PPP government was in place. This regime of General Musharraf. This is perhaps contrary to the perception that inequality Pakistan reveals that higher fluencing the magnitude of other econom- tends to be accompanied by rising inequal- was followed by 11 years of democratic rule by will always increase under military governments. inequality is accompanied by ic variables. The first empirical finding is ity, although between 1977 and 1988, in- PPP and PML-N governments, lasting until 1999. Why did inequality decrease in the General Zia-ul-Haq era? First, the commissioning of lower consumption spending equality declined during a period of high that the level of inequality has a negative Nine years of a pseudo-military government fol- the Tarbela Dam led to a major expansion in irrigated area, benefiting a large segment of and lower tax revenues. growth (also see box 8.1). impact on the level of national private con- lowed under General Musharraf, before another the rural population. Second, labour-intensive exports experienced double-digit growth, sumption expenditure. This indicates that transition to democratically-elected governments while the unemployment rate remained low, at 3 percent. In the latter part of the gov- lower levels of inequality increase the de- took place in 2008. ernment’s tenure, Prime Minister Junejo implemented the Five-point Programme for the Macroeconomic Model for mand for basic goods and services in the Pakistan’s annual GDP growth rate, and the na- development of rural areas. Pakistan economy. Many of these items – like wheat, sugar, rice, and clothing – are produced do- FIGURE 8.3 mestically in Pakistan. As a result, this can reduce inequality and stimulate growth. The modules of the Macroeconomic Model In a way, this finding contradicts the re- Modules of the Macroeconomic Model FIGURE 8.2 nowned Cambridge Savings Equation, first developed by Kaldor (1964). The equation Policy variables Exogenous variables Economic growth and change in level of inequality in different epochs, (1958-2019) holds that the marginal propensity to save is likely to rise as the level of household Change in inequality* Rising Falling GDP growth rate Low High income increases. Therefore, a more un- Growth Balance of payments Public finances 1958-1969 1969-1977 1977-1988 1988-1999** 1999-2008 2008-2019 equal society is likely to have a higher rate of saving. This provides more finances for Corporate investment and, thereby, raises the rate of Employment Investment Inflation profitability growth. Field Marshal Zulfiqar Ali General (2) General Pervez Asif Zardari/ A second unusual finding of the NHDR Ayub Khan Bhutto Ziaul Haq (2) Musharraf Nawaz Sharif Level of inequality 2020’s analysis is that lower inequality ap- pears to play a significant role in positively Poverty influencing the level of tax revenue in Paki- Note: *Measured by the ratio of the share in income of the top quintile and the bottom quintile.**Rotating governments stan, with greater equality leading to more Source: Developed by NHDR 2020, UNDP. Source: Pasha 2019.

202 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Growth and inequality: The impact of COVID-19 203 tax revenue. in corporate profitability, as measured by duces the level of corporate profit- opment of an inclusive growth strategy There could be two reasons for this re- the rate of return on equity. Moreover, the ability by 5.49 percent; and with the following key features: lationship. One is that indirect taxes and tax-to-GDP ratio did not increase signifi- • 1 percent rise in real tax revenues income-related withholding tax collected cantly during this period. reduces the level of corporate prof- • a greater level of fiscal effort in terms on sales, imports, and contracts – to which The period since 2007–2008, under itability by 3.12 percent. of raising revenues and boosting the poorer income groups contribute a large two democratically-elected governments, economy with regard to current ex- part – account for almost 80 percent of has been qualitatively very different. As The NHDR 2020 uses these rela- penditure; overall tax revenue. Second, richer income the growth rate plummeted, there has been tionships to predict changes in the level • achieving a higher level of develop- groups are more inclined to high levels of a limited increase in labour productivity. of inequality between 2016–2017 and ment spending; income tax evasion. Thus, if inequality is Corporate profitability also dropped sharp- 2018–2019. The results are presented be- • keeping nominal interest rates rela- pronounced, there is less revenue for the ly. Up to 2017–2018, the Government low, followed by annual simulations of the tively low; and tax system. achieved a major success in terms of rais- Macroeconomic Model with the annual • higher expenditure on human devel- A third notable finding is that inequal- ing the tax-to-GDP ratio by almost three magnitudes of its policy and exogenous opment and social protection. ity also plays a role in influencing the sup- percentage points of GDP. Furthermore, variables (table 8.2). ply of money in Pakistan. This is because following the 7th NFC Award, transfers to The Macroeconomic Model predicts A policy of allowing the exchange rate poorer income groups are more inclined to the provinces increased dramatically. This the value of the modified Palma ratio as to appreciate in real terms runs the risk of use cash transactions. All other factors be- led to a quantum jump in expenditures on 4.85. Pakistan’s most recent Household In- decreasing inequality while simultaneously ing equal, this means that the demand for education and health, while the Benazir tegrated Economic Survey for 2018–2019 implying less growth. Therefore, the trade- money tends to be higher when the income Income Support Programme spearheaded shows a modified Palma ratio of 4.70. off associated with such a policy must be distribution is less unequal. Consequently, a focus on social protection. Thus, there is an unexplained residual of carefully evaluated. inequality appears to imply greater pres- We now turn to the long-term quan- 0.15. Nevertheless, the Macroeconomic The impact of any positive change in the sure on domestic price levels. titative relationship between the rate of Model clearly captures the declining trend magnitude of exogenous variables which change in inequality, measured by the Pal- of inequality in Pakistan. affect the current account in the balance of Determinants of inequality ma ratio, and the change in the magnitude payments is clear: this causes a rise in the of determining variables. The analysis sug- GDP growth rate, but with a simultaneous The Macroeconomic Model yields some gests that: Implications for development rise in inequality. important findings about the determinants policy Overall, the NHDR’s findings and the of inequality in Pakistan. Inequality rises • 1 percent rise in labour produc- formulation of the Macroeconomic Model Inequality is dependent on levels significantly when labour productivity in- tivity leads to a 1.41 percent in- Figure 8.4 shows the impact of different for Pakistan offer valuable insights on the of labour productivity, corporate creases. This is due to a rise in the share crease in inequality; policy variables on the GDP growth rate, determinants of inequality, as well as on profitability, the tax-to-GDP ratio, of capital income. Similarly, rising corpo- • 1 percent rise in the level of cor- the level of inequality, and the incidence the relationship between inequality and The Macroeconomic Model can and pro-poor spending. rate profitability implies that the country’s porate profitability raises inequali- of poverty. The results provide valuable growth. The next section discusses this inform the development of a richest people will have a greater share of ty by 0.30 percent; insights on how higher and more inclu- interplay in the context of the ongoing strategy for higher and more national income. • 1 percent rise in the level of pro- sive growth, with less inequality, can be COVID-19 pandemic. inclusive growth. Two other important factors contribute poor spending reduces inequality achieved. The results gleaned by using the to reducing inequality. The first is a high- by -0.10 percent; and Macroeconomic Model enable the devel- er tax-to-GDP ratio, especially for direct • 1 percent rise in the tax-to-GDP Macroeconomic impact of taxes, which can occur if the rich pay more ratio reduces inequality by -0.51 TABLE 8.2 COVID-19 in taxes. The second is a higher level of percent. pro-poor spending in the form of greater Annual simulations of the Macroeconomic The COVID-19 pandemic has caused un- expenditure on education, health care, and In turn, the determinants of change in cor- Model and predicted levels of inequality, certainties in the global economy, pushing (2016-2019) social protection. porate profitability, measured as the post- the world towards tougher times. As of 9 These variables are the basis for under- tax return on equity, are: September 2020, WHO reported 1,442 standing the divergent trend in inequality change Predicted level of inequality COVID-19 cases per million people in Pa- in the Musharraf era, as well as during the • 1 percent rise in GDP enhances kistan. The flattening of the curve began past decade. Inequality rose sharply in the the level of corporate profitabili- 2016-2017 -0.73 5.06 in early August 2020, with 31 confirmed Musharraf era because of rapid growth in ty by 4.04 percent; 2017-2018 -2.59 4.93 deaths per million people, and a recovery national output per worker, resulting in • one percentage point increase 2018-2019 -1.51 4.85 rate of 96 percent. a rising share of capital income. This was in the nominal interest rate, mea- Source: Simulations of the Macroeconomic Model, NHDR 2020. Containment measures to control the augmented by the extraordinary increase sured as the average policy rate, re- spread of COVID-19 are wreaking havoc

204 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Growth and inequality: The impact of COVID-19 205 FIGURE 8.4 in the wake of enhanced risk perceptions. FIGURE 8.5 Transport bottlenecks and lockdowns are Impact of change in policy and exogenous variables on GDP growth, inequality and poverty Projected index of quarterly GDP (average quarterly GDP, 2019-2021 = 100), expected to cause an initial reduction of (2019-2020 and 2020-2021) Increase Decrease Little change up to 10 percent in the availability of do- mestically-produced goods, and up to 10 2019-20 2020-21 Change in Impact on growth Impact on inequality Impact on poverty percent in imported goods. The intensity 104 104 Policy variables of these negative factors is expected to de- 102 102 cline gradually in 2020–2021. 102 101 Higher fiscal effort 100 The projected GDP growth rate Higher development spending 98 98 98

Higher current expenditure The International Monetary Fund’s latest 96 World Economic Outlook Report, pub- 95 Lower nominal interest rate 94 lished in April 2020, projects a V-path of 92 Lower exchange rate depreciation recovery for the world economy. As shown 92 in table 8.4, it will plummet initially by 3 Higher expenditure on human development 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 and social protection percent in 2020, followed by a sharp re- covery in 2021. The GDP growth rate is Source: UNDP NHDR 2020 Macroeconomic Model simulations. Exogenous variable projected to rise to almost 6 percent as

Faster growth in world trade economic activity normalizes, and as the exceptionally strong monetary and fiscal recovering from the first quarter of 2020– Faster growth in remittances packages formulated by developed coun- 2021. Therefore, the GDP growth rate in The impact of COVID-19 will

Lower oil prices tries, and some developing states, yield re- 2020–2021 is likely to be close to 1 per- bring down GDP growth to -1.5 sults. cent, compared to negative growth of 1.5 percent in 2019–2020. Due to fiscal constraints, the shape of percent in 2019–2020. Note: With respect to the level assumed in the base scenario. the growth curve is likely to be less steep The COVID-19 pandemic has visibly Source: Simulations of the Macroeconomic Model, NHDR 2020. for Pakistan, judging by UNDP’s Macro- impacted three large economic sectors in economic Model of growth and inequality. Pakistan: cotton ginning, construction, on already weak economies worldwide. The Pakistan NHDR 2020 uses this Mac- TABLE 8.3 and transport and communications. Esti- This unprecedented crisis requires unprec- roeconomic Model to simulate the impact mates by the Pakistan Bureau of Statistics edented measures. A massive counter-cy- Projected magnitude of external and of various external and domestic shocks of a negative GDP growth rate of 0.4 per- clical fiscal and financial effort is urgently domestic shocks, (2019-2020 and 2020- caused by COVID-19. cent in 2019–2020 appear to be signifi- needed around the world, along the lines 2021) Figure 8.5 shows the projected evo- cantly understated. of those already visible in industrialized lution of the growth process in Pakistan. The evolution of the economy has been nations. The UN Secretary-General has Growth rate 2019-2020 2020-2021 Fortunately, the COVID-19 incidence limited by demand side factors since Feb- called for a comprehensive multilateral re- External curve has flattened out since 20 July 2020. ruary 2020. First, as global trade faltered, sponse, equivalent to 10 percent of global Volume of world trade -20 -11 The quarterly growth rates presented be- Pakistani exporters saw a drop in export GDP. low indicate that the economy will start orders, and delays in payment for previ- Unit $ value of exports -10 -5 ous deliveries. Second, risk perceptions are External and domestic shocks due to Unit $ value of imports -20 -10 TABLE 8.4 high. As investors observe the unutilized COVID-19 Remittances -15 -10 capacity in many industries, there is less Projected growth rate in relation to the pre- motivation to upgrade or invest in new ca- Domestic COVID-19 level in 2019 (%), (in calendar The massive setback which COVID-19 Decline in availability of -10 0 years, 2020 and 2021) pacity. In addition, as most entrepreneurs is expected to wreak on the global econo- domestically produced face a serious shortage of liquidity, private goods my – with an initial reduction of over 30 World economy Pakistan’s economy investment is likely to fall significantly. percent in the volume of world trade – Decline in availability of -10 0 Combined, these factors explain much 2020 -3 -6.6 will hugely impact Pakistan’s exports.2 As imported goods of the ongoing recession in Pakistan’s 2021 5.8 4.2 table 8.3 shows, there is also likely to be a Note: *From March to June 2020. economy. Some semblance of growth in 15 percent decline in remittances. Foreign Source: IMF 2020; World bank 2019c; UNDP NHDR 2020 Source: IMF 2020; UNDP NHDR 2020 Macroeconomic Model demand has been created by government Macroeconomic model simulations. direct investment is projected to decrease simulations. consumption expenditure, as a result of

206 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Growth and inequality: The impact of COVID-19 207 the COVID-19 relief package and public munications. Export industries will bear plummets due to higher levels of unem- TABLE 8.6 investment. Private consumption expendi- the brunt of the global recession, while do- ployment and poverty. ture could also rise in 2020–2021 as unem- mestic industries could face challenges in The 2019–2020 fiscal year closed with Projected sectoral growth rates, (2019-2020 and 2020-2021) ployment gradually decreases. the supply of imported inputs. Two major an average monthly inflation rate of 10.7 Table 8.5 provides the estimated annual sectors, agriculture and construction, ex- percent, and a significantly higher rate 2019-2020 2020-2021 growth growth growth rate in 2019–2020 and 2020–2021 hibited low or negative growth even prior of increase in food prices, of 14.5 per- 2018-2019 2019-2020 () 2020-2021 () of each expenditure component of Paki- to the coronavirus pandemic. Collectively, cent (figure 8.6). For the reasons outlined stan’s GDP. Private investment, timid even these five sectors account for almost two- above, inflation is likely to decrease some- Agriculture 2,362 2,386 1.0 2,459 3.0 prior to COVID-19, is likely to have fallen thirds of Pakistan’s national value added, what in 2020–2021, falling to an average Major crops 517 506 -2.0 515 2.0 by over 17 percent in real terms in 2019– and over 80 percent of total employment. of 8 percent. Minor crops 265 252 -5.0 261 3.5 2020. The full-year impact of a decline in The NHDR 2020 expects the revival pro- Cotton ginning 51 45 -12 45 0.0 exports will be felt in 2020–2021. Imports, cess to be led by the government sector, Balance of payments which are likely to fall sharply in 2019– construction, and social and community Livestock 1,430 1,480 3.5 1,532 3.5 2020 under the IMF programme’s stabi- services (especially health). Beyond 2020– The impact of the COVID-19 pandem- Forestry 50 52 4.0 54 4.0 lization policies, will remain depressed in 2021, the manufacturing and domestic ic has placed some pressure on Pakistan’s Fishing 50 51 2.0 52 2.0 2020–2021. trade sectors could make a comeback. balance of payments, particularly due to Industry 2,584 2,466 -4.6 2,424 -1.8 Table 8.6 presents projected growth Two provinces, Punjab and Sindh, will a quantum reduction in exports as the re- The sectors hit hardest by rates by sector. As noted above, the experience more economic difficulties sult of the deep recession in world trade. Mining and quarrying 350 331 -5.5 307 -7.0 COVID-19 are cotton ginning, three sectors likely to be hardest hit by than other regions in Pakistan. First, this is Simultaneously, as noted above, the flow Manufacturing 1,663 1,580 -5.0 1,538 -2.6 construction, and transport and COVID-19 in 2019–2020 are cotton gin- because they are relatively more urbanized. of remittances is likely to be constrained Electricity and gas 253 266 5.0 279 5.0 communications. ning, construction, and transport and com- Second, they account for a combined share by adverse conditions in countries with a Construction 318 289 -9.0 300 4.0 of 90 percent of Pakistan’s manufactured large concentration of Pakistani expatriate TABLE 8.5 exports. Punjab in particular has clusters workers. Falling oil prices will have a dual Services 7,804 7,706 -1.3 7,801 -2.0 of labour-intensive export-oriented SMEs. impact. On the positive side, the cost of Wholesale and retail trade 2,404 2,260 -6.0 2,226 -1.5 Projected GDP by expenditure (PKR billion at 2005-2006 prices), (2019-2020 and 2020- Consequently, both provinces are likely Pakistan’s imports will fall by over US$3 Transport & comm 1,643 1,536 -6.5 1,497 -2.5 to see lower growth rates in their respec- billion in 2020–2021 if the decline in oil 2021) Finance & insurance 446 482 8.0 463 4.0 tive GDPs in 2019–2020 and 2020–2021 prices persists. On the other hand, this Housing 841 875 4.0 910 4.0 Expenditure compared to Balochistan and Khyber Pa- could lead to a major drop in remittances, head 2018-2019 2019-2020 2020-2021 khtunkhwa. particularly from the Middle East. General government services 1,065 1,114 4.6 1,180 6.0 Private 11,101 10,986 11,205 The pandemic has also caused negative Social & community services 1,404 1,439 2.5 1,525 6.0 consumption (-1.0) (2.0) expenditure The rate of inflation developments in capital inflows to devel- GDP (fc.) 12,750 12,558 -1.5 12,684 1.0 oping countries, where stock markets are Government 1,661 1,682 1,712 The economic slowdown in the wake of witnessing the exit of money invested by Source: Government of Pakistan 2020d; UNDP NHDR 2020 Macroeconomic Model simulations. consumption (1.3) (1.8) expenditure COVID-19 is likely to have a dual impact foreign mutual funds. ‘Hot money’, or FIGURE 8.6 on inflation in Pakistan.3 First, there could capital frequently transferred between Pakistan access to US$1.4 billion under Private 1,246 1,549 1,284 Projected food and non-food investment plus (-17.1) (- 3.0) be an initial surge in inflation, as people financial institutions to maximize inter- the Rapid Financing Facility. However, the change in stocks tend to fall into ‘panic-buying’ in times est or capital gain, in short-term treasury IMF programme is temporarily in abey- rate of inflation, (2019-2020 and 2020-2021) Public 497 501 521 of crisis, creating shortages in the market bills has largely exited from Pakistan. This ance and will probably become operative (4.0) investment (0.8) even if adequate supplies are available. In makes it increasingly difficult to borrow only after September 2020. It is likely that Average Monthly Rate 16 Exports of 1,157 addition, the difficulty in predicting de- from international commercial banks and no instalments will be provided until then. 14.5 1,402 1,299 14 goods and (-7.3) (-10.9) Food prices mand during lockdowns does create some float Sukuk/Eurobonds globally, because Table 8.7 presents the projection of Paki- 12 services stan’s balance of payments for 2020–2021. 10.7 supply shortages, putting further inflation- Pakistan will be required to provide a large 10 9.5 Imports of 2,641 2,376 2,312 ary pressure on food prices. It will be vital risk premium. In 2019–2020, the current account deficit 8 8.8 8 goods and (- 2.7) 7.2 (-10.0) to ensure that the procurement target of The situation has, therefore, become was US$3 billion. This represents a major 6 Non-food prices services 8 million tonnes of wheat flour is met to inherently volatile. The Pakistani Rupee, success in curtailing the deficit by over 79 4 Taxes (Net) 819 817 845 2 (-0.3) (3.4) avoid an upsurge in prices, which occurred which was stable for over six months, fell percent, highlighting the progress made in 0 GDP at factor 12,750 12,559 12,684 in the first few weeks of 2020. However, by almost 8 percent after the exit of the stabilizing the economy in the IMF pro- 2019-20 2020-21 cost (-1.5) (1.0) inflation may decrease as the prices of im- aforementioned ‘hot money’. It regained gramme’s first year. However, there is the Source: Government of Pakistan 2020c; Source: IMF 2020; UNDP NHDR 2020 Macroeconomic Model ported goods – such as oil – decline sub- about 5 percent following the Interna- risk that Pakistan’s current account deficit UNDP NHDR 2020 Macroeconomic Model simulations. simulations. stantially, and as overall domestic demand tional Monetary Fund’s decision to give could increase significantly, by almost 175

