Pakistan Strategy Support Program Overview by Dr. Stephen Davies, Dr. Sohail Malik and Dr. Paul Dorosh
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTEIFPRIPakistan Strategy Support ProgramOverviewDr. Stephen DaviesDr. Sohail J. MalikDr. Paul DoroshPakistan Strategy Support Program (PSSP)International Food Policy Research InstituteLahore, Pakistan23 May, 2013
• Flexible, four-year country-led and country-wide program (July 2011 – July 2015)• Core purpose: To contribute to pro-pooreconomic growth and enhanced food security• Implementation:• Guidance by a National Advisory Committee (NAC)• Close collaboration between IFPRI and IDS• Institutional engagement with national universities andresearch institutions• Involvement of broad range of other international andPakistani collaborators and stakeholdersHighlights of the PSSP
Highlights of PSSP• Research Themes• Agricultural Production• Water Policy• Macroeconomics, Markets and Trade• Income Growth and Poverty Dynamicsand Social Safety Nets• Capacity Strengthening• Competitive Grants Program• Policy Analysis• Outreach and Dialogue
Research Highlights and 2013 Plans Agricultural Production• Evaluation of Pakistan Agricultural ResearchCouncil (PARC) [completed]• Bt Cotton: Farmer survey including physicalsamples to assess cotton varieties (ongoing)• Biosafety risk assessment (ongoing)• Seed and fertilizer markets (new)• Agricultural science and technology indicators(new)Page 4
Research Highlights and 2013 Plans Water Management and Irrigation• Water market institutions [completed]• Satpara dam water management and electricitygeneration [ongoing]• Implications of climate change for watermanagement strategies [ongoing]• Impacts of farmer water management strategieson crop productivity [2012 survey, ongoing]• Linking hydrological and economy-wide modelsto evaluate national investment needs, etc. [new]Page 5
Research Highlights and 2013 Plans Macro-economics, Markets and Trade• New Social Accounting Matrix of Pakistan andrevised General Equilibrium Model[completed]• Macro-economic and distributional implicationsof energy policy (electricity pricing) [ongoing]• National and provincial marketing regulationsto enhance private sector participation [new]• Agricultural product value chains and economicclusters [new]Page 6
Research Highlights and 2013 Plans Poverty Dynamics and Social Safety Nets• Pakistan Rural Household SurveyRound 1: April 2012; Round 2 April 2013• Rural poverty estimates [ongoing]• Aspirations and their implications for povertyalleviation [ongoing]• Targeting and efficiency of safety nets [new]• Population mobility (migration) [new]Page 7
Round Launched # Applicants Proposal Presentations # Awardees1 Jan 2012 180 May 2012 182 Sep 2012 220 Feb 2013 20Competitive Grants ProgramPSSP Research Advisory Committee• One year grants that add up to a total of $400,000 of funding each round• Research Advisory Committee (RAC) consisting of 20 members, chaired by the DeputyChairman of the Planning Commission of Pakistan, carefully examines each proposal• Providing an opportunity for researchers and faculty members from underprivileged areas suchas Swat, Lasbela and Tandojam to develop connections and promote collaborative research• Research areas include Governance, Creative Cities and Regions, Energetic Youth andCommunities, and Vibrant Markets (Planning Commission’s New Framework for EconomicGrowth)• Examples of research proposals currently underway: “Batkhela (Malakand) Bazar: A Catalystfor Socio-Economic and Political Change” conducted by Ayub Jan from Peshawar University and“Maximizing Farm Income and Other Livelihood Opportunities through Introduction of HighValue Minor Crops in District Swat” conducted by Hassan Sher from the University of Swat
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTEIFPRIThe Need for Good Dataand Improved Analysis:The Rural Household Panel Survey,Analysis of Consumer Prices and theOfficial Poverty Numbers
Pakistan Rural Household Survey Sample 3 strata (provinces) (Punjab, KPK, Sindh) 19 randomly selected districts based on strata’s share ofall rural households• 12 in Punjab, 5 in Sindh, 2 in KPK 4 mauzas in each district based on ProbabilityProportionate to Size (PPS) method• 76 mauzas 27 households in each mauza• 2,052 households)
Survey instruments Household questionnaires (head and spouse)• Male• Female Community questionnaires (knowledgeablemembers)• Focus group discussion• Schools questionnaire (all schools)• Price questionnaire
Escalating Prices - Trends in Monthly CPI(July 2008 to April 2012)Source: Pakistan Bureau of Statistics (various issues)100110120130140150160170180Jul-08Sep-08Nov-08Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10May-10Jul-10Sep-10Nov-10Jan-11Mar-11May-11Jul-11Sep-11Nov-11Jan-12Mar-12CPI(2007-08=100)11216856 pointincreasesince Jul 08
Real Wages of Skilled and Unskilled WorkersSource: Pakistan Economic Survey 2010-11.050100150200250300350400 199319941995199619971998199920002001200220032004200520062008200920102011Rs/dayMasonUnskilled worker
Figure shows year-on-year inflation of the Consumer Price Index.Source: Government of Pakistan Economic Survey 2011-12
Elements of Change of Base Year2000-01 to 2007-08 Revision of commodity groups Weights derived from Family BudgetSurvey 2007-08 Coverage of items to capture the changingpattern of consumption of the people.
