1. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
IFPRI
Pakistan Strategy Support Program
Overview
Dr. Stephen Davies
Dr. Sohail J. Malik
Dr. Paul Dorosh
Pakistan Strategy Support Program (PSSP)
International Food Policy Research Institute
Lahore, Pakistan
23 May, 2013

2. • Flexible, four-year country-led and country-
wide program (July 2011 – July 2015)
• Core purpose: To contribute to pro-poor
economic growth and enhanced food security
• Implementation:
• Guidance by a National Advisory Committee (NAC)
• Close collaboration between IFPRI and IDS
• Institutional engagement with national universities and
research institutions
• Involvement of broad range of other international and
Pakistani collaborators and stakeholders
Highlights of the PSSP

3. Highlights of PSSP
• Research Themes
• Agricultural Production
• Water Policy
• Macroeconomics, Markets and Trade
• Income Growth and Poverty Dynamics
and Social Safety Nets
• Capacity Strengthening
• Competitive Grants Program
• Policy Analysis
• Outreach and Dialogue

4. Research Highlights and 2013 Plans
 Agricultural Production
• Evaluation of Pakistan Agricultural Research
Council (PARC) [completed]
• Bt Cotton: Farmer survey including physical
samples to assess cotton varieties (ongoing)
• Biosafety risk assessment (ongoing)
• Seed and fertilizer markets (new)
• Agricultural science and technology indicators
(new)
Page 4

5. Research Highlights and 2013 Plans
 Water Management and Irrigation
• Water market institutions [completed]
• Satpara dam water management and electricity
generation [ongoing]
• Implications of climate change for water
management strategies [ongoing]
• Impacts of farmer water management strategies
on crop productivity [2012 survey, ongoing]
• Linking hydrological and economy-wide models
to evaluate national investment needs, etc. [new]
Page 5

6. Research Highlights and 2013 Plans
 Macro-economics, Markets and Trade
• New Social Accounting Matrix of Pakistan and
revised General Equilibrium Model
[completed]
• Macro-economic and distributional implications
of energy policy (electricity pricing) [ongoing]
• National and provincial marketing regulations
to enhance private sector participation [new]
• Agricultural product value chains and economic
clusters [new]
Page 6

7. Research Highlights and 2013 Plans
 Poverty Dynamics and Social Safety Nets
• Pakistan Rural Household Survey
Round 1: April 2012; Round 2 April 2013
• Rural poverty estimates [ongoing]
• Aspirations and their implications for poverty
alleviation [ongoing]
• Targeting and efficiency of safety nets [new]
• Population mobility (migration) [new]
Page 7

8. Round Launched # Applicants Proposal Presentations # Awardees
1 Jan 2012 180 May 2012 18
2 Sep 2012 220 Feb 2013 20
Competitive Grants Program
PSSP 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 Deputy
Chairman of the Planning Commission of Pakistan, carefully examines each proposal
• Providing an opportunity for researchers and faculty members from underprivileged areas such
as Swat, Lasbela and Tandojam to develop connections and promote collaborative research
• Research areas include Governance, Creative Cities and Regions, Energetic Youth and
Communities, and Vibrant Markets (Planning Commission’s New Framework for Economic
Growth)
• Examples of research proposals currently underway: “Batkhela (Malakand) Bazar: A Catalyst
for Socio-Economic and Political Change” conducted by Ayub Jan from Peshawar University and
“Maximizing Farm Income and Other Livelihood Opportunities through Introduction of High
Value Minor Crops in District Swat” conducted by Hassan Sher from the University of Swat

9. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
IFPRI
The Need for Good Data
and Improved Analysis:
The Rural Household Panel Survey,
Analysis of Consumer Prices and the
Official Poverty Numbers

10. Pakistan Rural Household Survey Sample
 3 strata (provinces) (Punjab, KPK, Sindh)
 19 randomly selected districts based on strata’s share of
all rural households
• 12 in Punjab, 5 in Sindh, 2 in KPK
 4 mauzas in each district based on Probability
Proportionate to Size (PPS) method
• 76 mauzas
 27 households in each mauza
• 2,052 households)

12. Survey instruments
 Household questionnaires (head and spouse)
• Male
• Female
 Community questionnaires (knowledgeable
members)
• Focus group discussion
• Schools questionnaire (all schools)
• Price questionnaire