208 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Growth and inequality: The impact of COVID-19 209 TABLE 8.7 and China with the State Bank of Pakistan. cent of GDP. TABLE 8.8 The surplus in the financial account is like- 3. Mobilizing substantially more con- Projection of the balance of payments (US$ Government budgetary projections (PKR billion) and growth rate (%), (2019- million), (2019-2020 and 2020-2021) ly to decrease by 13 percent in 2020–2021. cessionary financing from multi- 2020 and 2020-2021) The net inflow in the government ac- lateral institutions like the World count improved in 2019–2020 due to the Bank and the Asian Development 2018- 2019- 2020- Growth rate 2019 2020 2021 cushion provided by the International Bank, with a particular focus on 2018-2019 2019-2020 2020-2021 () Monetary Fund’s programme. However, health and education projects. A. Revenues 4,901 6272 6,780 8.1 Current account deficit -13,830 -2,966 -8,167 with fast-rising debt obligations, this in- Their response has already been (as percent of GDP) -4.9 -1.4 -3.1 flow could drop significantly in 2020– supportive. . Tax revenues 4,473 4,650 5,630 21.1 Balance on goods -28,687 -19,914 -20,663 2021. As highlighted above, net foreign 4. Prioritizing exports and avoiding Federal 4,072 4,334 5,200 20.0

Exports f.o.b. 24,241 22,505 19,605 direct investment in 2020–2021 will also any accumulation of pending re- Provincial 402 413 430 4.1 decline, potentially falling by almost 46 funds. Exemptions in existing stan- Imports f.o.b. . Non-tax revenues 427 1,524 1,150 -24.5 52,928 42,419 40,268 percent. dard operating procedures may have Balance on service -4,061 -2,835 -3,004 Federal 341 1,422 990 -30.4 Pakistan’s balance of payments Pakistan’s balance of payments position to be granted to exporting units 86 102 160 56.9 position in 2020–2021 looks Income (Net) -5,745 -5,683 -6,157 looks somewhat fragile. There could be a which had pending orders during Provincial fragile due to a fall in exports Current transfer 24,868 25,829 21,637 negative transition from a large overall sur- the lockdowns enforced across Pa- B. Expenditure 8,345 9,648 10,210 5.8 plus of US$5.3 billion in 2019–2020 to a kistan. Furthermore, there is a need and remittances. Workers’ remittances 21,838 23,120 19,337 . urrent expenditure 7,274 8,532 8,900 4.3 deficit of US$0.8 billion in 2020–2021. to restore the zero-rating facility up Capital account 319 290 410 Funds provided by the International Mon- to December 2020. Federal 4,946 6,016 5,885 -2.2 Financial account 11,591 7,975 6,952 etary Fund, under both the Extended Fund Debt servicing 2,091 2,619 1,900 -27.5 Foreign direct investment 1,658 2,524 1,367 Facility and the Rapid Financing Facility, General government budget Defense 1,147 1,213 1,370 12.9 will pay a critical role in preserving a sem- Government (Net) 4,285 5,829 4,600 Others 1,708 2,184 2,615 19.7 blance of stability.4 There has been a growing shortfall in the Others* 5,648 -378 985 Moving forward, Pakistan will need to revenues of Pakistan’s Federal Board of Provincial 2,328 2,541 3,015 18.7 Balance of payments -1,920 5,299 -825 attach the highest priority to a number of Revenue compared to the target for 2019– . Development expenditure 1,049 1,116 1,310 17.4 IMF (Net) -376 -745 1,131 measures: 2020. This began to cause a substantial de- PSDP + lending cline in the country’s budgetary position Change in reserves -2,296 4,484 306 Federal 543 495 660 33.3 1. Obtaining debt relief of US$1.5 even before the COVID-19 pandemic. Provincial Level of reserve ** 7,274 12,181 10,944 billion, or more from the G20 and By the end of March 2020, this deterio- 506 621 650 4.7 (Months of imports***) 1.5 2.8 2.7 other donors. ration had reached PKR 700 billion, even C. Budget deficit -3,444 -3,376 -3,480 3.1

Note: *including errors and emissions, **End of the year, ***of goods 2. Ensuring that the federal and pro- in relation to the reduced target. With the (in percent of GDP) -8.9 -8.1 -7.5 -7.4 and services vincial budgets for 2020–2021 are massive slowdown in industrial produc- Source: SBP 2020; UNDP NHDR 2020 Macroeconomic Model Source: Government of Pakistan 2020c; UNDP NHDR 2020 Macroeconomic Model simulations. simulations. largely consistent with the reform tion and reduced imports, this shortfall agenda agreed with the Internation- reached PKR 1.2 trillion by the end of the percent in 2020–2021, rising to US$8.2 al Monetary Fund. The pre- last quarter of 2019–2020. June 2020. Pakistan has achieved a reduc- billion. This will largely be caused by the COVID-19 agenda will, of course, The relief package introduced by the tion of PKR 500 billion in the deficit. The combined effect of an expected fall in ex- need to be rationalized in the face Government of Pakistan in the wake of outcome in 2019–2020 is a consolidated ports and in workers’ remittances. Imports of significant negative develop- COVID-19 has also had significant fiscal fiscal deficit of 8.1 percent of GDP. The will decline by 3 percent from their already ments precipitated by the pandem- consequences. The package aims to reduce primary deficit is estimated at 0.8 percent depressed level in 2019–2020. In fact, the ic. Fundamentally, there will have the unemployment, poverty, and hunger of GDP, compared to a target of 0.6 per- level of imports in 2020–2021 is expected to be an agreement on whether the wrought by the pandemic. The Interna- cent. to be only around 74 percent of the level of 2020–2021 budget should provide tional Monetary Fund estimates that this Turning to the outlook for 2020–2021, imports reported in 2018–2019. fiscal stimulus, or whether it should package has added another PKR 500 bil- there is a need to answer a fundamental Pakistan’s financial account in 2019– focus more on stabilization through lion to Pakistan’s fiscal deficit in 2019– question: Will the Government develop 2020 showed a smaller surplus, of US$8 a quantum reduction in the budget 2020. an even more expansionary fiscal policy billion, compared to the high level of deficit. However, the budget for Overall, the fiscal deficit in 2019–2020 to promote early economic revival, or will US$11.6 billion in 2018–2019, a rise en- 2020–2021 presented at the end of is estimated at approximately PKR 3.4 tril- it continue to adhere, as far as possible, to abled primarily by the substantial com- June 2020 focuses primarily on sta- lion (table 8.8), compared to the original the norms of stabilization envisaged in the bined deposit of over US$7.5 billion by bilization, and especially on reduc- target of PKR 3.9 trillion, reported when original International Monetary Fund pro- Saudi Arabia, the United Arab Emirates, ing the budget deficit by over 1 per- Parliament passed the federal budget in gramme?

210 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Growth and inequality: The impact of COVID-19 211 The Government has opted for a mid- more employment and create a multiplier Turning to projections of the impact FIGURE 8.7 dle path, pursuing a balanced strategy in effect on incomes. on inequality, there will be a large drop in Projections of the change in corporate profitability over the previous quarter the 2020–2021 budget. The fiscal effort the capital income of the richest quintile. (%), (2019-2020 to 2020-2021) to raise revenues through progressive tax This is due to the dip in returns on equi- reforms will continue. Savings will be COVID-19’s impact on inequality ty, caused by the fall in corporate profit- 40 achieved in current expenditure by further ability. Labour incomes will also fall as 2019-20 2020-21 31 reducing interest rates, and deferring in- Taking the measures outlined above will production declines in different economic 30 21 creases in salaries and pensions. impact the level of inequality in Pakistan. sectors. However, this will be contained by 20 The primary emphasis must be on the Government’s relief package. 8 First of all, these will have a major negative 10 an adequate level of outlay on subsidies, effect on wealth. The market capitaliza- Using the Macroeconomic Model, the grants, and social protection. This is vital 0 tion of the stock market initially plummet- NHDR 2020 also derives the projected Q1 Q2 Q3 Q4 Q1 -4 Q2 Q3 Q4 to sustain and expand relief operations, ed by over 15 percent, implying a loss of al- quarterly change in the level of inequali- -10 -15 while building-in incentives for increased most US$7.5 billion to the richest quintile ty with respect to the previous quarter. As -20 economic activity. Priority areas should in- of Pakistan’s population. The market has figure 8.8 shows, inequality decreases ini- -30 clude expanding the subsidy to the Utility since recovered. tially, before rising sharply in 2020–2021. -40 Stores Corporation and introducing a sub- The NHDR 2020 uses the UNDP Mac- Thus, inequality essentially takes the same -39 sidy for private hospitals to expand their roeconomic Model to derive the impact of path as the change in corporate profitabil- -50 COVID-19-related facilities. In terms ity. However, it takes somewhat longer for shocks to the economy, prompted by the Source: UNDP NHDR 2020 Macroeconomic Model simulations. of grants, the allocation for the Benazir COVID-19 pandemic, on inequality in inequality to start rising. Income Support Programme and Ehsaas Pakistan. As an intermediate step, it is nec- needs to be raised by almost 50 percent. In essary to quantify the impact on corporate FIGURE 8.8 tandem, a more generous grant should be profitability. Impact on education provided to expand the operations of Paki- Figure 8.7 presents projections of the Projections of the change in inequality over the previous quarter (%), (2019- 2020 to 2020-2021) stan Bait-ul-Maal, with its network of local change in corporate profitability. The School closures prompted by COVID-19 committees. third and fourth quarters of 2019–2020 have affected an estimated 55 million Based on the balanced strategy outlined 20 are likely to witness a sharp drop in prof- children between the ages of 5 and 16 in 2019-20 2020-21 15 above, the fiscal deficit could be reduced to itability due to the large contraction in Pakistan – spanning students enrolled in 15 a more manageable level of 7.5 percent of output and sales. A gradual process of re- both primary and secondary education. 10 GDP in 2020–2021. covery is expected in 2020–2021. Schools are expected to reopen between 7 After COVID-19, inequality could The tax-to-GDP ratio will increase by 15 and 30 September 2020.5 Therefore, 5 decrease initially as corporate 1.4 percent of GDP, as table 8.9 shows. TABLE 8.9 schools have effectively been closed for six 0 profitability plummets, but it Some of this increase could come from Q1 Q2 Q3 Q4 Q1 Q2 -1 Q3 Q4 to seven months, although this includes -5 may rise thereafter due to higher a higher level of taxation for petroleum Government budgetary projections as % of three months of normal summer holidays. GDP, (2019-2020 and 2020-2021) -8 unemployment. products. There is also significant scope This time loss could bring down ‘adjusted -10 -9 for broad-basing the income tax system, learning years’ by an estimated 7 percent -15 2018- 2019- 2020- thereby making it more progressive. Sim- 2019 2020 2021 for children in Pakistan. The pandemic is -20 ilarly, leakages and tax rate competition expected to have an even more detrimental -20 Revenues 12.7 15.0 15.2 -25 can be reduced by introducing a national effect on girls than on boys. integrated value added tax on goods and Tax revenues 11.6 11.1 12.5 The average earning loss due to delayed Source: UNDP NHDR 2020 Macroeconomic Model simulations. services. Non-tax revenues 1.1 3.7 2.7 entry into employment is estimated at One potential striking feature of the US$140 per student. The overall loss for Expenditure 21.6 23.1 22.7 COVID-19, it is important to estimate next budget is a major reduction in current these 55 million children later in life will Current expenditure 18.9 20.4 19.7 the quarterly level of value added in two expenditure, of 0.7 percent of GDP. This amount to US$7.7 billion. is largely due to efforts to contain the cost Debt servicing -5.4 6.3 -4.2 key sectors of Pakistan’s economy: indus- of domestic debt servicing. This will create Development expenditure 2.7 2.7 2.9 try and services. Lay-offs are likely to be linked to the short-term decline in output, some fiscal space for higher development Budget deficit -8.9 -8.1 -7.5 Impact on employment spending. Federal and provincial Public on a more or less proportionate basis. As Primary deficit -3.5 -1.8 -3.34 the economy begins to recover, hopefully Sector Development Programmes should The derived demand for labour inputs focus on widely-dispersed, labour-inten- Source: Government of Pakistan 2020c; UNDP NHDR 2020 in the first quarter of 2020–2021, some Macroeconomic Model simulations. depends on the level of output in differ- sive infrastructure projects to generate retrenched workers will be reemployed, es- ent economic activities. In the context of pecially those with specific human capital

212 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Growth and inequality: The impact of COVID-19 213 FIGURE 8.9 SPECIAL CONTRIBUTION Luis Gorjon Fernandez June 2020–2021. The corresponding esti- mates are 44 percent for industry, and 80 How COVID-19 is likely to affect life outcomes for Pakistan’s vulnerable children Index of National Employment and by sector (employment base, 2018-2019 percent for services. = 100), (2019-2020 and 2020-2021) The already burdened public health system in Pakistan faces enor- immunizations compared to January. They included almost 40 mil- As of the end of June 2020, 5 million workers in Pakistan are estimated to have mous challenges to curb the spread of the novel coronavirus pan- lion children under-five who were due for their polio vaccines, as the Agriculture National Employment Services Industry demic, while continuing to provide access to essential health and nationwide campaign scheduled for April had to be postponed. All of lost their jobs (table 8.10). By the end of nutrition services. Pakistan is one of the top 20 countries impacted this has increased the risk of vaccine-preventable disease outbreaks, June 2021, 2.9 million are likely to return 120 by COVID-19. Educational facilities are closed, putting millions of and a rise in child mortality. to work, while almost 2.1 million will re- children at risk of dropping out of school permanently and joining the The medical journal, The Lancet, estimates that wasting – brought main laid-off. In addition, there were 4.2 nearly 23 million children who are already out of school. on by severe malnutrition – will lead to between 18 and 23 percent million unemployed workers in Pakistan in The COVID-19 outbreak has caused a further shrinkage in resourc- excess mortality among children under-five in contexts where al- 2018–2019. Their number will increase to es for service delivery in education and health, where public sector ready fragile health systems are further stretched by the COVID-19 5.2 million in 2020–2021, as new entrants investments, at 2.3 percent and 0.76 percent of GDP, respectively, response. The situation is of particular concern in Pakistan, where join the labour force. were already below required levels. 38 percent of children are already stunted and 2.5 million suffer from Overall, there has probably been a ma- The pandemic is “a health crisis that will become a child rights severe wasting. The prevalence of wasting is already beyond the jor jump in the unemployment rate, from crisis if we don’t act now,” as Aida Girma, UNICEF Representative in emergency threshold. 100 Pakistan, has said. “Schools are closed, children have missed on their Since the onset of COVID-19, UNICEF has been working alongside 6.2 percent in 2018–2019 to 15.3 percent immunizations and more families are being pushed into poverty, with the Government of Pakistan, provincial governments, and other part- in 2019–2020. It is anticipated that con- devastating effects on the health and well-being of children and ado- ners to mitigate the impact of the pandemic. Besides supporting a ditions in the labour market will improve lescents.” comprehensive public awareness campaign on symptoms and pre- somewhat in 2020–2021, and that the un- It is thus more essential than ever before to safeguard the health cautions to take against the novel coronavirus, UNICEF is assisting employment rate will fall to 12.9 percent. and survival of the most vulnerable by ensuring the continuity of crit- the procurement and distribution of personal protective equipment However, it will remain at over twice the ical services, and by increasing investments in education, health, and (PPE) for frontline health workers, the installation of handwashing level recorded before the COVID-19 pan- child-sensitive social protection programmes. stations at public points, the provision of remote learning, and sus- demic. In April 2020, two-thirds of Pakistani children missed their routine taining essential health and nutrition services in the country. 80 Job losses by type of worker and work Luis Gorjon Fernandez is Head of Social Policy at UNICEF Pakistan. Notes: Roberton and others 2020; UNICEF 2020, Lives Upended. location

The NHDR 2020 analyses job losses by skills. The rate of reabsorption is linked to industrial sector’s value added is estimat- types of workers and by the kinds of enter- the elasticity of labour demand, with re- ed to have fallen by 3 percent in the third prises in which they work (work location). spect to increases in output. Based on his- quarter, and by 11 percent in the fourth Based on their skill levels, the analysis clas-

torical data, this is assumed to be 0.46 in quarter of 2019–2020, compared to pro- sifies workers into three categories: pro- 0 industry and 0.58 in services. duction levels in 2018–2019. The service fessional, skilled, and unskilled workers in Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Pakistan’s quarterly GDP fell by an es- sector is also likely to have experienced a elementary occupations. Figure 8.10 pres- 2019-20 2020-21 timated 6 percent in the fourth quarter of major fall, of 9 percent, in value added in ents the distribution of job losses in Paki- 2019–2020. Some recovery is anticipated the fourth quarter of 2019–2020. stan by skill level. Source: UNDP Macroeconomic Model. in 2020–2021, with GDP likely to ap- Figure 8.9 presents the impact of falling The overall rate of job losses is 5 percent proach pre-pandemic levels after the fourth sectoral outputs on employment. Com- among managers and professionals, 12 per- quarter of the ongoing financial year. Agri- pared to the level of employment in 2018– cent among skilled workers, and almost 20 ly consists of daily wage earners. culture is likely to experience a significant 2019, job losses are estimated at 8 percent percent among unskilled workers. It is ex- Figure 8.11 presents the distribution of Five million workers are loss of output due to locust swarms during in the economy as a whole in the fourth pected that 88 percent of professionals will workers who have lost their jobs by work estimated to have lost their jobs the 2020–2021 Kharif season. As such, ag- quarter of 2019–2020. Job losses at the be able to return to their jobs or find new location. There is a risk that small enter- since the onset of COVID-19 in riculture’s sectoral growth rate is likely to sectoral level are estimated at 11 percent in work, as will 65 percent of skilled workers, prises may be forced to shut down their 2019–2020. be only 1.7 percent. industry, and 7 percent in services, while and 44 percent of unskilled workers. operations in the event of a loss of output, The industrial sector has been worst-hit agriculture remains more or less the same. The analysis of job losses by workers’ lo- especially for the export market, due to se- by COVID-19. Export losses have surged As the spread of COVID-19 appears cation looks at whether they are employed vere liquidity problems and losses. They as the volume of world trade fell by an an- to be slowing, this opens up the prospect in small enterprises that employ up to 50 may find it difficult to restart operations ticipated 15 to 20 percent, coupled with for the faster and greater recovery of jobs workers, large enterprises that employ when conditions improve. Furthermore, it the localized shutdown of factories and in- in 2020–2021. Overall, about 72 percent more than 50 workers, or are ‘footloose’ is especially difficult to provide targeted terruptions in supply chains. As such, the of overall job losses could be recovered by (self-employed). This third category large- support for self-employed workers, who

214 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Growth and inequality: The impact of COVID-19 215 TABLE 8.10 FIGURE 8.11 Before the pandemic, the incidence of pov- FIGURE 8.12 erty in Pakistan was estimated at 37 per- Trends in employment, end of year figures (000), (2018-2019 to 2020-2021) Distribution of jobs lost by work location (%), cent. This implies that 11.4 million house- Projections of number of households living below the poverty line (million), (2019-2020) (2019-2020 and 2020-2021) holds, with an average household size of Cumulative laid off seven, earned incomes that were below the 2018-2019 2019-2020 2020-2021 workers Self-employed 18 Small enterprises poverty line. Agriculture 24,186 24,272 24,315 - 15.4 Large enterprises Projections using the Macroeconom- 16 14 86* 43 ic Model suggest that there will be a huge 14 12.9 11.4 11.4 12 Industry 14,934 12,611 13,396 1,538 Services increase, of 2.6 million, in the number of Loss of Jobs 2.6 million households below the poverty line, bring- 10 -2,323 785 ing the number of such households to 14 8 Services 23,783 21,087 23,080 703 6 26% 45% million in the third and fourth quarters -2,696 1,993 of 2019–2020. Taking this into account, 4 Number of laid off workers -5,019 0 -2,241 the cash transfers described below tar- 2 get 15 million households. By the end of 0 Number of workers who 4,169 5,274 6,569 32% 2020–2021, it is expected that the number Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 remain unemployed 33% of poor households will approach 15.4 mil- 2019-20 2020-21 Number of laid off and 4,169 10,293 8,990 Industry Loss of Job 2.3 million unemployed workers -6,124 -1,295 lion. This means that almost 49 percent of Source: UNDP NHDR 2020 Macroeconomic Model simulations. Pakistan’s population will have fallen be- Unemployment rate (%) 6.2 15.3 12.9 low the poverty line. Note: End of year data. *Annual Change in number employed **From existing jobs. 35% 2020. Efforts are also needed to Source: UNDP calculations based on the UNDP Macroeconomic Model and multiple years of LFS data. 29% keep prices in these outlets at least COVID-19 is likely to increase Proposed relief, incentive and 20 percent below market levels. the number of households living FIGURE 8.10 development package During the pandemic, the pric- below the poverty line by 2.6 es of basic food items have risen million. Skill distribution of job losses by sector (%), Source: UNDP calculations based on LFS data 2017-2018. The NHDR 2020 suggests the following sharply. The rate of inflation in the (2019 to 2020) additional measures for social protection, prices of wheat flour, powdered may fall below the poverty line until after relief, revival, and development to facili- milk, vegetable ghee, pulses, vege- Skilled 2020–2021. tate the early revival of the economy, while tables, and sugar have all risen by Unskilled In the industrial sector, 32 percent Professional protecting the poor and the unemployed 20 to 30 percent. This has raised of workers who have lost their jobs were from a worsening economic plight. the cost of living, especially for employed in large enterprises, 33 percent poor households, while badly af- Services were self-employed, and 35 percent were Loss of Jobs 2.7 million Social protection fecting children’s nutrition intake. employed in small enterprises. In services, 4% 3. Introducing a buffer of larger im- 45 percent of workers who have lost their 1. Continuing cash transfers of PKR ports to prevent a breakdown of 13% jobs were self-employed, 29 percent were 12,000 every four months to the food security and an exponential 2% employed in small enterprises, and 26 per- 15 million families identified by increase in food prices. While cent were employed in large enterprises. the first round of the Ehsaas Emer- wheat output was expected to be 27 83% Self-employed workers, especially daily gency Cash Programme, which was million tonnes in 2020, enough to 57% wage earners, in the industrial and service implemented from 1 April 2020 meet domestic demand, real output Industry sectors will find it most difficult to recover 41% Loss of Job 2.3 million onward. is likely to be up to 2 million tonnes their livelihoods. 2. Raising the budget for the Utility lower. Consequently, the procure- Stores Corporation to PKR 50 ment target of PKR 8 million billion and increasing the number tonnes has not been met and im- Impact on poverty of outlets five-fold. At present, ports have had to be arranged on the subsidy to the corporation has a priority basis. Moreover, over There is a need to gauge what impact the been reduced to just PKR 3 bil 500,000 tonnes of sugar will need COVID-19 pandemic will have on poverty lion in the 2020–2021 federal bud- to be imported as soon as possible, and household incomes in Pakistan. Figure Source: UNDP calculations based on LFS data 2017-2018. get, compared to PKR 43.5 billion given the 7 percent shortfall in sug- 8.12 presents estimates of poverty levels. in actual expenditure in 2019– ar output up to June 2020. The im-