Theoretically: four categories of biasesare possible Substitution bias occurs because a fixed marketbasket fails to reflect the fact that consumerssubstitute relatively less for more expensive goodswhen relative prices change. Outlet substitution bias occurs when shifts to lowerprice outlets are not properly handled. Quality change bias occurs when improvements inthe quality of products, such as greater energyefficiency or less need for repair, are measuredinaccurately or not at all. New product bias occurs when new products arenot introduced in the market basket, or includedonly with a long lag.Source: Boskin Commission, 1996
The CPI is seriously biased downwards The Family Budget Survey Underestimates the shareof Food Expenditures by nearly 9 percentage points ascompared to the Household Income and ExpenditureSurvey. Further - Survey data indicate the average share offood expenditure in household consumptionexpenditure shows a sharp increase since 2007-08. The Poor and rural population spend a higherproportion on Food. Food prices have risen significantly higher than otherconsumer items in the basket The CPI does not cover rural areas
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTEIFPRIFood Prices have criticalimplications for FoodSecurity, hunger and povertyFood price inflation is the mostregressive of all taxes—it hurtsthe poor the most.
Asian Bank 2008 simulation estimates forPakistan………. 10% increase in food prices = 7.05 millionadditional poor people 20% increase in food prices = 14.67 millionadditional poor people 30% increase in food prices = 21.96 millionadditional poor people
“Food policy dilemma” - promoting high prices forproducers or low prices for consumers? Market interventions are not costless – and can result insubstantial government subsidies and efficiency losses There is a mismatch between objectives (producer andconsumer price levels and stability, availability of grainfor distribution programs, minimum stock levels, etc.)and policy instruments (procurement and sales prices,levels of government imports, etc.)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTEIFPRICareful, Unbiased and Accurate recordingand reporting of consumer price movementsis essential for monitoring and devisingpolicies to promote the welfare of the people
Recommendations Revise and update the methodology forConstructing the CPI to• Reflect the actual (higher) weights of the FoodExpenditures• Additionally Reflect the Rural Sector weights andprices also HIES Categories do not follow the classificationof individual consumption according to purpose(COICOP) – which is followed by the FamilyBudget Surveys – make these consistent Test for and continuously remove the potentialbiases that can exist in calculating the CPI
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTEIFPRIThe story of the PakistanPoverty Numbers
The Official Poverty Headcount Numbersfor Pakistan show remarkable declinePage 2531352422120510152025303540451998-99 2000-01 2004-05 2005-06 2010-11Povertyheadcount(%)Urban RuralPakistanNew officialestimate!!