13. Escalating Prices - Trends in Monthly CPI
(July 2008 to April 2012)
Source: Pakistan Bureau of Statistics (various issues)
100
110
120
130
140
150
160
170
180
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
CPI(2007-08=100)
112
168
56 point
increase
since Jul 08

14. Real Wages of Skilled and Unskilled Workers
Source: Pakistan Economic Survey 2010-11.
0
50
100
150
200
250
300
350
400 1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2008
2009
2010
2011
Rs/day
Mason
Unskilled worker

15. Figure shows year-on-year inflation of the Consumer Price Index.
Source: Government of Pakistan Economic Survey 2011-12

16. Elements of Change of Base Year
2000-01 to 2007-08
 Revision of commodity groups
 Weights derived from Family Budget
Survey 2007-08
 Coverage of items to capture the changing
pattern of consumption of the people.

17. Theoretically: four categories of biases
are possible
 Substitution bias occurs because a fixed market
basket fails to reflect the fact that consumers
substitute relatively less for more expensive goods
when relative prices change.
 Outlet substitution bias occurs when shifts to lower
price outlets are not properly handled.
 Quality change bias occurs when improvements in
the quality of products, such as greater energy
efficiency or less need for repair, are measured
inaccurately or not at all.
 New product bias occurs when new products are
not introduced in the market basket, or included
only with a long lag.
Source: Boskin Commission, 1996

18. The CPI is seriously biased downwards
 The Family Budget Survey Underestimates the share
of Food Expenditures by nearly 9 percentage points as
compared to the Household Income and Expenditure
Survey.
 Further - Survey data indicate the average share of
food expenditure in household consumption
expenditure shows a sharp increase since 2007-08.
 The Poor and rural population spend a higher
proportion on Food.
 Food prices have risen significantly higher than other
consumer items in the basket
 The CPI does not cover rural areas

19. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
IFPRI
Food Prices have critical
implications for Food
Security, hunger and poverty
Food price inflation is the most
regressive of all taxes—it hurts
the poor the most.

20. Asian Bank 2008 simulation estimates for
Pakistan……….
 10% increase in food prices = 7.05 million
additional poor people
 20% increase in food prices = 14.67 million
additional poor people
 30% increase in food prices = 21.96 million
additional poor people

21. “Food policy dilemma” - promoting high prices for
producers or low prices for consumers?
 Market interventions are not costless – and can result in
substantial government subsidies and efficiency losses
 There is a mismatch between objectives (producer and
consumer price levels and stability, availability of grain
for distribution programs, minimum stock levels, etc.)
and policy instruments (procurement and sales prices,
levels of government imports, etc.)

22. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
IFPRI
Careful, Unbiased and Accurate recording
and reporting of consumer price movements
is essential for monitoring and devising
policies to promote the welfare of the people

23. Recommendations
 Revise and update the methodology for
Constructing the CPI to
• Reflect the actual (higher) weights of the Food
Expenditures
• Additionally Reflect the Rural Sector weights and
prices also
 HIES Categories do not follow the classification
of individual consumption according to purpose
(COICOP) – which is followed by the Family
Budget Surveys – make these consistent
 Test for and continuously remove the potential
biases that can exist in calculating the CPI

24. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
IFPRI
The story of the Pakistan
Poverty Numbers

25. The Official Poverty Headcount Numbers
for Pakistan show remarkable decline
Page 25
31
35
24
22
12
0
5
10
15
20
25
30
35
40
45
1998-99 2000-01 2004-05 2005-06 2010-11
Povertyheadcount(%)
Urban Rural
Pakistan
New official
estimate!!