216 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Growth and inequality: The impact of COVID-19 217 ports of pulses and palm oil will ghee imposed by the 2019–2020 Pakistani Rupee counterpart funds the incentives mentioned above, also have to be increased. budget should also be temporarily for the acceleration of projects, alongside a tax amnesty on invest- 4. Providing a soft loan facility for pri- withdrawn. with concessional financing from ment in housing and real estate de- vate sector employees who have ei- 2. Providing tax incentives to indus- the World Bank and the Asian De- velopment. ther been temporarily laid-off, or tries that operate in the domestic velopment Bank, especially in so- experienced a salary cut. The State market, for instance those engaged cial sectors. Development Bank of Pakistan’s financing in the production of cement, iron 8. Enhancing the personal income schemes highlighted above primar- and steel, fertilizer, chemicals, and tax exemption limit from PKR 1. Expanding government hospitals’ ily target corporate entities and paper and board, among others. 600,000 to PKR 900,000 on annu- intensive care and testing capaci- SMEs, leaving a gap in support for These could include permitting de- al income before tax returns are ties. The federal and provincial gov- private sector workers. The size of lays in the deposit of tax liabilities filed for 2019–2020. With such an- ernments may allocate a combined this loan should be up to three by small entrepreneurs, coupled announcement, the Government amount of PKR 100 billion to en- months’ salary, to be repaid in two with a reduction in tax rates. would extend much-needed sup- hance these capacities, which will years. 3. Enhancing the profitability and port to the middle class, which has improve current efforts to combat- 5. Adopting a policy of keeping the liquidity of export industries by re- been squeezed by the loss of jobs, the pandemic, while ensuring that prices of petroleum products un- storing the zero-rating facility at salary cuts, and a relatively high better arrangements are in place if a changed, even as the import price least until the end of December rate of inflation. second wave of infections emerges. of petroleum products rises, 2020. This could be replaced in 9. Raising the tax deductibility of 2. Ensuring that the public sector through a corresponding down- 2021 with a cash incentive of 10 health insurance from 5 percent takes the lead in labour-intensive ward adjustment in the petroleum percent, payable automatically to of taxable personal income to 10 construction efforts, which are levy. At present, the Federal Gov- exporters by the State Bank of Pa- percent. Similarly, the tax deduct- the right approach for the early ernment collects a petroleum levy kistan upon receipt of export pro- ibility of charitable contributions revival of employment in the econ- of 16 to 20 cents per litre on the ceeds in lieu of other incentives. should be raised by up to 30 percent omy. Therefore, federal and pro- sale of motor spirit and high-speed 4. Fully restoring the initial depreci- on individual taxable income, and vincial governments may include diesel oil. This policy may be fol- ation allowance and tax credit for up to 20 percent for companies. It projects in their Public Sector lowed until the end of 2020. balancing, modernization, and re- may be raised to 40 percent and 30 Development Programmes that are 6. Implementing a special short-term placement in income tax, in order percent, respectively, for contribu- relatively small, dispersed, and flood relief programme to address to promote investment. tions to the Prime Minister’s Relief which have a rapid impact on the the heavy monsoon rains and se- 5. Extending support to the construc- Fund. economy. Such projects could in- vere flooding which inundated Ka- tion sector by finalizing foreclosure 10. Allowing a first-year 100 percent volve lining irrigation canals, build rachi and rural areas in Sindh after laws as soon as possible, providing depreciation allowance for private ing rural roads, rehabilitating urban July 2020. Although the housing loans at a low mark-up of hospitals as a special incentive to infrastructure and services, and COVID-19 incidence curve began 3 percent for relatively small loans support the expansion of their in- constructing schools, among other flattening in July, the combined of up to PKR 2.5 million, and re- tensive care and testing capacities. activities. A special effort will be weight of flooding immediately ducing taxes on building-related in- 11. Adding a tax deductibility provi- required to provide employment after lockdowns will have taken a puts. sion to the incentives that the Fed- opportunities for youth in these severe toll on poor, marginalized, 6. Raising the tax credit on charitable eral Government has announced projects. and vulnerable groups. donations to recognized NGOs for the construction sector, where 3. The International Monetary Fund and to the Government’s proposed by the repayment of a housing may adopt the same policy for its Tax relief and incentives Special Fund to 40 percent, as per loan by an individual taxpayer of up proposed package as it has for its section 61 of the Income Tax Ordi- to 20 percent of taxable income ongoing programme in Pakistan: 1. Reducing the high, specific import nance. may be introduced, up to a max- that is, any costs linked to duty on palm oil – one of Pakistan’s 7. Making special arrangements to imum of PKR 40,000 per month. COVID-19 will not be included in largest imports, widely used for extend federal government support This would complement the the calculation of the budget defi- cooking – and withdrawing the to the provinces, which are likely to Government’s incentives for the cit. This in line with the IMF’s 3 percent duty on the import of use their existing cash balance to construction sector – which is la- global support for expansionary fis- pulses, which are staples for poor negotiate the economic slowdown bour-intensive and creates jobs cal and monetary policies to ensure households. The increase in the and the contraction in their tax across a number of sectors that relief and rapid economic revival sales tax on sugar and vegetable base. Efforts should be made to find provide it with inputs – including post-COVID-19. As table 8.11

218 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Growth and inequality: The impact of COVID-19 219 shows, overall financial outlay processes through e-filing, and al- 1. Maintaining a stable real effective available, the Government and the State The relief, incentive, and on the relief, incentive and devel- lowing the consolidation of tax and exchange rate, which is neither Bank of Pakistan have made commendable development package proposed opment package to counter non-tax payments in one return to overvalued nor undervalued. efforts to safeguard citizens from COVID- for 2020–2021 (worth PKR 1.2 COVID-19’s negative effects is the extent possible, with minimum 2. Maintaining the State Bank of Pa- 19’s negative economic and social impact. trillion) involves more spending PKR 1.2 trillion for 2020–2021. physical contact between tax offi- kistan’s policy (interest rate) at one Taking the steps that the NHDR 2020 on social protection and This is almost equal to the special cials and taxpayers. or two percentage points above the proposes for 2020–2021 will sustain and development, paired with tax package of PKR 1.25 trillion that 2. Improving access to credit by ex- ‘core’ inflation rate. expand relief efforts, provide stimulus for relief and fiscal incentives. was implemented in the fourth panding access to banks through 3. Targeting an annual increase in the the revival of the economy, and facilitate quarter of 2019–2020. agent networks, partnerships with tax-to-GDP ratio by at least 1 per- the accelerated development of the health microfinance institutions, the post- cent of GDP, with a primary focus sector. There is also a need to focus on enhanc- al network, and the internet. on increasing revenues from direct ing investment and the production of ex- 3. Paying specific attention to the ease taxes. isting units as the economy recovers from of doing business with reference to 4. Achieving a reduction in non-de- Notes the onset of the COVID-19 pandemic. the protection of user privacy, data fence, non-debt servicing current This can be achieved by implementing the accessibility, internet speed, and in expenditure by at least 0.3 percent 1 Mahmood 1984; Kruijk and Leeuwen 1985; Ali and Tahir following steps to facilitate the ease of do- frastructure, among other issues. of GDP every year. 1999; Jamal 2006; Anwar 2010; Cheema and Sial 2012; ing business: 4. Replicating Punjab’s Land Re- 5. Raising the level of development Jamal 2014; Shahbaz and others 2014; Tariq and Waqas cord Management Information Sys- expenditure, including expenditure 2016. 1. Making it easier to pay taxes, for in- tem (LRMIS) in other provinces to on human development, by 0.3 per 2 WTO 2020. 3 As of June 2020. TABLE 8.11 stance by simplifying and digitizing improve property registration and cent of GDP every year. 4 IMF Press Release No. 20/167, see: https://www.imf.org/ transfers. In tandem, the system en/News/Articles/2020/04/16/pr20167-pakistan-imf-ex Fiscal cost of relief, incentive and development package (PKR billion), should be expanded to encompass The people of Pakistan are passing ecutive-board-approves-disbursement-to-ad (2020-2021) both rural and urban land and through a period of great uncertainty and dress-covid-19 property. deprivation. With the limited resources 5 Government of Pakistan 2018f. Cost 5. Simplifying procedures for register- PKR billion ing and establishing a business Social protection 690 through a one-window operation, Transfer of PKR 12,000 per family to 2.0 million families twice in 2020-2021 480 as far as possible. 6. Improving logistical performance in Subsidy to the Utility Stores Corporation 50 the dispatch of exports and the Reduction in petrol levy 60 clearance of import consignments. Special Flood Relief Program 100 7. Facilitating new SMEs’ access to

Tax relief and incentives 210 electricity, gas, water, and sewerage connections. Reduction in sales tax and excise duty rates on selected industries 40 8. Providing more up-to-date, fre- Restoration of the zero-rating facility to exports for six months 40 quently disseminated information Restoration of full investment allowances 60 on the conditions of Pakistan’s busi- Enhancement in personal income tax exemption limit 20 ness environment. Increased tax deductibility on health insurance, charitable contributions and 50 introduction of deductibility on housing loan repayments Implementing macroeconomic policies Special development package 300 Enhanced development allocation for the health sector 150 The NHDR 2020 suggests the following Special Development Program of small, labour-intensive projects with youth 150 policy measures to control growing in- involvement equality in Pakistan, while sustaining at Total package 1,200 least moderate growth after the economy recovers from COVID-19, from 2021– Source: NHDR 2020 suggestions based on Macroeconomic model. 2022 onward:

220 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Growth and inequality: The impact of COVID-19 221 CHAPTER 9 Tackling inequality CHAPTER 9 Tackling inequality

Based on the NHDR 2020’s comprehen- Agenda for wide-ranging tax reforms sive analysis of the causes and consequenc- es of inequality in Pakistan, this chapter • Transitioning from taxation-based presents a strategy for tackling inequality. on blocks of income to comprehen- In line with the Commitment to Reducing sive income taxation, in order to in- Inequality Index described in chapter 2, crease the progressivity of the tax the three ‘pillars’ of this strategy are: system. • Withdrawing exemptions to enable • Reducing the privileges of the elite, the full taxation of capital gains on especially those related to tax breaks shares and properties. and concessions, favourable pricing • Moving to a progressive tax system mechanisms, and preferential access on corporate profits that have a re- to land, capital, and infrastructure. turn on equity above 15 percent. • Spending more on human develop- • Introducing an inheritance tax. ment and social protection by us- • Enhancing the withholding tax on ing the revenues and savings gener- the electricity bills of large commer- ated once the privileges of vested cial and domestic consumers. interests are reduced to increase • Enhancing the tax rates on agricul- public expenditure in the critical ar- tural income, bringing these closer eas of health, education, and social to the tax rate on non-agricultural protection. income. • Improving conditions of work and • Developing an urban immoveable providing employment, particular- property tax linked to the valuation ly by enhancing the rights of work- tables of the Federal Bureau of Rev- ers, advancing women’s legal right to enue. work, and raising the minimum wage and ensuring its full coverage. Withdrawing subsidies Beyond the short-term relief, incen- • Raising the water charge (aabiana) tive, and development package to counter in order to recover the irrigation sys- COVID-19’s impact described in chapter tem’s operations and maintenance 8, the steps recommended below should costs. begin to be implemented as soon as a sem- • Imposing a moratorium on the fur- blance of normalcy is restored in Pakistan’s ther establishment of public uni- economy. versities over the prioritization of primary and secondary education, combined with a scheme of scholar- Reducing the privileges of ships for meritorious and needy stu- the elite dents. • Preparing a plan to reduce subsidies First, elite privileges should be curbed by to loss-making state-owned enter- reforming taxes, subsidies, pricing policy, prises, and implementing the clo- and access to assets.

Tackling inequality 225 sure, privatization, or restructuring • Establishing a consolidated online ways. o women workers; and of individual units. database of the beneficiaries of Pa- • Subjecting the process of tax changes o transgender people and reli- • Taking strong steps to reduce circular kistan Bait-ul-Maal, the Pakistan to more intensive examination and gious minorities. debt in the power sector by cutting Poverty Alleviation Fund, the Bena- approval, as follows: • Reserving a quota for women in gov- losses and changing the pricing for- zir Income Support Programme, o preparation by the Federal ernment departments and state- mula. and Ehsaas – including all Ehsaas Board of Revenue, with the ap- owned enterprises, while providing sub-programmes like Tahafuz and proval of the entity’s board; employers with incentives, such as a Equitable access to assets (land and Kafaalat – to avoid the duplication o submission and approval by the 3 percent tax deductibility on the capital) of aid for the same households deliv- Federal Cabinet; and wage bill for women employees. ered via multiple means. o submission to and approval by • Providing interest-free, small and • Undertaking the market-based auc- • Developing a comprehensive moni- the National Assembly, follow- medium-term loans to women entre- tion of government land, including toring and evaluation mechanism ing a thorough examination by preneurs. land in cantonment areas. for each priority social protection the Finance Committee. • Strengthening the capacity of pro- • Developing an Annual Credit Plan – programme, so as to ensure transpar- • Including a section on identifiable vincial Departments of Labour to devised by the State Bank of Paki- ency and accountability. changes in inequality indicators in monitor the implementation of min- stan with commercial banks – for • Increasing the allocation of funds for the Ministry of Finance’s annual imum wages, decent work condi- targeting SMEs, small farmers, hous- preventive health care and populat- progress report on the Pakistan Re- tions, and decent treatment in em- ing, and social services. Penalties ion control programmes. duction Strategy Paper (PRSP). In- ployment, especially of women should be imposed if targets are not • Investing in upgrading public schools cluding the quantification of subsi- workers. met. and training teachers, as well as en- dies and an assessment of social • Activating labour courts and increas- hancing the number of vocational protection and poverty alleviation ing their number. Pricing policy and technical institutions that equip programmes. • Raising the minimum wage to PKR learners with market-based skills. 20,000 per month – up from the cur- • Withdrawing the support price for • Developing, through Provincial Fi- Implementing these recommendations rent rate of PKR 17,500 – to address sugar and restoring the support price nance Commissions, an allocation will be a boon to human development, the effects of inflation, which has for cotton. formula for larger social sector sparking a transition away from the current risen to 20 percent in the last two • Introducing a section on the detec- spending in more underdeveloped inequality of the two different Pakistans, years. tion of transfer pricing in income tax districts. and towards a more equal, inclusive nation. law. • Sustaining the four-month cycle To this end, it will be vital to expand em- Finally, there is a need for a vibrant me- • Introducing minimum import prices of cash transfers to the 15 million ployment and improve the conditions of dia to highlight issues of inequality and to prevent the under-invoicing of families identified by the Ehsaas employment for all. state capture by the elite. The time has imports. programme, and increasing the num- come for a new social contract – with fewer ber of beneficiary households to 20 privileges for the country’s richest people, Overall, implementing these measures million. Improving conditions of work and more opportunities for disadvantaged could yield up to PKR 500 billion in addi- • Introducing conditional cash trans- and providing employment groups and the ‘squeezed’ middle class. tional revenues or savings in expenditure. fers for inoculation and sending These should, in turn, be targeted towards child to school, rather than to work. • Providing fiscal incentives and sub- greater spending on human development • Expanding the pension scheme of the sidized credit to labour-intensive Moving forward and social protection. Employees’ Old-Age Benefits Insti- sectors like construction, agricul- tution – on the basis of contribu- ture, trade, and tourism. The comprehensive agenda presented in tions by self-employed workers, with • Leveraging Pakistan’s low cost of this chapter needs to be prioritized. To Spending more on human some government sharing of the pre- labour and its youth bulge in order this end, an Action Plan for Tackling In- development and social mium – and launching a pension to advance technology-led devel- equality should be developed as a matter protection scheme for expatriate workers. opment in the so-called fourth In- of urgency. The Government should form • Allocating more development fund- dustrial Revolution. a special commission to do so, one which ing to projects for water resource • Drafting a detailed practical action • Supporting the organization of draws its membership from political par- development and improving power plan on all of the multiple policy groups or collectives of: ties across the board, including Members distribution, with a corresponding aims of the ambitious, comprehen- o tenant farmers; of the National Assembly and Provincial reduction in allocations for high- sive Ehsaas Strategy Document. o industrial workers; Assemblies, senators, and representatives

226 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Tackling inequality 227 of civil society and academia. to move in the right direction, in order to The Pakistan NHDR 2020, based on reduce inequality. This will require all key extensive research and new approaches for players to come together, across the board measuring inequality, lays the groundwork and across political divides, to enable Paki- for these efforts. This report’s evidence and stan and its people to reach their full po- recommendations can enable the country tential. If the real wealth of a country is its people, Pakistan faces an embarrassment of riches. It is because of this that the work of the report culminates in you, the reader.

Each and every one of you has a part to play in taking forward the findings of the NHDR 2020. Those of you in the media can disseminate the reform agenda con- tained within this report. Those of you in academia can improve on the ideas we have outlined. Those of you who are policy makers can translate the NHDR’s recommendations into actionable policy. And all of you, the people of Pakistan, can extend tolerance and acceptance towards those who are different, in fundamental ways, from yourselves.

Together, we can move away from the two different Pakistans – of the haves and the have nots – and build a more inclusive, equal nation.