Official Poverty Estimates – Poverty in Sindh declined by 15percentage points between 2001 and 2004 as part of a declineof 5 percentage points in national povertySource: World Bank (2007).302641223030374136332922383228051015202530354045Punjab Sindh NWFP Balochistan PakistanPovertyheadcount(%)1998-99 2001-02 2004-05
On Sept 3, 2012 Government of Pakistan constituted aTechnical Group on Poverty (vide: No. F. 1(44)-PA/PC-2012) to:• Analyze the current poverty situation in thecountry• Discuss issues around the data andestimation process• Advise the Government with regard to futurecourse of action in respect of povertyestimation.Credibility of the Official Poverty Numbers –Call for a Parliamentary Commission
Econometric Test Results based onPRHPS Data for 3 Provinces Indicate• Calorie Expenditure Functions across Provincesare statistically significantly different• Both intercepts and slopes are different• Hence Poverty Estimations based on one (CaloriesExpenditure Function) based Poverty Line for allof Pakistan are NOT correct• Moreover using official CPI to inflate 2001 Povertylines leads to a serious Underestimation of the truepoverty level expenditures.
Poverty Line - Official and RHPS SurveyBased (Rs per capita per day)649179106020406080100120Punjab Sindh KPK PakistanRspercapitaperdayOfficial Extrapolated 2012 using CPI Predicted from PRHS survey dataCalorie expenditure functions are statistically significantly different acrossprovinces.
RHPS 2012 Poverty Headcount Compared toPrevious Government Estimates from HIES
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTEIFPRIThe PSSP is dedicated toimproving the quality of dataand analysis for policymaking in Pakistan
Selected PSSP Analyses• Economy-Wide Effects of AlternativeInvestments• Highlights of GIS Analysis• Electricity Subsidies, Inflation and Growth
Poverty in Pakistan, 2007-081.9%20.1%9.7%11.8%39.0%17.5%Large, medium farmSmall farmLandless farmersRural agric laborerRural non-farmUrban• The rural poor account for 82.5 percent of the total poor in Pakistan• Rural non-farm and agricultural laborer households comprise almosthalf of the poorSource: Pakistan Household Income and Expenditure Survey, 2007-08
0.02.04.06.08.010.012.014.0Large Farmers Small Farmers Agric WageLaborersNon-farmPoorNon-farmNon-PoorUrban Poor Urban Non-PoorPerCapitaIncome(%change)Sim 1: Base Sim 2: Non-Ag Growth Sim 3: Sim2 + Ag GrowthImpacts of Productivity Growth:Changes in Household IncomesSource: Pakistan CGE model simulations.
Impacts of Productivity Growth:Changes in Household IncomesSource: Pakistan CGE model simulations.0.02.04.06.08.010.012.014.0Small farms* Non-farm Poor Urban PoorSim 1: Base Sim 2: Non-Ag GrowthSim 3: Sim2 + Ag Growth Effect of Ag Growth (Sim3 vs Sim2)
CGE Analysis Conclusions Taking market outcomes, resource reallocations andnon-agricultural growth linkages into account,agricultural growth significantly raises rural andurban household incomes and has correspondingpoverty-reducing effects Complementary non-agricultural growth (inaddition to growth linkages from increasedagricultural productivity) adds further to gainsachieved from agriculture Rapid poverty reduction requires both agriculturaland non-agricultural growth
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTEIFPRISource: Preliminary calculations by Schmidt and Tilahun (2012).
Simulation Results: Macro-economicEffects of Alternative Electricity PoliciesNote: Change in inflation and unemployment are in percentage points.Source: Model simulations-5.0-4.0-3.0-2.0-1.00.01.02.0Real GDP Investment Inflation UnemploymentPercentLoad Shedding Increased Subsidy Increased Subsidy MonetizedPRELIMINARY DRAFT -- NOT FORDISTRIBUTION
Tradeoffs Between Output/Employment,Growth and Price Stability• If there is no increase in the electricity subsidy andtotal load shedding increased by 50 percentrelative to 2010/11, real GDP could decline by 1.3to 1.5 percent with up to a 0.6 percentage pointincrease in unemployment.• An increase in the electricity subsidy financedthrough government borrowing in the domesticeconomy could prevent a significant decline in realGDP and employment, but reduce investment by3.8 to 4.0 percent of GDP and hamper futuregrowth.
Tradeoffs Between Output/Employment,Growth and Price Stability• Financing an increase in the electricity subsidythrough increases in the money supply couldlikewise prevent a fall in real GDP or employment,but would raise money supply and the aggregateprice level by about 2 percent.