26. Official Poverty Estimates – Poverty in Sindh declined by 15
percentage points between 2001 and 2004 as part of a decline
of 5 percentage points in national poverty
Source: World Bank (2007).
30
26
41
22
3030
37
41
36
33
29
22
38
32
28
0
5
10
15
20
25
30
35
40
45
Punjab Sindh NWFP Balochistan Pakistan
Povertyheadcount(%)
1998-99 2001-02 2004-05

27. On Sept 3, 2012 Government of Pakistan constituted a
Technical Group on Poverty (vide: No. F. 1(44)-PA/PC-
2012) to:
• Analyze the current poverty situation in the
country
• Discuss issues around the data and
estimation process
• Advise the Government with regard to future
course of action in respect of poverty
estimation.
Credibility of the Official Poverty Numbers –
Call for a Parliamentary Commission

28. Econometric Test Results based on
PRHPS Data for 3 Provinces Indicate
• Calorie Expenditure Functions across Provinces
are statistically significantly different
• Both intercepts and slopes are different
• Hence Poverty Estimations based on one (Calories
Expenditure Function) based Poverty Line for all
of Pakistan are NOT correct
• Moreover using official CPI to inflate 2001 Poverty
lines leads to a serious Underestimation of the true
poverty level expenditures.

29. Poverty Line - Official and RHPS Survey
Based (Rs per capita per day)
64
91
79
106
0
20
40
60
80
100
120
Punjab Sindh KPK Pakistan
Rspercapitaperday
Official Extrapolated 2012 using CPI Predicted from PRHS survey data
Calorie expenditure functions are statistically significantly different across
provinces.

30. RHPS 2012 Poverty Headcount Compared to
Previous Government Estimates from HIES

31. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
IFPRI
The PSSP is dedicated to
improving the quality of data
and analysis for policy
making in Pakistan

32. Selected PSSP Analyses
• Economy-Wide Effects of Alternative
Investments
• Highlights of GIS Analysis
• Electricity Subsidies, Inflation and Growth

33. Poverty in Pakistan, 2007-08
1.9%
20.1%
9.7%
11.8%39.0%
17.5%
Large, medium farm
Small farm
Landless farmers
Rural agric laborer
Rural non-farm
Urban
• The rural poor account for 82.5 percent of the total poor in Pakistan
• Rural non-farm and agricultural laborer households comprise almost
half of the poor
Source: Pakistan Household Income and Expenditure Survey, 2007-08

34. 0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Large Farmers Small Farmers Agric Wage
Laborers
Non-farm
Poor
Non-farm
Non-Poor
Urban Poor Urban Non-
Poor
PerCapitaIncome(%change)
Sim 1: Base Sim 2: Non-Ag Growth Sim 3: Sim2 + Ag Growth
Impacts of Productivity Growth:
Changes in Household Incomes
Source: Pakistan CGE model simulations.

35. Impacts of Productivity Growth:
Changes in Household Incomes
Source: Pakistan CGE model simulations.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Small farms* Non-farm Poor Urban Poor
Sim 1: Base Sim 2: Non-Ag Growth
Sim 3: Sim2 + Ag Growth Effect of Ag Growth (Sim3 vs Sim2)

36. CGE Analysis Conclusions
 Taking market outcomes, resource reallocations and
non-agricultural growth linkages into account,
agricultural growth significantly raises rural and
urban household incomes and has corresponding
poverty-reducing effects
 Complementary non-agricultural growth (in
addition to growth linkages from increased
agricultural productivity) adds further to gains
achieved from agriculture
 Rapid poverty reduction requires both agricultural
and non-agricultural growth

37. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
IFPRI
Source: Preliminary calculations by Schmidt and Tilahun (2012).

38. Simulation Results: Macro-economic
Effects of Alternative Electricity Policies
Note: Change in inflation and unemployment are in percentage points.
Source: Model simulations
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
Real GDP Investment Inflation Unemployment
Percent
Load Shedding Increased Subsidy Increased Subsidy Monetized
PRELIMINARY DRAFT -- NOT FOR
DISTRIBUTION

39. Tradeoffs Between Output/Employment,
Growth and Price Stability
• If there is no increase in the electricity subsidy and
total load shedding increased by 50 percent
relative to 2010/11, real GDP could decline by 1.3
to 1.5 percent with up to a 0.6 percentage point
increase in unemployment.
• An increase in the electricity subsidy financed
through government borrowing in the domestic
economy could prevent a significant decline in real
GDP and employment, but reduce investment by
3.8 to 4.0 percent of GDP and hamper future
growth.

40. Tradeoffs Between Output/Employment,
Growth and Price Stability
• Financing an increase in the electricity subsidy
through increases in the money supply could
likewise prevent a fall in real GDP or employment,
but would raise money supply and the aggregate
price level by about 2 percent.

41. THANK YOU!
BOHUT SHUKRIYA!