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236 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Statistical annex 237 Statistical annex Readers’ guide

Statistical tables three dimensions. It presents IHDI values and the values of its components at the national and provincial levels for Technical notes The eight statistical tables provide an overview of the key 2006–2007 and 2018–2019. 6 Child Development Index 269 aspects of human development, with a focus on different Table 4: Presents the Child Development Index 7 Youth Development Index 271 dimensions of inequality in Pakistan. All of these tables (CDI) and sub-indices (living standards, education, and 8 Labour Development Index 273 were estimated by the NHDR team at UNDP Pakistan, health and nutrition) at the national and provincial levels under the supervision of lead author Dr. Hafiz A. Pasha. for 2007–2008 and 2018–2019. The table also presents Note: A number of measures follow the standard methodology for the quantification of development The hard copy of the report presents the data for the ear- the decomposition of the index by gender at the national used in UNDP’s global Human Development Reports. These are: liest and latest years analysed. Data for the intervening • Human Development Index (HDI) and provincial levels for the same years. • Inequality-adjusted Human Development Index (IHDI) years are available online at: Table 4A: Presents CDI indicator values overall and • Gender Development Index (GDI) https://www.pk.undp.org/content/pakistan/en/home/ by gender at the national and provincial levels for 2007– • Gender Inequality Index (GII) library/human-development-reports/PKNHDR-in- 2008 and 2018–2019. equality.html. Table 5: Presents the Youth Development Index Data sources 277 Table 1: Presents the Human Development Index (YDI) and its sub-indices at the national and provincial (HDI) and its sub-indices (education measured with two levels for 2001–2002 and 2017–2018. The table also Regional classification 278 indicators, adult literacy and net enrolment; health mea- presents the YDI disaggregated by gender at the national sured with the indicator of life expectancy at birth; and level for the same years. Statistical annex references 279 income, measured in terms of per capita income convert- Table 5A: Presents YDI indicator values at the na- ed to International Dollars using PPP rates) at the nation- tional and provincial levels for 2001–2002 and 2017– al and provincial levels, with an urban/rural breakdown, 2018, and the breakdown by gender at the national level for 2006–2007 and 2018–2019. It also presents the HDI for the same years. values for two of Pakistan’s special regions: Azad Jammu Table 6: Presents the Gender Development Index and Kashmir and Gilgit-Baltistan. (GDI) and its sub-indices (education, health, and income) Table 1A: Presents HDI indicators values at the na- at the national level for 2006–2007 and 2018–2019. The tional and provincial levels, with an urban/rural break- GDI measures disparities by gender, presenting HDI val- down, for 2006–2007 and 2018–2019. ues estimated separately for women and men, the ratio of Table 2: Presents the HDI and its sub-indices by in- which yields the GDI value. The closer the ratio is to 1, come quintiles at the national and provincial levels, with the smaller the gap between women and men. an urban/rural breakdown, for 2006–2007 and 2018– Table 6A: Presents GDI indicator values at the na- 2019. tional level for 2006–2007 and 2018–2019. Table 2A: Presents HDI indicator values by income Table 7: Presents the Gender Inequality Index (GII) quintiles at the national and provincial levels, with an ur- and its components at the national and provincial levels ban/rural breakdown, for 2006–2007 and 2018–2019. for 2006–2007 and 2018–2019. The GII is a composite Table 3: Presents the Inequality-adjusted Human measure of gender inequality using three dimensions (re- Development Index (IHDI) at the national and provin- productive health, empowerment, and the labour market). cial levels. The IHDI contains two related measures of A low GII value indicates low levels of inequality between inequality: the IHDI and the loss in HDI due to inequal- women and men, and vice versa. ity. The index looks beyond the average achievements of Table 7A: Presents GII indicator values at the nation- a country or region in terms of longevity, education, and al and provincial levels for 2006–2007 and 2018–2019. income to show how these achievements are distributed Table 8: Presents the Labour Development Index among residents. The IHDI value can be interpreted as (LDI) with decent working indicators at the national and the level of human development when inequality is ac- provincial levels, as well as disaggregated by gender at the counted for. The relative difference between IHDI and national level, for 2012–2013 and 2017–2018. The LDI HDI values is the loss caused by inequality in the distri- is a composite measure to calculate labour development bution of the HDI value within a country or region. The using the dimensions of the employment-to-population table presents the coefficient of human inequality, which ratio, labour income, the skill premium, human capital, is the unweighted average of inequalities in the HDI’s and decent work.

238 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Readers’ guide 239 2012–2013 and 2017–2018. by at gender well as the as vincial levels, national for level, without decent work inclusion at the national and pro classifications Child Development Index(CDI) humannotes high development. humanmedium development; and 0.700or greater de greater than to or 0.550and equal less than 0.700denotes less thanpoints: 0.550denotes low human development; classificationsHDI on the are HDI’s based fixed cut-off classifications Human Development Index (HDI) analysis. to compute used these and indices, offer furtherodology Pashum ratio. Technical notes 1to 8explain the meth known measure and anew level, the ofinequality as cial atside data the product provin (GRP) on gross regional along and the the LDI, theGII, thethe GDI, YDI, CDI, namely by the income thequintiles, HDI HDI, the IHDI, The Pakistan 2020includes various NHDR indices, Methodology erence list. source provided details full in the statistical annex’s ref - data sources are at given the end of each table, with the Definitions ofindicatorsHealth (PDHS). and Survey 201,and the Pakistan (PMMS) Survey and Demographic Pakistan (HIES), Survey MaternalEconomic Mortality Measurement the Household (PSLM), Integrated Survey the (LFS), PakistanSurvey and Living Standards Social from various national including the surveys, Labour Force sets 2020uses and micro-data estimatesThe NHDR Sources anddefinitions cut-off less than points: 0.550for low development; child classificationThe on CDI the scheme following isbased Table 8A:Presents indicator LDI values with and ------NA The are following in used the symbols tables: Symbols port. ofPakistan disaggregation for this used re geographical classification’The ‘Regional section presents below the Regional classifications labour development.high for labour medium development; and 0.700or greater for ment; greater than to or 0.550and equal less than 0.700 cut-off less than points: 0.550for low labour develop classificationThe on LDI the scheme following isbased classifications Labour Development Index (LDI) ment. velopment; develop gender and 0.700or greater for high to 0.550andequal less than 0.700forde gender medium than 0.550for low development; gender greater than or scores, less the onfollowing GDI cut-offsareBased used: classifications Gender Development Index(GDI) youth development.high for youth medium development; and 0.700or greater for ment; greater than to or 0.550and equal less than 0.700 cut-off less than points: 0.550for low youth develop classificationThe on YDI the schemefollowing isbased classifications Youth Development Index(YDI) development.child dium development; child and 0.700or greater for high greater than to or 0.550 andequal less than 0.700 for me

Not applicable Not available ------Regions b a Pakistan Punjab Sindh tunkhwa Khyber Pakh- Balochistan and Kashmir Jammu Azad Gilgit-Baltistan NOTES HDR-inequality.html home/library/human-development-reports/PKN at: https://www.pk.undp.org/content/pakistan/en/ yearsData ontheintervening are available online rates. mortality available; thestudyestimatesthisfrom under-five Provincial are dataonlife not expectancyatbirth Measurement (PSLM)Survey for2006-2007. from thePakistan SocialandLivingStandards Jammu andKashmir,for Azad are computed The overall values for2005-2006,andthevalues Rural Urban Urban Rural Urban Rural Urban Rural Urban Rural

2006-07 TABLE 1 Adult Literacy 0.400 0.507 0.710 0.695 0.524 0.428 0.707 0.538 0.430 0.348 0.401 0.350 0.572 0.551 0.450 0.285 0.668 Index a 2018-19 0.620 0.574 0.477 0.727 0.757 0.532 0.565 0.722 0.369 0.470 0.497 0.623 0.309 0.375 0.538 0.768 provincial, andurban/rural levels, 2006-2007 and2018-2019 Human Development Indexanditstrends atthenational, NA - 2006-07 Education Index Net Enrolment 0.306 0.440 0.347 0.374 0.473 0.333 0.341 0.424 0.271 0.302 0.313 0.206 0.302 0.375 0.176 0.397 0.285 DEFINITIONS 1-10, dividedby thetotal numberofchildren aged Number ofchildren aged5-14whoattendClasses Net enrolment rate with understanding. age of15whocanread andwriteinanylanguage, The percentage ofthepopulationandabove the Adult literacyrate learning, andadecentstandard ofliving. development: alongandhealthylife, educationand achievement inthree basicdimensionsofhuman A compositeindexthatmeasures average Human Development Index(HDI) Index a 2018-19 0.370 0.400 0.337 0.437 0.429 0.483 0.322 0.396 0.390 0.255 0.310 0.321 0.308 0.221 0.191 0.422 NA 2006-07 0.610 0.453 0.369 0.474 0.631 0.396 0.472 0.613 0.507 0.322 0.391 0.302 0.368 0.468 0.249 0.578 0.395 Education Index a 2018-19 0.506 0.430 0.630 0.556 0.665 0.488 0.484 0.613 0.331 0.438 0.545 0.416 0.324 0.461 0.269 0.653 NA 2006-07 Life Expectancy 0.605 0.590 0.638 0.576 0.611 0.561 0.580 0.520 0.547 0.626 0.653 0.622 0.602 0.669 0.721 0.655 0.571 Health Index Index Dollars usingPPPrates,dividedby thepopulation. todomestic products International (GDP),converted Aggregatebyestimated an economy income of gross Per capitaincome their life. remain thesamethroughout at thetimeoftheirbirth if prevailing rates patternsofage-specificmortality Number ofyears anewborninfantcanexpectto live Life expectancy education)isexcluded.(pre-primary 5-14 years, multipliedby 100.Enrolment inkatchi 2018-19 b 0.648 0.691 0.637 0.598 0.638 0.660 0.588 0.630 0.701 0.698 0.753 0.692 0.631 0.658 0.625 0.677 NA 2006-07 PAKISTAN NATIONAL DEVELOPMENT HUMAN REPORT 2020 Income Index 0.539 0.571 0.519 0.537 0.561 0.524 0.606 0.573 0.540 0.531 0.484 0.504 0.471 0.514 0.542 0.547 0.527 Income Index Per capita 2018-19 0.606 0.564 0.534 0.563 0.591 0.546 0.593 0.626 0.547 0.529 0.559 0.507 0.523 0.518 0.541 0.572 NA 2006-07 Development 0.606 0.600 0.529 0.483 0.527 0.488 0.529 0.599 0.447 0.470 0.491 0.563 0.476 0.568 0.435 0.575 0.491 Human Index MAIN DATAMAIN SOURCES 1 to 10. Columns 11-12:Calculationsare basedoncolumns (2019). Seetechnicalnote3fordetails. Columns 9-10:Estimatesare based onPasha and HealthSurveys (PDHS). ratefrom the fivePakistan Demographic mortality calculations forprovincial values basedontheunder- from UNDP’s theHumanDevelopment Report. own Columns 7-8:Thenationalvalues are basedondata are basedontheLabourForce Survey 2017–2018. JammuandKashmir,Azad thevalues for2018–2019 Surveys (HIES)of2005–2006and2018–2019.For data from theHousehold IntegratedandEconomic Columns 1-6:UNDPcalculationsare basedonmicro 2018-19 0.570 0.641 0.527 0.572 0.631 0.539 0.574 0.645 0.485 0.546 0.612 0.440 0.532 0.473 0.548 0.632 NA Medium humandevelopment Medium humandevelopment Low humandevelopment Medium humandevelopment Medium humandevelopment Low humandevelopment Medium humandevelopment Medium humandevelopment Low humandevelopment Low humandevelopment Medium humandevelopment Low humandevelopment Low humandevelopment Low humandevelopment Low humandevelopment Medium humandevelopment Low humandevelopment Human Development Status 2018-19 241 1A 1 TABLE Human Development Index indicator values at the national, provincial, Human Development Index and its trends at the national, provincial, and TABLE 1A and urban/rural levels, 2006-2007 and 2018-2019 TABLE 2 urban/rural levels by income quintiles, 2006-2007 and 2018-2019

Education Index Health Index Income Indexc Education Health Income Human Adult Literacy Net Enrolment Education Life Expectancy Per capita Development Adult Literacy Rate Net Enrolment Rate Life expectancy at birthb Per capita income Index Index Index Indexb Income Index Indexd Regions/ Human Development Status a a a a a

TABLE Regions 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 Quintiles 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2018-19 TABLE 1A Pakistan 50.7 57.4 34.7 37.0 64 67 4,135 4,922 Pakistan 0.507 0.574 0.347 0.370 0.453 0.506 0.605 0.648 0.539 0.564 0.529 0.570 Medium human development 1A2 Urban 69.5 72.7 44.0 43.7 66 70 5,152 6,556 Quintile - 1 0.278 0.301 0.225 0.273 0.260 0.291 0.521 0.564 0.415 0.449 0.383 0.419 Low human development

Rural 40.0 47.7 30.6 33.7 63 66 3,610 3,988 Quintile - 2 0.379 0.431 0.313 0.332 0.357 0.398 0.565 0.612 0.462 0.497 0.453 0.495 Low human development

Punjab 52.4 62.0 37.4 42.9 62 64 4,072 4,890 Quintile - 3 0.461 0.554 0.367 0.386 0.430 0.498 0.604 0.641 0.500 0.526 0.506 0.552 Medium human development

Urban 71.0 75.7 47.3 48.3 65 66 4,816 5,909 Quintile - 4 0.590 0.667 0.435 0.451 0.538 0.595 0.642 0.696 0.539 0.568 0.571 0.617 Medium human development

Rural 42.8 53.2 33.3 40.0 61 63 3,723 4,336 Quintile - 5 0.730 0.794 0.475 0.507 0.645 0.698 0.691 0.725 0.654 0.673 0.663 0.698 Medium human development

Sindh 53.8 56.5 34.1 32.2 61 68 5,223 6,017 Pakistan-Urban 0.695 0.727 0.440 0.437 0.610 0.630 0.638 0.691 0.571 0.606 0.606 0.641 Medium human development

Urban 70.7 72.2 42.4 39.6 63 70 6,556 7,547 Quintile - 1 0.485 0.486 0.333 0.341 0.434 0.437 0.589 0.646 0.420 0.476 0.475 0.512 Low human development

Rural 34.8 36.9 27.1 25.5 59 66 3,926 4,381 Quintile - 2 0.571 0.636 0.403 0.402 0.515 0.558 0.600 0.675 0.477 0.519 0.528 0.580 Medium human development

Khyber Pakhtunkhwa 43.0 49.7 31.3 32.1 66 71 2,839 3,876 Quintile - 3 0.692 0.723 0.465 0.464 0.616 0.637 0.649 0.687 0.512 0.560 0.589 0.626 Medium human development

Urban 57.2 62.3 37.5 39.0 67 74 4,170 4,756 Quintile - 4 0.770 0.800 0.524 0.497 0.688 0.699 0.663 0.702 0.625 0.602 0.658 0.666 Medium human development

Rural 40.1 47.0 30.2 31.0 65 70 2,590 3,701 Quintile - 5 0.874 0.901 0.572 0.579 0.773 0.794 0.690 0.743 0.671 0.728 0.710 0.755 High human development

Balochistan 35.0 37.5 20.6 22.1 69 66 3,486 3,576 Pakistan-Rural 0.400 0.477 0.306 0.337 0.369 0.430 0.590 0.637 0.519 0.534 0.483 0.527 Low human development

Urban 55.1 53.8 30.2 30.8 72 68 4,223 4,199 Quintile - 1 0.243 0.264 0.206 0.253 0.231 0.260 0.539 0.597 0.402 0.410 0.368 0.399 Low human development

Rural 28.5 30.9 17.6 19.1 68 66 3,254 3,325 Quintile - 2 0.307 0.360 0.270 0.315 0.295 0.345 0.575 0.611 0.455 0.466 0.426 0.461 Low human development

Azad Jammu and Kashmir 66.8 76.8 39.7 42.2 64 69 4,383 5,190 Quintile - 3 0.369 0.441 0.330 0.340 0.356 0.407 0.605 0.640 0.489 0.508 0.472 0.510 Low human development

Gilgit-Baltistan 45.0 NA 28.5 NA 62 NA 3,804 NA Quintile - 4 0.439 0.554 0.373 0.392 0.417 0.500 0.593 0.653 0.529 0.546 0.508 0.563 Medium human development

Quintile - 5 0.580 0.666 0.404 0.464 0.521 0.599 0.636 0.684 0.622 0.635 0.591 0.638 Medium human development

NOTES DEFINITIONS Life expectancy at birth MAIN DATA SOURCES Punjab 0.524 0.620 0.374 0.429 0.474 0.556 0.576 0.598 0.537 0.563 0.527 0.572 Medium human development Number of years a newborn infant could expect to a The overall values for 2005–2006, and the values Adult literacy rate Columns 1-4: UNDP calculations are based on live if prevailing patterns of age-specific mortality Quintile - 1 0.306 0.347 0.247 0.337 0.286 0.344 0.493 0.511 0.409 0.435 0.387 0.424 Low human development for Azad Jammu and Kashmir, are computed The percentage of the population of and above the microdata from the Household Integrated and rates at the time of birth stay the same throughout from the Pakistan Social and Living Standards age of 15 who can read and write in any language, Economic Surveys (HIES) of 2005–2006 and Quintile - 2 0.407 0.500 0.342 0.400 0.385 0.467 0.541 0.564 0.460 0.487 0.458 0.504 Low human development their life. Measurement (PSLM) Survey for 2006-2007. with understanding. 2018–2019. For Azad Jammu and Kashmir, the Per capita income b Provincial data on life expectancy at birth are not Net enrolment rate values for 2018–2019 are based on the Labour Force Quintile - 3 0.490 0.618 0.413 0.439 0.464 0.558 0.570 0.593 0.500 0.529 0.509 0.559 Medium human development Aggregate income of an economy estimated by available; the study estimates this from under-five Number of children aged 5-14 who attend Classes Survey 2017–2018. Gross Domestic Products (GDP), converted to mortality rates. 1-10, divided by the total number of children aged Columns 5-6: The national values are based on data Quintile - 4 0.601 0.707 0.451 0.506 0.551 0.640 0.623 0.647 0.546 0.568 0.572 0.617 Medium human development international dollars using PPP rates, divided by 5-14 years, multiplied by 100. Enrolment in katchi from the Human Development Report. UNDP’s own population. Data on the intervening years are available online (pre-primary education) is excluded. calculations for provincial values based on the under- Quintile - 5 0.732 0.811 0.497 0.558 0.654 0.727 0.654 0.675 0.648 0.675 0.652 0.692 Medium human development at: https://www.pk.undp.org/content/pakistan/en/ five mortality rate from the Pakistan Demographic home/library/human-development-reports/PKN- and Health Surveys (PDHS). Punjab-Urban 0.710 0.757 0.473 0.483 0.631 0.665 0.611 0.638 0.561 0.591 0.600 0.631 Medium human development HDR-inequality.html Columns 7-8: Estimations are based on Pasha (2019). See technical note 3 for more details. Quintile - 1 0.509 0.557 0.351 0.406 0.456 0.507 0.573 0.586 0.409 0.452 0.475 0.512 Low human development Quintile - 2 0.612 0.679 0.441 0.434 0.555 0.597 0.564 0.637 0.480 0.501 0.532 0.576 Medium human development

Quintile - 3 0.704 0.747 0.512 0.509 0.640 0.668 0.635 0.598 0.477 0.545 0.579 0.601 Medium human development

Quintile - 4 0.781 0.821 0.552 0.540 0.705 0.728 0.611 0.672 0.622 0.592 0.644 0.661 Medium human development

Quintile - 5 0.877 0.907 0.598 0.606 0.784 0.807 0.670 0.698 0.661 0.713 0.703 0.738 High human development

Punjab-Rural 0.428 0.532 0.333 0.400 0.396 0.488 0.561 0.588 0.524 0.546 0.488 0.539 Low human development

Quintile - 1 0.271 0.304 0.229 0.322 0.257 0.310 0.502 0.532 0.391 0.423 0.370 0.412 Low human development

Quintile - 2 0.334 0.422 0.297 0.375 0.322 0.406 0.550 0.586 0.452 0.475 0.431 0.484 Low human development

Quintile - 3 0.399 0.514 0.374 0.408 0.391 0.478 0.564 0.572 0.491 0.517 0.477 0.521 Low human development

Quintile - 4 0.464 0.617 0.407 0.473 0.445 0.569 0.580 0.607 0.534 0.557 0.516 0.577 Medium human development

Quintile - 5 0.602 0.702 0.416 0.509 0.540 0.638 0.606 0.643 0.632 0.650 0.591 0.644 Medium human development

242 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 243 Human Development Index and its trends at the national, provincial, and Pakistan National Human Development Report 2020 TABLE 2 urban/rural levels by income quintiles, 2006-2007 and 2018-2019 The three Ps of inequality: Power, People, and Policy

Education Index Health Index Income Indexc Education Index Health Index Income Indexc Human Human Adult Literacy Net Enrolment Education Life Expectancy Per capita Development Adult Literacy Net Enrolment Education Life Expectancy Per capita Development Index Index Index Indexb Income Index Indexd Index Index Index Indexb Income Index Indexd Regions/ Human Development Status Regions/ Human Development Status Quintiles 2006-07a 2018-19 2006-07a 2018-19 2006-07a 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2018-19 Quintiles 2006-07a 2018-19 2006-07a 2018-19 2006-07a 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2018-19 TABLE TABLE 1A2 Sindh 0.538 0.565 0.341 0.322 0.472 0.484 0.547 0.660 0.573 0.593 0.529 0.574 Medium human development Quintile - 5 0.572 0.604 0.383 0.374 0.509 0.528 0.658 0.730 0.578 0.610 0.579 0.617 Medium human development 2 Quintile - 1 0.283 0.254 0.227 0.206 0.265 0.238 0.455 0.611 0.438 0.460 0.375 0.406 Low human development Balochistan 0.350 0.375 0.206 0.221 0.302 0.324 0.669 0.631 0.514 0.518 0.470 0.473 Low human development

Quintile - 2 0.362 0.375 0.283 0.292 0.336 0.347 0.500 0.573 0.497 0.522 0.437 0.470 Low human development Quintile - 1 0.190 0.201 0.092 0.144 0.157 0.182 0.643 0.546 0.420 0.416 0.349 0.346 Low human development

Quintile - 3 0.453 0.523 0.361 0.336 0.422 0.460 0.547 0.643 0.534 0.563 0.498 0.550 Medium human development Quintile - 2 0.231 0.241 0.155 0.176 0.206 0.219 0.581 0.587 0.456 0.458 0.379 0.389 Low human development

Quintile - 4 0.646 0.662 0.425 0.413 0.572 0.579 0.583 0.718 0.579 0.600 0.578 0.629 Medium human development Quintile - 3 0.307 0.321 0.234 0.211 0.283 0.284 0.667 0.662 0.498 0.506 0.455 0.457 Low human development

Quintile - 5 0.807 0.848 0.513 0.487 0.709 0.728 0.648 0.756 0.687 0.702 0.681 0.729 High human development Quintile - 4 0.422 0.415 0.265 0.267 0.370 0.366 0.751 0.645 0.525 0.534 0.526 0.501 Low human development

Sindh-Urban 0.707 0.722 0.424 0.396 0.613 0.613 0.580 0.698 0.606 0.626 0.599 0.645 Medium human development Quintile - 5 0.552 0.597 0.332 0.382 0.478 0.525 0.705 0.716 0.602 0.604 0.588 0.610 Medium human development

Quintile - 1 0.487 0.456 0.331 0.309 0.435 0.407 0.504 0.648 0.457 0.514 0.465 0.514 Low human development Balochistan- 0.551 0.538 0.302 0.308 0.468 0.461 0.721 0.658 0.542 0.541 0.568 0.548 Low human development Urban Quintile - 2 0.568 0.636 0.394 0.361 0.510 0.545 0.551 0.670 0.514 0.548 0.525 0.585 Medium human development Quintile - 1 0.417 0.367 0.205 0.190 0.346 0.308 0.694 0.594 0.416 0.437 0.464 0.431 Low human development Quintile - 3 0.692 0.707 0.430 0.428 0.605 0.614 0.585 0.700 0.549 0.587 0.579 0.632 Medium human development Quintile - 2 0.513 0.401 0.298 0.245 0.441 0.349 0.700 0.653 0.480 0.471 0.529 0.475 Low human development Quintile - 4 0.791 0.793 0.505 0.458 0.696 0.682 0.628 0.719 0.660 0.619 0.661 0.672 Medium human development Quintile - 3 0.540 0.521 0.290 0.299 0.457 0.447 0.721 0.663 0.512 0.515 0.553 0.535 Low human development Quintile - 5 0.900 0.919 0.559 0.525 0.786 0.788 0.633 0.755 0.704 0.743 0.705 0.761 High human development Quintile - 4 0.593 0.560 0.357 0.399 0.514 0.506 0.734 0.689 0.554 0.547 0.594 0.575 Medium human development Sindh-Rural 0.348 0.369 0.271 0.255 0.322 0.331 0.520 0.630 0.531 0.547 0.447 0.485 Low human development Quintile - 5 0.659 0.757 0.399 0.526 0.572 0.680 0.757 0.689 0.644 0.643 0.653 0.670 Medium human development Quintile - 1 0.210 0.226 0.182 0.178 0.201 0.210 0.485 0.624 0.441 0.425 0.350 0.382 Low human development Balocistan- 0.285 0.309 0.176 0.191 0.249 0.269 0.655 0.625 0.504 0.507 0.435 0.440 Low human development Quintile - 2 0.268 0.274 0.230 0.255 0.255 0.268 0.499 0.597 0.481 0.483 0.394 0.426 Low human development Rural

Quintile - 3 0.330 0.317 0.280 0.251 0.314 0.295 0.527 0.592 0.502 0.533 0.436 0.453 Low human development Quintile - 1 0.167 0.175 0.083 0.142 0.139 0.164 0.668 0.596 0.420 0.402 0.339 0.340 Low human development

Quintile - 4 0.355 0.379 0.327 0.282 0.346 0.346 0.516 0.638 0.547 0.577 0.461 0.503 Low human development Quintile - 2 0.161 0.185 0.113 0.162 0.145 0.177 0.594 0.581 0.433 0.452 0.334 0.360 Low human development

Quintile - 5 0.516 0.561 0.398 0.383 0.477 0.501 0.574 0.698 0.618 0.632 0.553 0.605 Medium human development Quintile - 3 0.216 0.264 0.186 0.181 0.206 0.237 0.639 0.611 0.492 0.503 0.402 0.417 Low human development

Khyber Pakh- 0.430 0.497 0.313 0.321 0.391 0.438 0.626 0.701 0.484 0.529 0.491 0.546 Low human development Quintile - 4 0.369 0.340 0.263 0.222 0.334 0.300 0.692 0.672 0.519 0.532 0.493 0.475 Low human development tunkhwa Quintile - 5 0.476 0.498 0.276 0.288 0.409 0.428 0.681 0.665 0.589 0.582 0.547 0.549 Low human development Quintile - 1 0.252 0.328 0.238 0.271 0.248 0.309 0.591 0.693 0.366 0.423 0.377 0.449 Low human development

Quintile - 2 0.324 0.412 0.289 0.304 0.312 0.376 0.620 0.622 0.410 0.485 0.430 0.484 Low human development NOTES DEFINITIONS Life expectancy MAIN DATA SOURCES Quintile - 3 0.408 0.463 0.303 0.328 0.373 0.418 0.562 0.688 0.433 0.501 0.450 0.524 Low human development Number of years a newborn infant can expect to live a The values are used for 2005-2006. Human Development Index (HDI) Columns 1-6: UNDP calculations are based on micro if prevailing patterns of age-specific mortality rates Quintile - 4 0.480 0.558 0.363 0.350 0.441 0.489 0.695 0.724 0.489 0.540 0.531 0.576 Medium human development b Data on life expectancy at birth are not available A composite index that measures average data from the Household Integrated and Economic at the time of their birth remain the same throughout at the provincial level or by income quintiles. The achievement in three basic dimensions of human Surveys (HIES) of 2005-2006 and 2018-2019. their life. Quintile - 5 0.620 0.657 0.415 0.388 0.552 0.567 0.663 0.780 0.600 0.622 0.603 0.650 Medium human development report estimates this from under-five mortality development: a long and healthy life, education and Columns 7-8: The national values are based on data Per capita income rates. learning, and a decent standard of living. from the Human Development Report. UNDP’s own Aggregate income of an economy estimated by gross Khyber Pakh- 0.572 0.623 0.375 0.390 0.507 0.545 0.653 0.753 0.540 0.559 0.563 0.612 Medium human development c The national/provincial values are not equal to the Adult literacy rate calculations for provincial values based on the under- domestic products (GDP), converted to International tunkhwa-Urban quantile average, because the index uses the log. The percentage of the population of and above the five mortality rate from the Pakistan Demographic Dollars using PPP rates, divided by the population. d The national/provincial values are slightly age of 15 who can read and write in any language, and Health Surveys (PDHS). different from the quantile average because the Quintile - 1 0.371 0.400 0.298 0.382 0.347 0.394 0.625 0.690 0.366 0.447 0.430 0.495 Low human development with understanding. Columns 9-10: UNDP’s calculations are based on final HDI uses the geometric mean. Net enrolment rate HIES data for 2005-2006, 2018-2019, and Pasha Quintile - 2 0.452 0.527 0.359 0.379 0.421 0.477 0.662 0.733 0.430 0.481 0.493 0.552 Medium human development Data on the intervening years are available online Number of children aged 5-14 who attend Classes (2019). 1-10, divided by the total number of children aged Columns 11-12: Calculations are based on columns Quintile - 3 0.544 0.622 0.338 0.369 0.475 0.538 0.633 0.783 0.485 0.530 0.527 0.606 Medium human development at: https://www.pk.undp.org/content/pakistan/en/ home/library/human-development-reports/PKN- 5-14 years, multiplied by 100. Enrolment in katchi 1 to 10. HDR-inequality.html (pre-primary education) is excluded. Quintile - 4 0.662 0.690 0.458 0.399 0.594 0.593 0.653 0.761 0.593 0.571 0.613 0.636 Medium human development

Quintile - 5 0.748 0.790 0.500 0.441 0.665 0.674 0.693 0.799 0.648 0.664 0.669 0.710 High human development

Khyber Pakh- 0.401 0.470 0.302 0.310 0.368 0.416 0.622 0.692 0.471 0.523 0.476 0.532 Low human development tunkhwa-Rural

Quintile - 1 0.245 0.320 0.232 0.261 0.241 0.300 0.599 0.670 0.369 0.420 0.376 0.438 Low human development

Quintile - 2 0.298 0.401 0.281 0.293 0.292 0.365 0.597 0.664 0.409 0.479 0.415 0.488 Low human development

Quintile - 3 0.389 0.437 0.295 0.309 0.358 0.395 0.614 0.688 0.429 0.501 0.455 0.514 Low human development

Quintile - 4 0.449 0.532 0.355 0.342 0.417 0.469 0.640 0.709 0.474 0.534 0.502 0.562 Medium human development

244 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 245 Human Development Index indicator values at the national, provincial, and Pakistan National Human Development Report 2020 TABLE 2A urban/rural levels by income quintiles, 2006-2007 and 2018-2019 The three Ps of inequality: Power, People, and Policy

Education Health Income Education Health Income

Adult Literacy Rate Net Enrolment Rate Life expectancy at birthb Per capita income Adult Literacy Rate Net Enrolment Rate Life expectancy at birthb Per capita income

a a a a

TABLE Regions/Quintiles 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 Regions/Quintiles 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 TABLE 1A2A Pakistan 50.7 57.4 34.7 37.0 64.3 67.1 4,135 4,922 Sindh 53.8 56.5 34.1 32.2 60.5 67.9 5,223 6,017 2A Quintile - 1 27.8 30.1 22.5 27.3 58.8 61.7 1,761 2,218 Quintile - 1 28.3 25.4 22.7 20.6 54.6 64.7 2,067 2,401

Quintile - 2 37.9 43.1 31.3 33.2 61.7 64.8 2,435 3,100 Quintile - 2 36.2 37.5 28.3 29.2 57.5 62.2 3,087 3,692

Quintile - 3 46.1 55.4 36.7 38.6 64.3 66.6 3,156 3,794 Quintile - 3 45.3 52.3 36.1 33.6 60.6 66.8 3,991 4,884

Quintile - 4 59.0 66.7 43.5 45.1 66.7 70.2 4,143 5,066 Quintile - 4 64.6 66.2 42.5 41.3 62.9 71.7 5,454 6,308

Quintile - 5 73.0 79.4 47.5 50.7 69.9 72.1 9,178 10,433 Quintile - 5 80.7 84.8 51.3 48.7 67.1 74.2 11,518 12,799

Pakistan-Urban 69.5 72.7 44.0 43.7 66.5 69.9 5,152 6,556 Sindh-Urban 70.7 72.2 42.4 39.6 62.7 70.4 6,556 7,547

Quintile - 1 48.5 48.6 33.3 34.1 63.3 67.0 1,822 2,677 Quintile - 1 48.7 45.6 33.1 30.9 57.8 67.1 2,357 3,478

Quintile - 2 57.1 63.6 40.3 40.2 64.0 68.8 2,696 3,608 Quintile - 2 56.8 63.6 39.4 36.1 60.8 68.6 3,484 4,404

Quintile - 3 69.2 72.3 46.5 46.4 67.2 69.7 3,427 4,802 Quintile - 3 69.2 70.7 43.0 42.8 63.0 70.5 4,429 5,778

Quintile - 4 77.0 80.0 52.4 49.7 68.1 70.7 7,485 6,400 Quintile - 4 79.1 79.3 50.5 45.8 65.8 71.7 9,545 7,190

Quintile - 5 87.4 90.1 57.2 57.9 69.8 73.3 10,331 15,292 Quintile - 5 90.0 91.9 55.9 52.5 66.1 74.1 12,966 16,886

Pakistan-Rural 40.0 47.7 30.6 33.7 63.3 66.4 3,610 3,988 Sindh-Rural 34.8 36.9 27.1 25.5 58.8 66.0 3,926 4,381

Quintile - 1 24.3 26.4 20.6 25.3 60.0 63.8 1,608 1,693 Quintile - 1 21.0 22.6 18.2 17.8 56.5 65.6 2,109 1,884

Quintile - 2 30.7 36.0 27.0 31.5 62.4 64.7 2,311 2,494 Quintile - 2 26.8 27.4 23.0 25.5 57.4 63.8 2,767 2,818

Quintile - 3 36.9 44.1 33.0 34.0 64.3 66.6 2,932 3,352 Quintile - 3 33.0 31.7 28.0 25.1 59.3 63.5 3,200 3,978

Quintile - 4 43.9 55.4 37.3 39.2 63.5 67.4 3,874 4,353 Quintile - 4 35.5 37.9 32.7 28.2 58.5 66.5 4,388 5,368

Quintile - 5 58.0 66.6 40.4 46.4 66.3 69.5 7,324 8,047 Quintile - 5 51.6 56.1 39.8 38.3 62.3 70.4 7,166 7,855

Punjab 52.4 62.0 37.4 42.9 62.4 63.9 4,072 4,890 Khyber Pakhtunkhwa 43.0 49.7 31.3 32.1 65.7 70.6 2,839 3,876

Quintile - 1 30.6 34.7 24.7 33.7 57.1 58.2 1,691 2,016 Quintile - 1 25.2 32.8 23.8 27.1 63.4 70.1 1,252 1,860

Quintile - 2 40.7 50.0 34.2 40.0 60.2 61.7 2,407 2,886 Quintile - 2 32.4 41.2 28.9 30.4 65.3 65.4 1,699 2,857

Quintile - 3 49.0 61.8 41.3 43.9 62.0 63.5 3,160 3,865 Quintile - 3 40.8 46.3 30.3 32.8 61.6 69.7 1,990 3,187

Quintile - 4 60.1 70.7 45.1 50.6 65.5 67.0 4,337 5,065 Quintile - 4 48.0 55.8 36.3 35.0 70.2 72.0 2,939 4,157

Quintile - 5 73.2 81.1 49.7 55.8 67.5 68.9 8,762 10,617 Quintile - 5 62.0 65.7 41.5 38.8 68.1 75.7 6,314 7,320

Punjab-Urban 71.0 75.7 47.3 48.3 64.7 66.5 4,816 5,909 Khyber Pakhtunkhwa-Urban 57.2 62.3 37.5 39.0 67.5 73.9 4,170 4,756

Quintile - 1 50.9 55.7 35.1 40.6 62.2 63.1 1,690 2,271 Quintile - 1 37.1 40.0 29.8 38.2 65.6 69.8 1,251 2,186

Quintile - 2 61.2 67.9 44.1 43.4 61.7 66.4 2,753 3,189 Quintile - 2 45.2 52.7 35.9 37.9 68.1 72.7 1,956 2,764

Quintile - 3 70.4 74.7 51.2 50.9 66.3 63.9 2,705 4,308 Quintile - 3 54.4 62.2 33.8 36.9 66.1 75.9 2,855 3,881

Quintile - 4 78.1 82.1 55.2 54.0 64.7 68.7 7,333 5,970 Quintile - 4 66.2 69.0 45.8 39.9 67.5 74.4 5,992 5,149

Quintile - 5 87.7 90.7 59.8 60.6 68.5 70.4 9,598 13,809 Quintile - 5 74.8 79.0 50.0 44.1 70.1 76.9 8,795 9,799

Punjab-Rural 42.8 53.2 33.3 40.0 61.4 63.2 3,723 4,336 Khyber Pakhtunkhwa-Rural 40.1 47.0 30.2 31.0 65.4 70.0 2,590 3,701

Quintile - 1 27.1 30.4 22.9 32.2 57.7 59.6 1,491 1,857 Quintile - 1 24.5 32.0 23.2 26.1 63.9 68.5 1,281 1,814

Quintile - 2 33.4 42.2 29.7 37.5 60.8 63.1 2,264 2,668 Quintile - 2 29.8 40.1 28.1 29.3 63.8 68.1 1,682 2,745

Quintile - 3 39.9 51.4 37.4 40.8 61.7 62.2 2,977 3,550 Quintile - 3 38.9 43.7 29.5 30.9 64.9 69.7 1,931 3,185

Quintile - 4 46.4 61.7 40.7 47.3 62.7 64.5 3,997 4,686 Quintile - 4 44.9 53.2 35.5 34.2 66.6 71.1 2,639 4,012

Quintile - 5 60.2 70.2 41.6 50.9 64.4 66.8 7,887 8,920 Quintile - 5 57.2 60.4 38.3 37.4 67.8 72.4 5,417 6,747

246 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 247 Human Development Index indicator values at the national, provincial, and Inequality-adjusted Human Development Index, its components and TABLE 2A urban/rural levels by income quintiles, 2006-2007 and 2018-2019 TABLE 3 trends at the national and provincial levels, 2006-2007 and 2018-2019

Education Health Income Human Development Inequality-adjusted Coefficient of human Adult Literacy Rate Net Enrolment Rate Life expectancy at birthb Per capita income Index Human Development Index inequality Overall loss Regions/Quintiles 2006-07a 2018-19 2006-07a 2018-19 2006-07 2018-19 2006-07 2018-19 Regions 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 TABLE TABLE 1A2A Balochistan 35.0 37.5 20.6 22.1 68.5 66.0 3,486 3,576 Pakistan 0.529 0.570 0.491 0.534 6.85% 6.08% 7.08% 6.26% 3 Quintile - 1 19.0 20.1 9.2 14.4 66.8 60.5 1,815 1,764 Punjab 0.527 0.572 0.492 0.535 6.43% 6.27% 6.66% 6.51%

Quintile - 2 23.1 24.1 15.5 17.6 62.8 63.2 2,338 2,371 Sindh 0.529 0.574 0.488 0.531 7.48% 7.35% 7.72% 7.55%

Quintile - 3 30.7 32.1 23.4 21.1 68.4 68.1 3,124 3,289 Khyber Pakhtunkhwa 0.491 0.546 0.458 0.523 6.50% 4.09% 6.74% 4.19%

Quintile - 4 42.2 41.5 26.5 26.7 73.8 66.9 3,769 3,987 Balochistan 0.470 0.473 0.443 0.447 5.68% 5.49% 5.76% 5.57%

Quintile - 5 55.2 59.7 33.2 38.2 70.8 71.6 6,384 6,469 Inequality in education Inequality in health Inequality in income - - Balochistan-Urban 55.1 53.8 30.2 30.8 71.9 67.7 4,223 4,199 Pakistan 0.047 0.043 0.0018 0.0016 0.157 0.138 - - Quintile - 1 41.7 36.7 20.5 19.0 70.1 63.6 1,767 2,052 Punjab 0.039 0.032 0.0018 0.0018 0.153 0.154 - - Quintile - 2 51.3 40.1 29.8 24.5 70.5 67.4 2,754 2,592 Sindh 0.059 0.068 0.0025 0.0021 0.163 0.150 - - Quintile - 3 54.0 52.1 29.0 29.9 71.8 68.1 3,444 3,518 Khyber Pakhtunkhwa 0.037 0.021 0.0011 0.0011 0.157 0.100 - - Quintile - 4 59.3 56.0 35.7 39.9 72.7 69.8 4,607 4,366 Balochistan 0.078 0.068 0.0015 0.0017 0.091 0.095 - - Quintile - 5 65.9 75.7 39.9 52.6 74.2 69.8 8,545 8,467

Balochistan-Rural 28.5 30.9 17.6 19.1 67.6 65.6 3,254 3,325 NOTE DEFINITIONS Overall loss MAIN DATA SOURCES Quintile - 1 16.7 17.5 8.3 14.2 68.4 63.7 1,820 1,609 Percentage difference between the IHDI value and Data on the intervening years are available online Human Development Index (HDI) Columns 1-8: Calculations are based on Table 1, HDI value. Quintile - 2 16.1 18.5 11.3 16.2 63.6 62.8 1,988 2,267 at: https://www.pk.undp.org/content/pakistan/en/ A composite index that measures average 1A, 2, and 2A. Coefficient of human inequality home/library/human-development-reports/PKN- achievement in three basic dimensions of human Average inequality in three basic dimensions of Quintile - 3 21.6 26.4 18.6 18.1 66.5 64.7 2,991 3,231 HDR-inequality.html development: a long and healthy life, education and human development. learning, and a decent standard of living. Quintile - 4 36.9 34.0 26.3 22.2 70.0 68.7 3,611 3,950 Inequality-adjusted Human Development Index (IHDI) Quintile - 5 47.6 49.8 27.6 28.8 69.2 68.2 5,862 5,566 HDI value adjusted for inequalities in the three basic dimensions of human development.

NOTES DEFINITIONS Life expectancy at birth MAIN DATA SOURCES Number of years a newborn infant can expect to live a The values are used for 2005-2006. Adult literacy rate Columns 1-4: UNDP calculations are based on if prevailing patterns of age-specific mortality rates b Data on life expectancy at birth are not available The percentage of the population of and above the micro data of from the Household Integrated and at the time of their birth remain the same throughout at the provincial level or by income quintiles. The age of 15 who can read and write in any language, Expenditure Surveys (HIES) for 2005-2006 and their life. report estimates this from under-five mortality with understanding. 2018-2019. For Azad Jammu and Kashmir, the values Per capita income rates. Net enrolment rate for 2018-2019 are based on the Labour Force Survey Aggregate income of an economy estimated by gross Number of children aged 5-14 who attend Classes for 2017-2018. domestic products (GDP), converted to International Data on the intervening years are available online 1-10, divided by the total number of children aged Columns 5-6: The national values are based on Dollars using PPP rates, divided by the population. at: https://www.pk.undp.org/content/pakistan/en/ 5-14 years, multiplied by 100. Enrolment in katchi data from the Human Development Report. UNDP’s home/library/human-development-reports/PKN- (pre-primary education) is excluded. own calculations for provincial values are based on HDR-inequality.html under-five child mortality rates from the Pakistan Demographic and Health Surveys (PDHS). Columns 7-8: UNDP calculations are based on data from the HIES for 2005-2006, 2011-2012, and 2015-2016. Columns 9-10: UNDP’s calculations are based on HIES data for 2005-2006, 2018-2019, and Pasha (2019).

248 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 249 Child Development Index and its trends at the national and provincial levels, Child Development Index indicator values at the national and provincial levels, TABLE 4 and by gender breakdown, 2007-2008 and 2018-2019 TABLE 4A and by gender breakdown, 2007-2008 and 2018-2019

Health and nutrition Child Standard of living Index Education Index Index Development Index Standard of living Education Health and nutrition Child Development Status Regions 2007-08 2018-19 2007-08 2018-19 2007-08 2018-19 2007-08 2018-19 2018-19 Regions 2007-08 2018-19 2007-08 2018-19 2007-08 2018-19 TABLE TABLE 4 Pakistan 0.493 0.611 0.357 0.420 0.545 0.694 0.465 0.575 Medium child development Income per child equivalent Enrolment rate (primary) Child immunization rate 4A Male 0.503 0.649 0.368 0.439 0.538 0.669 0.470 0.586 Medium child development Pakistan 1,056 1,351 55 53 73 82 Female 0.483 0.569 0.339 0.401 0.557 0.719 0.460 0.563 Medium child development Male 1,068 1,449 59 54 75 82 Punjab 0.571 0.687 0.397 0.542 0.565 0.736 0.511 0.655 Medium child development Female 1,044 1,253 52 51 71 82 Male 0.588 0.721 0.396 0.549 0.560 0.698 0.515 0.656 Medium child development Punjab 1,102 1,488 61 60 76 93 Female 0.555 0.650 0.390 0.535 0.567 0.778 0.504 0.654 Medium child development Male 1,103 1,582 62 59 79 93 Sindh 0.407 0.548 0.331 0.392 0.458 0.607 0.399 0.516 Low child development Female 1,102 1,393 59 60 73 94 Male 0.405 0.586 0.354 0.424 0.455 0.552 0.405 0.521 Low child development Sindh 1,093 1,268 51 48 67 78 Female 0.412 0.506 0.305 0.358 0.454 0.664 0.390 0.510 Low child development Male 1,117 1,368 55 51 71 79 Khyber Pakhtunkhwa 0.427 0.552 0.305 0.361 0.615 0.685 0.449 0.533 Low child development Female 1,069 1,168 46 44 62 78 Male 0.448 0.605 0.336 0.405 0.562 0.680 0.449 0.564 Medium child development Khyber Pakhtunkhwa 906 1,185 49 48 74 72 Female 0.403 0.492 0.272 0.314 0.674 0.687 0.450 0.498 Low child development Male 928 1,275 55 52 69 73 Balochistan 0.240 0.399 0.191 0.183 0.511 0.466 0.314 0.349 Low child development Female 885 1,096 41 44 80 72 Male 0.264 0.434 0.220 0.211 0.515 0.414 0.333 0.353 Low child development Balochistan 724 940 41 33 57 44 Female 0.213 0.358 0.162 0.151 0.498 0.523 0.291 0.344 Low child development Male 762 1,047 47 37 55 44

Female 686 833 35 29 58 45

NOTE DEFINITIONS MAIN DATA SOURCES Children in top two quintiles Enrolment rate (middle) Children not stunted Data on the intervening years are available online Child Development Index Columns 1-2: UNDP calculations are based on the at: https://www.pk.undp.org/content/pakistan/en/ The CDI is a composite index measuring average data sets of the HIES and LFS for 2007-2008 and Pakistan 32.5 31.8 18 22 53.1 62.4 home/library/human-development-reports/PKN- achievement in child development in three basic 2018-2019. HDR-inequality.html dimensions of human development: standard of Columns 3-4: The values for enrolment rates at the Male 33.0 32.6 18 22 50.1 61.8 living, education, and health and nutrition. See primary, middle, and matric levels are based on data technical note 6 for details on how the CDI is from the PSLM 2007-2008 and HIES 2018-2019. Female 32.0 30.8 17 21 56.2 62.9 calculated. Values of education expenditure per child are based on the HIES for 2007-2008 and 2018-2019. Punjab 36.8 37.3 19 27 58.2 70.2 Columns 5-6: The child immunization rates are based on the PSLM data set for 2007-2008 and the Male 37.7 38.3 18 27 55.4 68.4 HIES for 2018-2019. The rest of the indicators are based on the PDHS 2006-2007 and 2017-2018. Female 36.0 36.1 20 28 61.1 72.2 Columns 7-8: Calculations are based on columns 1 to 6. Sindh 27.6 28.6 18 16 42.7 50.1

Male 28.1 29.4 21 17 39.2 49.5

Female 27.0 27.6 16 14 46.2 50.7

Khyber Pakhtunkhwa 30.4 26.9 14 18 53.6 59.6

Male 30.3 28.1 18 21 50.2 62.0

Female 30.5 25.4 11 15 56.7 57.5

Balochistan 13.4 13.5 12 11 20.3 52.6

Male 14.3 13.3 14 13 15.9 47.5

Female 12.5 13.7 10 9 24.4 58.5

Children not engaged in work Enrolment rate (matric) Children not wasted

Pakistan 84.2 90.1 11 14 88.9 93.1

Male 84.5 91.2 11 14 87.8 92.8

250 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 251 Child Development Index indicator values at the national and provincial levels, and Pakistan National Human Development Report 2020 TABLE 4A by gender breakdown, 2007-2008 and 2018-2019 The three Ps of inequality: Power, People, and Policy

Standard of living Education Health and nutrition DEFINITIONS Children not stunted MAIN DATA SOURCES Percentage of children under five years old who are Regions 2007-08 2018-19 2007-08 2018-19 2007-08 2018-19 Enrolment rate (middle) not stunted according to WHO’s growth standards. Columns 5-6: The values of the enrolment rate at TABLE TABLE Number of children aged 10-12 attending Children not wasted the primary, middle, and matric levels are based on Children not engaged in work Enrolment rate (matric) Children not wasted Classes 6-8, divided by the total number Percentage of children under 5 years old who are not the PSLM 2007-08 and the HIES 2018-19. Education 4A of children aged 10-12, multiplied by 100. wasted according to WHO’s growth standards. expenditure per child is based on the HIES 2007-08 4A Enrolment rate (matric) Infant survival rate and 2018-19. Female 83.8 88.9 10 14 90.0 93.5 Number of children aged 13-14 who are attending The survival rate for children under-five, based on the Punjab 87.2 90.4 13 19 89.8 96.3 Classes 9-10, divided by the total number of children data sets of the Pakistan Demographic and Health aged 13-14, multiplied by 100. Survey (PDHS). Male 88.0 91.1 13 18 88.8 95.9 Education expenditure per child The real education expenditure per child equivalent, Female 86.3 89.6 12 19 90.8 96.9 derived from real education expenditure, divided by the number of child equivalent. Sindh 79.4 88.3 11 10 86.5 88.4 Child immunization rate Percentage of fully immunized children between Male 78.5 89.3 11 11 85.6 87.6 the ages of 12 and 23 months old, based on records and recall. Female 80.8 87.0 10 10 87.6 89.2

Khyber Pakhtunkhwa 82.4 91.4 6 8 89.3 92.6

Male 84.0 93.7 6 11 87.8 92.4

Female 80.6 88.7 6 6 90.7 92.7

Balochistan 81.6 92.0 5 6 88.2 82.3

Male 82.4 93.4 6 7 88.7 82.1

Female 80.5 90.1 4 4 87.8 82.7

- Education expenditure per child Infant survival rate

Pakistan - 36.3 48.3 0.906 0.926

Male - 36.7 51.8 0.907 0.920

Female - 35.8 44.8 0.907 0.932

Punjab - 39.9 67.1 0.903 0.915

Male - 39.9 71.4 0.903 0.907

Female - 39.9 62.8 0.902 0.924

Sindh - 31.6 55.5 0.899 0.923

Male - 32.3 59.8 0.899 0.908

Female - 30.9 51.1 0.897 0.939

Khyber Pakhtunkhwa - 36.8 46.8 0.925 0.936

Male - 37.7 50.4 0.920 0.932

Female - 35.9 43.3 0.932 0.939

Balochistan - 12.1 15.3 0.941 0.922

Male - 12.7 17.0 0.947 0.912

Female - 11.4 13.5 0.933 0.933

NOTE DEFINITIONS Children not engaged in work MAIN DATA SOURCES Percentage of children aged 10–14 who are not Data on the intervening years are available online Income per child equivalent engaged in labour. Columns 1-2: UNDP calculations are based on data at: https://www.pk.undp.org/content/pakistan/en/ The real income per child equivalent derived Enrolment rate (primary) set of HIES and LFS surveys of 2007-08 and 2018-19. home/library/human-development-reports/PKN- from real income, divided by the number of child Number of children aged 5-9 attending Classes 1-5, Columns 3-4: The values of the enrolment rate at HDR-inequality.html equivalents. divided by the total number of children aged 5-9, the primary, middle, and matric levels are based on Children in top two quintiles multiplied by 100. Enrolment in katchi (pre-primary the PSLM 2007-08 and the HIES 2018-19. Education Percentage of children in the two richest income education) is excluded. expenditure per child is based on the HIES 2007-08 quintiles. and 2018-19.

252 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 253 Youth Development Index and its trends at the national and provincial Youth Development Index indicator values at the national and provincial TABLE 5 levels, 2001-2002 and 2017-2018 TABLE 5A levels, 2001-2002 and 2017-2018

Year of Youth employ- Enrolment in Youth schooling ment-to-population higher education Index of full- Youth Survival Development Years of schooling Youth employment to Percentage of youth enrol- Percentage of fully Index ratio Index Index employment Index Index of youth population ratio ment in higher education employed youth Youth survival rate Regions/ Youth Development Status Gender 2001-02 2017-18 2001-02 2017-18 2001-02 2017-18 2001-02 2017-18 2001-02 2017-18 2001-02 2017-18 2017-18 Regions TABLE 2001-02 2017-18 2001-02 2017-18 2001-02 2017-18 2001-02 2017-18 2001-02 2017-18 TABLE TABLE 5 Pakistan 0.400 0.587 0.472 0.461 0.307 0.553 0.838 0.819 0.351 0.604 0.474 0.605 Medium youth development Pakistan 5.20 6.69 43.05 42.30 9.21 16.60 87.02 85.52 0.9980 0.9988 1A5A Punjab 0.420 0.631 0.540 0.502 0.280 0.559 0.824 0.795 0.490 0.582 0.511 0.614 Medium youth development Punjab 5.36 7.05 47.83 45.16 8.40 16.76 85.92 83.59 0.9984 0.9987

Sindh 0.459 0.568 0.452 0.468 0.442 0.624 0.890 0.926 0.190 0.598 0.487 0.637 Medium youth development Sindh 5.67 6.54 41.65 42.73 13.26 18.71 91.20 94.07 0.9976 0.9987

Khyber Pakh- 0.296 0.514 0.315 0.353 0.235 0.495 0.800 0.704 0.407 0.551 0.410 0.524 Low youth development Khyber Pakhtunkhwa 4.37 6.12 32.08 34.72 7.04 14.85 83.99 76.35 0.9982 0.9986 tunkhwa Balochistan 2.84 4.95 30.64 32.91 4.39 8.67 88.35 93.54 0.9987 0.9990 Balochistan 0.105 0.369 0.295 0.327 0.146 0.289 0.854 0.919 0.572 0.678 0.395 0.517 Low youth development Pakistan - Male 6.29 7.34 73.00 66.31 10.62 17.00 91.53 93.63 0.9980 0.9985 Pakistan - Male 0.537 0.667 0.900 0.804 0.354 0.567 0.894 0.920 0.342 0.502 0.605 0.692 Medium youth development Pakistan - Female 4.07 6.07 12.83 18.71 7.76 16.20 61.05 57.42 0.9981 0.9990 Pakistan - Female 0.259 0.509 0.040 0.124 0.259 0.540 0.513 0.468 0.368 0.696 0.288 0.467 Low youth development

NOTE DEFINITIONS Percentage of youth enrolment in higher education MAIN DATA SOURCES NOTE DEFINITIONS Youth employment-to-population ratio MAIN DATA SOURCES Gross enrolment rate of the youth population (aged Data on the intervening years are available online Years of schooling of youth Columns 1-8: The values are based on the Labour This is calculated by dividing the number of young 15 to 29) in higher secondary education, degrees, Data on the intervening years are available online Youth Development Index (YDI) Columns 1-8: The values are based on the Labour at: https://www.pk.undp.org/content/pakistan/en/ people employed by the total number of young The average years of schooling of young people Force Surveys (LFS) for these years. at: https://www.pk.undp.org/content/pakistan/en/ The YDI is a composite index that measures average Force Surveys (LFS) for these years. home/library/human-development-reports/PKN- and universities. people in the population of working age (aged 15 aged 15 to 29. Columns 9-10: The values are based on the Pakistan home/library/human-development-reports/PKN- achievement in four indicators: the percentage of Columns 9-10: The values are based on the Pakistan HDR-inequality.html Percentage of fully employed youth to 29). Youth employment-to-population ratio Demographic and Health Survey 2006–2007 and the HDR-inequality.html years of schooling among the youth population, Demographic and Health Survey 2006–2007 and the Percentage of youth aged 15 to 29 who are fully Percentage of youth enrolment in higher education This is calculated by dividing the number of young Pakistan Maternal Mortality Survey 2019. youth’s employment-to-population ratio, the Pakistan Maternal Mortality Survey 2019. employed (i.e. who work 35 or more hours a week). Gross enrolment rate of the youth population (aged people employed by the total number of young percentage of youth enrolment in higher education, Columns 11-12: Calculations are based on columns Youth survival rate 15 to 29) in higher secondary education, degrees, people in the population of working age (aged 15 and the percentage of fully employed youth. See 1 to 10. The survival rate is computed using the mortality and universities. to 29). technical note 7 for details on how the YDI is rate for the population aged 15 to 29. Percentage of fully employed youth calculated. Percentage of youth aged 15 to 29 who are fully Years of schooling of youth employed (i.e. who work 35 or more hours a week). The average years of schooling of young people Youth survival rate aged 15 to 29. The survival rate is computed using the mortality rate for the population aged 15 to 29.

254 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 255 Gender Development Index and its trends at the national level, 2006-2007 Gender Development Index indicator values at the national level, 2006-2007 TABLE 6 and 2018-2019 TABLE 6A and 2018-2019

Education Index Health Index Income Index Human Gender Education Health Income Adult Literacy Net Enrolment Education Life Expectancy Per-capita Development Development Absolute deviation Index Index Index Index Income Index Index Index of GDIb Adult Literacy Rate Net Enrolment Rate Life expectancy at birth Per capita income 2006-07a 2018-19 2006-07a 2018-19 2006-07a 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 Gender 2006-07a 2018-19 2006-07a 2018-19 2006-07 2018-19 2006-07 2018-19 TABLE Gender TABLE TABLE 6 Female 0.382 0.458 0.320 0.360 0.361 0.426 0.620 0.663 0.397 0.426 0.446 0.493 0.750 0.777 25.0 22.3 Female 38.2 45.8 32.0 36.0 65.3 68.1 1,385 1,673 1A6A Male 0.636 0.696 0.373 0.379 0.548 0.590 0.593 0.634 0.650 0.685 0.595 0.635 Male 63.6 69.6 37.3 37.9 63.5 66.2 7,385 9,335

NOTES DEFINITIONS Net enrolment rate MAIN DATA SOURCES NOTES DEFINITIONS Life expectancy at birth MAIN DATA SOURCES Number of children aged 5–14 years attending Number of years a newborn infant can expect to live a The values are used for year 2005-06. Gender Development Index (GDI) Columns 1-6: UNDP calculations are based on micro a The values are used for year 2005-06. Adult literacy rate Columns 1-4: UNDP calculations are based on micro Classes 1–10, divided by the total number of children if prevailing patterns of age-specific mortality rates b Calculated as 100 * |GDI - 1|. Ratio of female to male Human Development Index data from the HIES 2005-2006 and 2018-2019. The percentage of the population of and over the age data from the HIES 2005-2006 and 2018-2019. aged 5–14, multiplied by 100. Enrolment in katchi at the time of their birth remain the same throughout (HDI) values. Columns 7-8: The national values are based on data Data on the intervening years are available online of 15 who can read and write in any language, with Columns 5-6: The national values are based on data (pre-primary education) is excluded. their life. Data on the intervening years are available online Human Development Index (HDI) from the Human Development Report. at: https://www.pk.undp.org/content/pakistan/en/ understanding. from the Human Development Report. Life expectancy Per capita income at: https://www.pk.undp.org/content/pakistan/en/ A composite index that measures average Columns 9-10: UNDP’s own calculations. home/library/human-development-reports/PKN- Net enrolment rate Columns 7-8: UNDP’s own calculations. Number of years a newborn infant can expect to live HDR-inequality.html Aggregate income of an economy estimated by gross home/library/human-development-reports/PKN- achievement in three basic dimensions of human Columns 11-12: Calculations are based on columns Number of children aged 5–14 years attending HDR-inequality.html if prevailing patterns of age-specific mortality rates domestic products (GDP), converted to International development: a long and healthy life, education and 1 to 10. Classes 1–10, divided by the total number of children at the time of their birth remain the same throughout Dollars using PPP rates, divided by the population. learning, and a decent standard of living. Columns 13-16: Calculations are based on columns aged 5–14, multiplied by 100. Enrolment in katchi their life. Adult literacy rate 11 to 12. (pre-primary education) is excluded. Estimated earned income The percentage of the population of and over the age Per capita estimated income by gender (at of 15 who can read and write in any language, with 2005–2006 PPP $). understanding.

256 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 257 Gender Inequality Index, its components and trends at the national and Gender Inequality Index indicator values at the national and provincial levels, TABLE 7 provincial levels, 2006-2007 and 2018-2019 TABLE 7A 2006-2007 and 2018-2019

2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07 2018-19 Reproductive health Empowerment Labour market Aggregation across dimen- Aggregation across dimen- Equally Distributed Gender Gender Inequality sions for female sions for male Index Index Gender Development Status Percentage without Percentage of ever married Percentage of population Share of seats in Labour force Regions (G ) (G ) HARM (G , G ) GII 2018-19 access to prenatal and women 15 to 19 years with primary or higher TABLE TABLE f m f m postnatal care of age parliament education participation rate TABLE Pakistan 0.113 0.128 0.768 0.784 0.197 0.220 0.582 0.548 Low gender development 7 Regions 2006-07a 2018-19 2006-07 2018-19 2006-07 2018-19 2006-07a 2018-19 2006-07 2018-19 1A7A Punjab 0.124 0.151 0.773 0.796 0.213 0.254 0.557 0.500 Low gender development Female Sindh 0.105 0.106 0.783 0.785 0.185 0.187 0.607 0.599 Medium gender development Pakistan 63.0 41.5 20.3 20.0 21.3 20.2 33 44 19.6 20.1 Khyber Pakhtunkhwa 0.089 0.087 0.752 0.763 0.160 0.155 0.642 0.652 Medium gender development Punjab 63.0 36.5 16.9 17.0 19.7 20.1 37 52 22.8 26.5 Balochistan 0.070 0.072 0.715 0.728 0.127 0.131 0.688 0.686 Medium gender development Sindh 59.0 40.0 20.7 18.5 19.6 18.1 35 40 15.3 12.1 Health Standard Empowerment Standard Labour Market Standard Reference Standard Gender Khyber Pakhtunkhwa 68.0 51.0 31.5 31.8 18.5 17.6 23 30 16.0 11.3 Index Index Index Inequality Index Health Empowerment LFPR G f,m f,m f,m f,m Balochistan 76.0 61.5 24.3 23.9 18.5 16.9 11 19 10.3 7.9

Pakistan 0.514 0.517 0.459 0.504 0.446 0.441 0.472 0.486 Male Punjab 0.515 0.520 0.464 0.522 0.465 0.482 0.481 0.508 Pakistan NA NA 78.7 79.8 54 63 69.5 68.0 Sindh 0.514 0.518 0.469 0.488 0.431 0.403 0.471 0.467 Punjab NA NA 80.3 79.9 54 65 70.2 69.9 Khyber Pakhtunkhwa 0.511 0.512 0.432 0.478 0.403 0.362 0.446 0.446 Sindh NA NA 80.4 81.9 57 61 71.0 68.5 Balochistan 0.512 0.513 0.342 0.392 0.388 0.359 0.408 0.416 Khyber Pakhtunkhwa NA NA 81.5 82.4 53 64 64.7 61.1

Balochistan NA NA 81.5 83.1 36 44 67.4 63.8

NOTE DEFINITIONS MAIN DATA SOURCES Data on the intervening years are available online Gender Inequality Index Columns 1-8: Calculations are based on table 7A. at: https://www.pk.undp.org/content/pakistan/en/ The GII reflects gender-based disadvantage in three NOTES DEFINITIONS Share of seats in parliament MAIN DATA SOURCES home/library/human-development-reports/PKN- dimensions: reproductive health, empowerment, and Number of seats held by women or men in a The values are used for year 2005-2006. Percentage without access to pre-natal and Columns 1-2, 7-8: UNDP calculations based on the HDR-inequality.html the labour market. National and Provincial Assemblies, expressed as a post-natal care Pakistan Social and Living Standard Measurement percentage of the total number of seats. Currently married women aged 15 to 49 who have (PSLM) Surveys for 2005-2006 and 2018-2019. Data on the intervening years is available Percentage of population with primary or higher given birth in the last three years and who have Columns 3-4, 9-10: The values are taken from the online at: https://www.pk.undp.org/content/ education not attended at least one prenatal and postnatal Labour Force Surveys (LFS) for 2006-2007 and pakistan/en/home/library/human-develop- The population aged 10 and older who have consultation during their last pregnancy, expressed 2018-2019. ment-reports/PKNHDR-inequality.html completed primary education (Class 5) or higher, as a percentage of all currently married women aged Columns 5-6: The calculations are based on data expressed as a percentage of the total population 15 to 49 who have given birth in the last three years. from Khan, A., and S. Naqvi. 2018. “Women in aged 10 and older. Percentage of ever married women 15 to 19 years Politics: Gaining Ground for Progressive Outcomes in Labour force participation rate of age Pakistan.” IDS Working Paper 519. Brighton: Institute The refined labour force participation rate is the Percentage of women aged 15 to 19 who have of Development Studies. population currently active in the labour market, been, or are, married, out of the total number of ever expressed as a percentage of the population aged married women. 10 and older.

258 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 259 Labour Development Index (including decent work) and its trends Labour Development Index indicator values at the national and provincial TABLE 8 at national and provincial levels, 2012-2013, and 2017-2018 TABLE 8A levels, 2012-2013 and 2017-2018

Labour Employment- Development to-Population Ratio Labour Income Skill Premium Human Capital Incidence of Index (including Employment-to- Share of labour Incidence of decent decent work) Index Index Index Index Decent Work Index Labour Development Status population ratio income in GDP Skill premium Human capital work Regions 2012-13 2017-18 2012-13 2017-18 2012-13 2017-18 2012-13 2017-18 2012-13 2017-18 2012-13 2017-18 2017-18 Regions TABLE TABLE

2012-13 2017-18 2012-13 2017-18 2012-13 2017-18 2012-13 2017-18 2012-13 2017-18 TABLE 8 Pakistan 0.380 0.367 0.394 0.541 0.397 0.355 0.483 0.530 0.407 0.450 0.411 0.442 Low labour development Pakistan 0.428 0.417 0.32 0.42 2.81 2.61 5.58 5.97 16.85 18.00 1A8A Punjab 0.407 0.404 0.383 0.547 0.387 0.329 0.451 0.498 0.366 0.417 0.398 0.432 Low labour development Punjab 0.452 0.450 0.31 0.42 2.76 2.49 5.32 5.70 15.75 17.11

Sindh 0.381 0.350 0.386 0.485 0.430 0.482 0.559 0.597 0.483 0.509 0.443 0.478 Low labour development Sindh 0.429 0.402 0.32 0.38 2.97 3.21 6.20 6.51 18.87 19.58

Khyber Pakhtunhwa 0.276 0.267 0.445 0.630 0.296 0.257 0.528 0.570 0.492 0.536 0.394 0.421 Low labour development Khyber Pakhtunkhwa 0.337 0.329 0.35 0.48 2.34 2.15 5.95 6.30 19.12 20.30

Balochistan 0.355 0.318 0.441 0.584 0.243 0.199 0.367 0.502 0.538 0.592 0.376 0.405 Low labour development Balochistan 0.407 0.374 0.35 0.45 2.09 1.87 4.63 5.74 20.35 21.81

Pakistan - Male 0.632 0.625 0.480 0.637 0.424 0.379 0.567 0.600 0.434 0.472 0.501 0.532 Low labour development Pakistan - Male 0.652 0.645 0.38 0.48 2.94 2.72 6.27 6.54 17.56 18.60

Pakistan - Female 0.117 0.104 0.090 0.178 0.571 0.568 0.200 0.289 0.223 0.278 0.193 0.243 Low labour development Pakistan - Female 0.196 0.184 0.12 0.18 3.63 3.62 3.27 4.00 11.92 13.40

NOTE DEFINITIONS Skill premium MAIN DATA SOURCES DEFINITIONS Human capital MAIN DATA SOURCES The ratio between the wages of two most highly- NOTE Data on the intervening years are available online Labour Development Index (LDI) Columns 1-2, 5-10: The values are based on the This is measured by multiplying years of schooling skilled and two the most unskilled or low-skilled Data on the intervening years are available online Employment-to-population ratio Columns 1-2, 5-10: The values are based on Labour at: https://www.pk.undp.org/content/pakistan/en/ A composite index that measures average Labour Force Surveys (LFS) for these years. with the percentage distribution of the civilian labour categories of workers. at: https://www.pk.undp.org/content/pakistan/en/ This is calculated by dividing the number of people Force Surveys (LFS), respective years. home/library/human-development-reports/PKN- achievement in five dimensions of labour Columns 3-4: Labour income values are based on the force aged 10 and over, by their level of education. Human capital home/library/human-development-reports/PKN- employed with the total number of people in the Columns 3-4: The values of labour income are based HDR-inequality.html development: the employment-to-population ratio, LFS for these years. GRPs are based on the data set Incidence of decent work This is measured by multiplying years of schooling HDR-inequality.html working age population (aged 10 and over). on respective Labour Force Surveys (LFS). GRP’s are labour income, the skill premium, human capital, and from Pasha (2019). See Technical note 3 for details. This is measured using five indicators: decent wages with the percentage distribution of the civilian labour Share of labour income in GDP based on data set of Pahsa (2019). See technical decent work. See Technical note 8 for details on how Columns 11-12: Calculations are based on columns (the percentage of the labour force that earns more force aged 10 and over, by their level of education. The total labour income as a share of national note 3 for more details. the LDI is calculated. 1 to 10. than the minimum wage), decent hours of work Incidence of decent work income accruing to capital and labour. Employment-to-population ratio (above 10 hours and below 48 hours per week), This is measured using five indicators: decent wages Skill premium This is calculated by dividing the number of people employment in the formal sector, the percentage (the percentage of the labour force that earns more The ratio between the wages of two most highly- employed with the total number of people in the of employed workers who are paid, and the gender than the minimum wage), decent hours of work skilled and two the most unskilled or low-skilled working age population (aged 10 and over). wage ratio. (above 10 hours and below 48 hours per week), categories of workers. Share of labour income in GDP employment in the formal sector, the percentage The total labour income as a share of national of employed workers who are paid, and the gender income accruing to capital and labour. wage ratio.

260 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 261 Technical note 1 Technical note 2 Adjustment of inequality measures for the A new measure of inequality: underreporting of income The Pashum ratio

In order to adjust for the underreporting of income, we first designate the following: During the process of quantifying inequality in Pakistan, Therefore, the NHDR 2020 develops a new measure ith 1 Wi = Per capita wage and/or annual income for self-employment in the income quintile the NHDR 2020 research team identified two problems of inequality, referred to as the Pashum ratio. This mea-

hi = Per capita annual property income in the ith income quintile with the Palma ratio and the Gini coefficient. First, the sure is also capable of focusing on the middle part of the

Wi = Per capita annual foreign remittance income in the ith income quintile. Palma ratio focuses only on the extreme ends of the in- income distribution, while showing variation akin to the come distribution, without analysing developments in the Palma ratio, and statistically more variation than the Gini R Therefore, the total reported per capita income, Yi is: middle of this distribution – that is, without taking into coefficient in general. account the ‘middle class’ – which surely play a role in The underlying concept behind the Pashum ratio is that determining the extent of inequality in a country. In addi- it is the average of the ratio between two successive parts tion, the Palma ratio can only be quantified if information of the distribution in terms of the share per percentile. The reported labour income of the population, according to the Household Integrated Economic Survey (HIES), is available by quintiles or deciles. Second, the Gini coef- Therefore, it captures the extent of inequality over the en- where N is the population, is: ficient is not a measure which shows significant variation, tire distribution. A general statement of the methodology presenting a challenge for any exercise that seeks to quan- for computing the Pashum ratio is given below. tify inequality. We designate the following:

The actual labour income is derived from the Labour Force Survey (LFS) as WA. Thereafter, the share per percentile is given by / in this part of the distribution, where is the length in this part of The extent of underreporting Uw is given by: Si Hi Hi the distribution. Since there are n parts of the distribution and each part has equal size. The Pashum ratio’s quantified as:

Similarly, using the Pakistan Economic Survey, the underreporting of property income and foreign remittances are designated as Uh and Uf, respectively. The capital income from financial assets is not captured by the HIES. This is designated as:

If the distribution is perfectly uniform, then Si/Hi is equal to 1 for all parts of the distribution, and the Pashum ratio is equal to zero. A numerical example is presented below to illustrate the methodology for computing the Pashum ratio.

Example 1 Where Y is national income, excluding retained profit and repatriated income. Suppose that an observed variable, like income, is distributed as follows:

A The equation for adjusted per capita income, Yi , in the ith quintile is as follows: Percentile Share (%) 0 to 30 10 30 to 50 20

This is based on the assumption that capital income from financial assets is distributed in the same way as property 50 to 75 30 income. 75 to 100 40

262 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Technical notes 263 Then the Pashum ratio is derived as follows:

Therefore, D2 is more unequal than D1.

Why do these two measures of inequality, the Palma ratio and the Pashum ratio, yield different outcomes? While the Palma ratio concentrates on the ‘top’ or richest 20 percent and the ‘bottom’ or poorest 20 percent of the distribution, This leads to: Pashum takes into account the distribution of the middle quintiles as well. The combined share of quintiles 2 and 3 is 9 percent higher in D2 compared to D1. This difference is quite evident in the Pashum ratio, while it gets ignored in the Palma ratio.

Which yields: This second example demonstrates how the Pashum ratio is computed when the distribution is divided by quintiles.

Also referred as the Weighed Pashum in the report. In cases where the distribution, i.e. Hi s , is different, the Pashum ratio is quantified as:

The value of the Pashum ratio ranges from 0 to infinity, like the Palma ratio. However, the maximum value of the Gini coefficient is 1. Therefore, the scope of variation in the Gini coefficient as a measure of inequality is limited.

Example 2 A second example illustrates the importance of considering the middle part of the distribution:

Quintile (%) Total Q1 Q2 Q3 Q4 Q5 Distribution 1 (D1) 5 8 12 25 50 100 Distribution 2 (D2) 5 13 16 21 45 100

Palma ratio:

Pashum ratio:

264 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Technical notes 265 Technical note 3 Technical note 4 Estimation of the Gross Regional Product Estimation of the urban and rural Gross of Pakistan’s provinces Regional Product of the provinces

This methodology is presented in Pasha (2019) and is reported below, alongside the data sources used. It is based on These allocations are based on the assumption that, within a sector, the ratio between the income shares of production regional allocators of value added in different sectors of the national economy. factors is the same in a province’s rural and urban areas.

TABLE 1 u R Here, Lj and Lj correspond to labour income in the urban and rural areas of the jth sector of a province, estimated for a particular year using data from the Labour Force Survey.

The value added in the ith sector is distributed as follows: Sector/sub-sector Allocator Data sources Agriculture

Major crops Share in the output of major crops PDS, ASYB Minor crops Share in the output of minor crops PDS, ASYB Cotton ginning Share in cotton output ASYB Livestock Share in consumption expenditure on livestock products HIES Forestry Share in expenditure on forest products HIES Fishing Share in fisheries’ output PDS, ASYB

Industry Mining and quarrying Share in the output of crude oil, natural gas, and coal PDS, EYB This methodology is applied to each sector, leading to an estimate of the overall value added in each province’s urban Large-scale manufacturing Share in the output of 100 industries PDS, PES* and rural areas, respectively. Small-scale manufacturing Share of informal sector employment in manufacturing LFS Slaughter Share in consumption expenditure on livestock products (excluding milk) HIES Electricity, gas, and water Share in electricity generation, electricity consumption, gas consumption, and canal water withdrawal PDS, EYB, ASYB Construction Income-adjusted share in employment HIES, LFS

Services Transport, storage, and Share in the consumption of petroleum, oil and lubricants (POL) and the number of OCAC, LFS communications cellular phone subscribers Wholesale and retail trade, Share in trade margins in the marketing of goods, and in employment in hotels HIES, LFS and hotels and restaurants and restaurants Finance and insurance Share in bank advances SBP Ownership of dwellings Share in actual and imputed rents HIES Public administration Income-adjusted share in employment HIES, LFS and defence Community, social and Income-adjusted share in employment HIES, LFS personal services

* Data were only available for selected industries; data for other industries were obtained directly from the Punjab Bureau of Statistics and the Pakistan Bureau of Statistics. Data were not available on a number of allocators for 2017–2018. **PDS = Punjab Development Statistics; ASYB = Agricultural Statistics Year Book; HIES = Household Integrated Economic Survey; LFS = Labour Force Survey; OCAC = Oil Companies Advisory Committee; PTA = Pakistan Telecommunication Authority; SBP = State Bank of Pakistan; EYB = Energy Year Book.

1 The name ‘Pashum’ is derived from the initials of the last name of the Pakistan NHDR 2020’s lead author and the first names of the research team, as follows: Pasha, Aroub, Ali, Sana, Hafsa, Umer, Momina, and Meeran.

266 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Technical notes 267 Technical note 5 Technical note 6 Derivation of income inequality between Child Development Index urban and rural areas The NHDR 2020 makes the first attempt to construct a Education Child Development Index (CDI) for Pakistan. The index In order to quantify income inequality in urban and rural areas, the NHDR 2020 computes the Pashum ratio for these has three dimensions: living standards, education, and The dimension of education includes four indicators: the areas using the following equation: health and nutrition, which are described below. net enrolment rate at the primary education level (for children between 5 and 9 years old), the net enrolment For the national and provincial levels, the Child Devel- rate for middle school education (for children between opment Index is constructed for five years: 2001–2002, 10 and 12 years old), the net enrolment rate at the matric 2007–2008, 2012–2013, 2015–2016, and 2018–2019. level (for children between 13 and 14 years old), and ed- The gender-based Child Development Index is also con- ucation expenditure per child. Education expenditure per structed for 2007–2008, 2015–2016, and 2018–2019. child (EEC) is computed using equation (2): Where ISU and ISR denote the income share of urban and rural areas, while PSU and PSR denote the population share of these urban and rural areas, respectively. Living standards

The living standards dimension includes three indicators: Where EE is real education expenditure and NE is the the average child-equivalent level of income of house- number of child equivalents. holds, the percentage of children in the richest two quin- tiles of the population, and the percentage of children The net enrolment rates at the primary, middle, and who are not engaged in child labour. matric levels are based on data from the Pakistan So- cial and Living Standard Measurement (PSLM) Surveys The child-equivalent level of income, YNE, is first de- for 2007–2008, 2012–2013, and 2014–2015, and the rived for a typical household, as follows: Household Integrated Economic Surveys for 2001–2002 and 2018–2019. Education expenditure per child is based on data from Household Integrated Economic Surveys for the same years.

Where NE is the number of child equivalents, NA is the Health and nutrition

number of adults, NC is the number of children, and Y is the real average monthly income per household. This is The dimension of health and nutrition includes four in- similar to the Organisation for Economic Co-operation dicators: the percentage of the children (aged 12 to 23 and Development’s (OECD) approach for deriving adult months) who are fully immunized based on recall and equivalents. records, the rate of children who survive up to the age of five, the percentage of children under-five who are not The average child-equivalent level of income, and the stunted, and the percentage of children under-five who percentage of children in the two richest quintiles, are are not wasted. computed using data from the Household Integrated Economic Surveys (HIES) for 2001–2002, 2007–2008, Calculations of the percentage of children between 12 and 2011–2012, 2015–2016, and 2018–2019. The percent- 23 months old who are fully immunized are based on data age of children who are not engaged in child labour is from the Pakistan Social and Living Standard Measure- computed using data from the Labour Force Surveys ment Surveys for 2007–2008, 2012–2013, 2014–2015, (LFS) for the same years. and 2018–2019, and data from the Household Integrated

268 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Technical notes 269 Economic Survey for 2001–2002. The percentage of children who are not stunted and wasted, and the survival rate for children under-five, are based on data from the Pakistan Demographic and Health Surveys (PDHS) for 2012–2013 and Technical note 7 2017–2018. The values of these indicators for 2001–2002 and 2007–2008 are based on interpolation. Youth Development Index Steps used to calculate the Child Development Index for Pakistan The Youth Development Index (YDI) is a composite index used to measure human development among the ‘youth Following the methodology of the global Human Development Index, the NHDR 2020 employs two steps to calculate population’, that is, among young people who are between 15 and 29 years old. The index has five indicators: the mean Pakistan’s Child Development Index. years of schooling of youth, youth’s employment-to-population ratio, the percentage of youth enrolled in higher edu- cation, the percentage of fully-employed youth, and the youth survival rate. Step 1: Calculating the dimension of indices Four of these indicators are calculated using data from the Labour Force Surveys for 2001–2002, 2007–2008, 2012– The minimum and maximum goal posts are set for each indicator in order to convert it into a normalized index, with a 2013, and 2017–2018, namely: the mean years of schooling of youth, youth’s employment-to-population ratio, the per- unit of scale of between 0 and 1. See table 1 for details. centage of fully-employed youth, and the percentage of youth enrolled in higher education. Data on the youth survival rate are taken from the Pakistan Maternal Mortality Survey for 2019 and the Pakistan Demographic and Health Survey TABLE 1 for 2006–2007. The values for the remaining years are interpolated.

Overall, the Youth Development Index at the national and provincial levels is constructed for four years: 2001–2002, 2007–2008, 2012–2013, and 2017–2018. The gender-based Youth Development Index is also constructed at the na- Dimensions Indicators Minimum Maximum tional level for these years. Living standards Income per child equivalent 300 2,000 Percentage of children in the two richest quintiles 10 50 Steps used to calculate the Youth Development Index for Pakistan The NHDR 2020 employed two steps to calculate the YDI. Percentage of children who are not engaged in child labour 70 100 Education Net enrolment rate (primary) 0 100 Step 1: Calculating the indicators Net enrolment rate (middle) 0 75 First, the NHDR 2020 computed the values of each indicator, as described below. Net enrolment rate (matric) 0 50 Health Percentage of children who are fully immunized 20 100 Percentage of children who survive up to the age of five 0.880 0.955 Percentage of children who are not stunted 15 100 Percentage of children who are not wasted 60 100 Where KPE is the percentage of the youth population at the kindergarten (KG) or pre-primary education level; PME is the percentage of the youth population at the primary education level (5 years old) but below the middle school level After defining the minimum and maximum goal posts, the dimensional indices are calculated as follows: (8 years old); MME is the percentage of the youth population at the middle school level (8 years old) but below the matric level (10 years old); MIE is the percentage of the youth population at the matric level (10 years old) but below the intermediate (‘inter’) level (12 years old); IDE is the percentage of the youth population at the inter level (12 years old) but below the degree level (16 years old); DPE is the percentage of the youth population at the degree level (16 years old) and post-graduate level (18 years old); and TYE is the total percentage of youth with a formal education. After constructing each indicator’s normalized index, the aggregation of each dimension is completed by taking the arithmetic mean of all of the indicators within each dimension. Estimating the employment-to-population ratio

Step 2: Aggregating the dimensional indices to produce the Child Development Index The employment-to-population ratio of youth is calculated using equation (2):

The CDI is the arithmetic mean of the three dimensional indices of education, health and nutrition, and living stan- dards – that is, the three sub-indices of the Child Development Index – as reflected in equation 4:

Where the employment-to-population ratio for youth (EPY) is derived by dividing the number of employed youth (EY) by the total youth population (YP).

270 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Technical notes 271 Estimating the percentage of fully-employed youth Where YEH is the youth enrolment rate in higher educa- tion, derived by dividing total enrolment in higher edu- Technical note 8 The percentage of the youth population which is fully cation for young people aged 15 to 29 (EH) by the total employed (that is, who work 35 or more hours per week) youth population (YP) aged 15 to 29. Labour Development Index is estimated using equation (3) using data from the re- spective year of the Labour Force Survey: Estimating the youth survival rate The Labour Development Index (LDIN) is a composite index that measures average achievement in four dimensions of The survival rate of young people between 15 and 29 labour development: the employment-to-population ratio, the share of labour income, the skill premium, and human years old is computed using the micro-data set of the Pa- capital. The NHDR 2020 also constructs a Labour Development Index with decent work inclusion (LDIDW), which includes all four dimensions used in the LDI as well as one additional dimension: the incidence of decent work. Where FEY denotes fully-employed youth, which is de- kistan Demographic and Health Survey 2006–2007 and N rived by subtracting underemployed youth who work for the key indicator report of the Pakistan Maternal Mortal- Both the LDI and LDI are calculated by following a three-step procedure. First, we calculate the indicators for each less than 35 hours per week, UEY, from 100. ity Survey 2019. N DW dimension. Second, we calculate the sub-indices for all of the dimensions (four for the LDIN and five for the LDIDW) Estimating youth enrolment in higher education Summary of indicators and goal posts by standardizing the indicators for each dimension. Third, we calculate the arithmetic mean of these sub-indices. The LDI is constructed at the national and provincial levels for 2012–13, 2014–2015, and 2017–18. The gender-based The youth enrolment rate in higher secondary education, The minimum and maximum goal posts are set for each LDI is also constructed at the national level for the same years. degrees, and universities is computed using equation (4): indicator, in order to convert their values into the nor- malized index, with a unit of scale between 0 and 1. See Table 1 lists the data sources used to compute the dimensions of both the LDIN and the LDIDW. table 1 for details. TABLE 1

TABLE 1

Dimension Data sources Share of labour income in national income Labour Force Surveys for 2012–2013, 2014–2015, and 2017–2018, and provincial GDP values based on Pasha (2019) Indicators Minimum Maximum

Mean years of schooling of youth 2 10 Employment-to-population ratio Labour Force Surveys for 2012–2013, 2014–2015, and 2017–2018 Youth’s employment-to-population ratio 10 80 Skill premium Youth enrolment rate in higher education 0 30 Human capital Percentage of fully-employed youth 20 100 Incidence of decent work Youth survival rate 0.9770 0.9999

Steps used to calculate the Labour Development Index for Pakistan After defining the minimum and maximum goal posts, the dimensional indices are calculated as follows: Step 1: Estimating the indicators for each dimension

Estimating the employment-to-population ratio

After constructing each indicator’s normalized sub-index, the YDI is calculated by taking the arithmetic mean of all of To calculate the employment-to-population ratio, the NHDR 2020 uses equation (1): these normalized indices.

Step 2: Aggregating the sub-indices to produce the Youth Development Index The employment-to-population ratio (EP) is estimated by multiplying the labour force participation rate (LFPR) and The YDI is the arithmetic mean of the five indicators’ indices, as illustrated by equation (6): the employment rate (EmpR), where the employment rate (EmpR) is computed as one minus the unemployment rate (UnEmpR), using equation (2):

272 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Technical notes 273 Estimating the share of labour income in national income Estimating human capital

Labour income is computed using equation (3): Human capital is computed using the following equation:

Where LI is labour income, LIE is the labour income of the employed (in millions), and LISE is the labour income of the self-employed (in millions). The total labour income of the employed and self-employed is computed using the following equations: Where HC is human capital; NOE is the percentage of the civilian labour force who are illiterate or do not have any formal education; PME is the percentage of the civilian labour force with a pre-matric level of education; ME is the percentage of the civilian labour force with a matric level of education; INE is the percentage of the civilian labour force with an intermediate (‘inter’) level of education; DE is the percentage of the civilian labour force with a degree, post-graduate education or a doctorate (PhD); and LFPR is the labour force participation rate.

Where W is the average monthly wage, NLE is the number of the employed labour force (in millions), and NLSE is the Estimating the incidence of decent work number of the self-employed labour force (in millions). According to the International Labour Organization’s (ILO) methodology for calculating the labour share of income, laid out in The Global Labour Income Share and Distribution The incidence of decent work (DW) includes five indicators: Report, only 80 percent of income earned by the self-employed is used to calculate labour income.1 1) the percentage of the labour force who earn wages above the minimum wage (MW); The share of labour income in national income is computed using equation (6): 2) the percentage of the labour force who work decent working hours (DH); 3) the percentage of the labour force employed in the formal sector (FE); 4) the percentage of the employed who are paid (PD); and 5) the gender wage ratio (WR).

Where SLI is the share of labour income, LI is labour income as derived using equation (3), and CI is net capital in- The first indicator, MW, is calculated using the minimum wage for the respective year as a threshold, as shown in the come. CI is computed using the following equation: table below. This indicator was selected because it represents a better measure of decent work standards, with labourers receiving more than the established minimum wage.

TABLE 2

Where GDP is gross domestic product at current prices. According to the ILO’s methodology for calculating capital 11 income, as described in The Global Labour Income Share and Distribution Report, only 70 percent of GDP minus labour income is equal to capital income.2 2012-2013 2014-2015 2017-2018 Estimating the skill premium PKR 10,000 PKR 13,000 PKR 15,000

The skill premium is calculated as the ratio between the weighted average wages of the ‘top’ two categories of high- All people who are employed and earning above these thresholds in the respective years are included in the total for ly-skilled workers and the ‘bottom’ two occupational categories of low-skilled or unskilled workers. The NHDR 2020 MW. takes managers and professionals as the ‘top’ occupational category, and takes elementary occupations, and plant and machine operators and assemblers as the ‘bottom’ category. To this end, it employs the following equation: The second indicator, DH, includes all employed persons who work decent working hours. Decent working hours are defined here as working for more than 10 hours but less than 48 hours per week. This indicator was selected because it represents the labour standard of decent working hours in the Pakistani context, where legal frameworks prescribe a maximum of 48 working hours per week and 6 days of work per week.3 Work beyond 48 hours is considered excessive. Working for less than a minimum of 10 hours per week represents underemployment.

Where is the skill premium, is the weighted average wage of highly-skilled labour, and is the weighted aver- SP WS WUS The third indicator, FE, measures the total number of employed workers in the formal sector. This is selected as an age wage of low-skilled or unskilled labour. indicator based on the assumption that workers employed in the formal sector are more likely to experience decent work standards. By contrast, those employed in the informal sector or the agricultural sector are often characterized by vulnerable employment with low wages, a lack of decent working hours, high rates of occupational injuries or diseases, and the absence of any occupational safety and health measures.4

274 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Technical notes 275 The fourth indicator, PD, computes the percentage of the employed who are paid using the following equation: Data sources

Where CFW is the percentage of contributing family workers and TP is the total number of employed workers. The Pakistan NHDR 2020 uses multiple Health Surveys (PDHS) for 2006–2007 sources of data. To construct the Human and 2017–2018. The fifth indicator, WR, computes the gender wage ratio using the ratio of weighted average female-to-male wages. Development Index (HDI) for Pakistan at the national, provincial, and urban/rural The Youth Development Index (YDI) The final dimension, the incidence of decent work, DW, is computed using the geometric mean of the indicators pre- levels, as well as by income quintiles, the re- is computed using data from the LFS for sented above, using the following equation: port uses micro-data from the Household 2001–2002 and 2017–2018, Pakistan De- Integrated Economic Surveys (HIES) for mographic and Health Survey (PDHS) 2005–2006 and 2018–2019 for all parts 2006-07, and Pakistan Maternal Mortality of the country. For comparison with other Survey (PMMS) 2019. South Asian countries, data are taken from Step 2: Estimating the standardized sub-indices for each dimension UNDP’s global Human Development Re- The Gender Development Index (GDI) The standardized sub-indices of each dimension are calculated using the following equation: ports. The interpolated and forecasted is based on micro-data from the HIES for series of the population was generated at 2005–2006 and 2018–2019, and human the national level, and the provincial level development data extracted from UNDP’s with an urban/rural breakdown, using the Human Development Reports for the re- results of the Housing Census of 1998 and spective years. The GDI is calculated at the Table 3 presents the goal post for each indicator. the Provisional Summary Results of the national level. Provincial-level data are not TABLE 3 2017 Census. available.

The percentage distribution of monthly The Gender Inequality Index (GII) cal- household income by source and quintiles culations are based on the data set of the Indicators Minimum Maximum is computed using the HIES for 2005– PSLM for 2005–2006 and 2018–2019, 2006 and 2018–2019. the LFS for 2006–2007 and 2018–2019, Employment-to-population ratio 0.092 0.978 and data from a study by A. Khan and S. Share of labour income in GDP 0.060 0.723 The provincial gross regional product Naqvi (2018). The GII also uses compar- Skill premium 0.937 5.657 (PGRP), growth rates, and GDP per capi- isons with the database of Global Gender Human capital 1.637 9.809 ta income from 1999–2000 to 2015–2016 Gap Report. is taken from the study by Pasha (2019). Incidence of decent work 6.0 32.7 The NHDR 2020 also compiles the bifur- The NHDR 2020 calculates the Labour cation of the PGRP by sectors (agriculture, Development Index (LDI), both includ-

Step 3: Aggregating the dimensional indices to produce the Labour Development Index (LDIN and LDIDW) services, and industry). ing and excluding the dimension of decent work, using the data set of the LFS for The LDI is calculated using the geometric mean of all of the dimensional indices, using the following equations: The Child Development Index (CDI) at 2012–2013 and 2017–2018, and the study the national and provincial levels, and dis- of provincial gross regional product by Pa- aggregated by gender at the national level, sha (2019). is estimated using the HIES for 2007– 2008 and 2018–2019, the Labour Force The Inequality-adjusted Human Devel- Surveys (LFS) for 2007–08 and 2018–19, opment Index (IHDI) at the national and the Pakistan Social and Living Standard Where LDIN is the normal Labour Development Index; LDIDW is the Labour Development Index with decent work in- provincial levels is computed using the da- Measurement (PSLM) Survey for 2007– clusion; IEP is the standardized index of the employment-to-population ratio; ISLI is the standardized index of the share tabase of the HDI at the quantile levels. 2008, and the Pakistan Demographic and of labour income; ISP is the standardized index of the skill premium; IHC is the standardized index of human capital; and

IDW is the standardized index of the incidence of decent work.

1ILO 2019. 2Ibid. 3Under the Factories Act 1934, no adult employee – defined as a worker who has completed his or her 18th year of age – can be required or permitted to work in any establishment in excess of nine hours per day and 48 hours per week. Similarly, no young person, under the age of 18, can be required or permitted to work in excess of seven hours per day and 42 hours per week. 4Out of the total employed population, 78.91 percent of those who suffered occupational injuries or diseases are part of ‘lower-skilled’ occupations, followed by skilled agriculture, forestry, and fishery workers, workers engaged in elementary occupations, and craft workers. All of these occupational categories are concentrated in the informal sector, which indicates the existence of poor conditions in the informal labour market.

276 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Technical notes 277 Regional classification Statistical annex references

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CDC Central Depository Company FWO Frontier Works Organization

CDI Child Development Index FY fiscal year

CDNS Central Directorate of National Savings G2P/P2G government-to-people and people-to-government

CDWP Central Development Working Party GARVs gross annual rental values

CNG compressed natural gas GCF Green Climate Fund

CPEC China Pakistan Economic Corridor GDI Gender Development Index

CPI Corruption Perception Index GDP gross domestic product

CPIA Country Policy Impact Assessment GENCOs power generation companies

CPPA Central Power Purchasing Agency GHG greenhouse gas

CRI Climate Risk Index GHPL Government Holdings (Private) Limited

CRI Commitment to Reducing Inequality (Index) GIA Gender Interactive Alliance

CRPD Convention on the Rights of Persons with Disabilities GNI gross national income

DBR debt burden ratio GRP gross regional product

DDWP Departmental Development Working Party GST general sales tax

DFS digital financial services HDI Human Development Index

280 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Statistical annex references 281 HIES Household Integrated Economic Survey NADRA National Database & Registration Authority PPL Pakistan Petroleum Limited (PPL) SECP Securities & Exchange Commission Pakistan

HSD high-speed diesel NAP National Action Plan PPP Pakistan People’s Party SEN special education needs

ICT information and communication technologies NATO North Atlantic Treaty Organization PPP $ purchasing power parity in US$ Dollar terms SMEs small and medium-sized enterprises

IDI Inclusive Development Index NBP National Bank of Pakistan PRSP Poverty Reduction Strategy Paper SMEDA Small and Medium Enterprise Development Authority

IDPs internally displaced persons NDMA National Disaster Management Authority PSC Pakistan Statistical Council SNGPL Sui Northern Gas Pipelines Ltd

IFEM Inland Freight Equalization Margin NEC National Economic Council PSDP Public Sector Development Programme SOE state-owned enterprises

IHDI Inequality-adjusted Human Development Index NEPRA National Electric Power Regulatory Authority PSLM Pakistan Social and Living Standards Measurement SPDC Social Policy and Development Centre Surveys IMF International Monetary Fund NFC National Finance Commission SRO statutory regulatory orders PSM Pakistan Steel Mills IPPs independent power producers NGO non-governmental organization SSGCL Ltd PSO IRS Inland Revenue Service NHA National Highway Authority STEP Special Talent and Exchange Programme PSX Pakistan Stock Exchange ISP internet service provider NRC Norwegian Refugee Council UBS Union Bank of Switzerland PTA Pakistan Telecommunication Authority ISPAK Internet Service Providers Association of Pakistan O&M operations and maintenance UNESCAP United Nations Economic and Social Commission for PTI Pakistan Tehreek-e-Insaf Asia and the Pacific IT information technology OCED Organisation for Economic Co-operation and Devel- opment PWC PricewaterhouseCoopers USC Utility Stores Corporation ITES IT-enabled services OGDCL Oil & Gas Development Company Limited REER real effective exchange rate USF Co. Universal Service Fund Company ITO Income Tax Ordinance OGRA Oil and Gas Regulatory Authority RHC rural health centres WAPDA Water and Power Development Authority ITU Information Technology University OICCI Overseas Investors Chamber of Commerce & Industry RLNG re-gasified liquefied natural gas WDI World Development Indicators KESC Karachi Electric Supply Corporation (also known as K-Electric) OMCs Oil Marketing Companies ROE return on equity WEF World Economic Forum

KH Karakoram Highway OOP out-of-pocket (expenditures) RSP Rural Support Programmes WHO World Health Organization

KP Khyber Pakhtunkhwa OOSC out-of-school children SAARC South Asian Association for Regional Cooperation WID World Inequality Dynamics

KUL Karachi Urban Lab PAC Public Accounts Committee SAP Structural Adjustment Programmes WJP World Justice Project

LDI(DW) Labour Development Index with decent work inclusion PARCO Pak-Arab Refinery Limited SBP State Bank of Pakistan WPPF Workers’ Profit Participation Fund

LDI(N) Labour Development Index in normal conditions PASSCO Pakistan Agricultural Storage & Services Corporation SDC Swiss Agency for Development and Cooperation WWF Workers’ Welfare Fund Ltd LDO light diesel oil SDGs Sustainable Development Goals YDI Youth Development Index PATA Provincially Administered Tribal Areas LFPR labour force participation rate SDMA State Disaster Management Authority PBS Pakistan Bureau of Statistics LGO Local Government Ordinance PDHS Pakistan Demographic and Health Survey LHW Lady Health Worker PDL Petroleum Development Levy LNG liquefied natural gas PDMA Provincial Disaster Risk Management Authorities LPG liquid petroleum gas PEPCO Pakistan Electric Power Company LRMIS Land Record Management Information System PFC Provincial Finance Commission MAF million-acre feet PIA Pakistan International Airlines MDGs Millennium Development Goals PIFRA Project(s) to Improve Financial Reporting and Auditing MFIs microfinance institutions PIPFPD Pakistan-India People’s Forum for Peace and Democra- MIC multiple indicator criteria cy

MMBTU million British thermal units PIT presumptive income tax

MPA Member of Provincial Assembly PKR Pakistani Rupee

MPI Multidimensional Poverty Index PMMS Pakistan Maternal Mortality Survey

MRTPO Monopolies and Restrictive Trade Practices Ordinance PML-N Pakistan Muslim League-Nawaz

MTBs Market Treasury Bills POR Proof of Registration (Card)

NAB National Accountability Bureau PPAF Pakistan Poverty Alleviation Fund

282 PAKISTAN NATIONAL HUMAN DEVELOPMENT REPORT 2020 Acronyms and abbreviations 283

United Nations Development Programme 4th Floor, Serena Business Complex, Khayaban-e-Suharwardy, Sector G-5/1, Islamabad, Pakistan

http://www.pk.undp.org/

The richest 20 percent of Pakistan’s population has an HDI of To this end, the report undertakes exhaustive statistical 0.698, falling in the high human development category, while analysis at national and provincial levels, and includes the poorest 20 percent has an HDI of only 0.419, falling in the new inequality indices for child development, youth, labour low human development category. It seems the country is and gender. Additionally, a more nuanced measure of split into the two different Pakistans - one with a multitude of inequality, the Pashum ratio, has also been developed for opportunities to pursue quality education, secure responsive the report, to deconstruct income inequality in the country. health care, and live off generational wealth; and the other, Qualitative research, through focus groups with marginalized without. Exploring this dichotomy requires an understanding communities, has been conducted all over the country, of the extent of inequality in the country from multiple lenses, enabling vulnerable groups to share their lived experiences such as economic measures that include income and wealth, and highlight what living with inequality is really like. as well as measures that go beyond income, such as human If the real wealth of a country is its people, Pakistan development. faces an embarrassment of riches. However, despite the The National Human Development Report 2020 focuses on Constitution of Pakistan upholding equality and despite these measures of inequality, and the mechanisms that have global commitments such as the Sustainable Development allowed it to persist. To do this, it uses its framework of the Goals, the nation is still grappling with the reality of the two three Ps of inequality: Power, People, and Policy, examining different Pakistans. It is our hope that the NHDR 2020’s the ways in which each of these enable wealth, privilege, and framework to tackle inequality provides a sustainable development to be concentrated in the hands of the few, at blueprint that can help us alleviate disparities, bridge gaps, the expense of the many. and pave the way towards a more equal Pakistan.

“Sustainable human development is not possible in the absence of equality. Tackling inequality must therefore be a continuous process, and one that has to begin immediately if Pakistan hopes to compete with other countries in the race to providing equality in opportunities, capabilities and outcomes.” — Dr. Hafiz A. Pasha, lead author of the NHDR 2020

“The worst form of inequality is depriving people of opportunities to participate in social and economic activities. In the long run, this only worsens their vulnerabilities. This is why Pakistan must collectively work towards inclusion through participation, social acceptability, and policy reforms to ensure and enforce the rights of all individuals.” — Nayyab Ali, transgender politician and gender expert.

“Inequality not only hurts individuals but also communities and nations. It makes people desperate for their rights and, in their struggle for survival, creates an imbalance. We all need a society where people, no matter what their race, gender, or religion, are treated as equal human beings and there are ample opportunities for education, employment, and growth.” — Faiza Yousuf, Founder, WomenInTechPK, and Co-founder, CodeGirls, Technologist

“Inequality is a product of myriad factors and must be challenged from the ground up. Education is a particularly great equalizer, especially for marginalized sections of society. It can help communities exercise their rights as citizens and pave the way towards further social mobility.” – Muhammad Sabir, education activist and founder of Slumabad