Posted by : Ahsan Khan Thursday, 22 December 2011

Poverty is a great curse in the world for which our beloved Prophet Hazrat MUHAMMAD (SAW) also asked ALLAH to save him. It is the major barrier in the way of economic development. Poverty cannot be described, it can only be felt. Ranger Nurkse in his “Problems of Capital Formation in Underdeveloped Countries” states that: “Vicious circle of poverty is the basic cause of under-development of poor countries.”
According to R. Nurkse:
“The less developed countries remain poor due to domestic obstacles. These obstacles act and react upon one another in such a way that they form a vicious circle. They keep the country in a perpetual low level of development.”
According to Meier and Baldwin:
“A country is poor and remains poor because its human and natural resources remain unutilized. People in less developed countries are mostly technologically backward. They are illiterate, lack initiative and entrepreneurial ability. The absence of skilled and trained labour leads to under-utilization and even mis-utilization of natural resources. A country is poor because it is caught up in under-development trap.”
            Now we can say a country is poor because it is poor. Vicious circle of poverty can be explained with the help of a simple example to prove that a country is poor because it is poor.       
Simple Example:
A poor man may not have enough to eat, being under-fed, his health may be weak, being physically weak, his working capacity is low, this will give him less return which means that he is poor, all this means that he will not have enough to eat and so on.
How is Vicious Circle of Poverty Created?
Accordingly, a country is poor because it is poor. Being poor, a country has little ability to save. The low level of saving leads to low level of investment and to deficiency of capital. When the productivity is low, the income will be low and so there is poverty and the vicious circle is complete.



1- Raising the Stock of Capital and Foreign Exchange
There is deficiency of saving, investment and foreign exchange reserves in Pakistan. To increase the saving and investment, various steps of government are required. Increase in saving, investment and foreign exchange reserves will lead to capital formation; it results in removal to vicious circle of poverty. Domestic saving is 9.9 % of GDP; total investment is 16.6 % of GDP and foreign exchange reserves are $ 15.0 billion in Pakistan.
2- Control on rapidly growing Population
Pakistan is facing a serious problem of backward over population.  Control on rapidly growing population is another measure to break the vicious circle of poverty. Total population of Pakistan is 169.94 million, its fast growth rate is 2.05 % and Pakistan is at 6th number at the chart of most populous nations.
3- Use the Advanced Technology
Most of the developing countries use backward techniques of production. To make rapid economic development, it is necessary to adopt advanced technology. To break the vicious circle of poverty, we should use the modern methods of production in all the sectors of economy.
4- Check the Inflation
Due to inflation, the purchasing power of people decreases, it leads to increase in the consumption proportion and decrease the saving. This whole situation causes to create vicious circle of poverty. In developing countries like Pakistan, the purchasing power of the people is low due to high rate of inflation. Rate of inflation is 13.3 % in Pakistan.  To break the vicious circle of poverty, there should be price stability in the country.
5- Optimum Use of Natural Resources
No doubt, natural resources are available in developing countries. But it is not possible for them to use these resources in the best way. The best possible use of natural resources is necessary to remove the vicious circle of poverty. Contribution of natural resources to GDP is just 0.8 % and forest area in Pakistan is 4.21 % of the total area in Pakistan.
6- Reduce the Burden of Internal and External Debts
Government has to pay a huge amount for services charges on internal and external debts in developing nations. Due to external debts, the development plans and polices are under the influence of external forces. Accordingly, self-reliance policy should be adopted and we should reduce the dependence on debts. Today, the burden of total internal debts on Pakistani economy is Rs. 8160 billion and external debts are $ 53.9 billion.
7- Balanced Growth Strategy
Balanced growth strategy refers to the growth of the various sectors at the same time. Vicious circle of poverty operates over all the sectors of an economy. Development of any one sector cannot remove the vicious circle of poverty. Balanced growth strategy is compulsory to remove the vicious circle of poverty. There is inter-relationship between agriculture and industrial sector. So, growth and development of both is necessary to check the vicious circle of poverty.
8- Enhance the Economic Growth Rates
Vicious circle of poverty can be checked through increasing the economic growth rates. Increase in economic growth rate refers to the growth and development of economy. Economic growth and development will cause progress and prosperity in the country. All this results in removal of vicious circle of poverty. At present, real GDP growth rate of Pakistan is just 4.1 %.
9- Surplus in Balance of Payment
Since partition, Pakistan is facing the deficit in its balance of payment (but only in five years) that is also caused in creation of vicious circle of poverty. To break the vicious circle of poverty, surplus in balance of payment is needed. By increasing exports and decreasing imports we can achieve surplus in balance of payment. During July-March 2010, exports are $ 14.162 billion and imports are $ 25.107 billion in Pakistan. Accordingly, deficit in balance of payment is $ 10.945 billion.
10- Reduction in Unemployment
The major reason of poverty is unemployment. Government should start those projects and install those industries, which are labour intensive. Maximum job opportunities will be provided to population to remove the vicious circle of poverty. Rate of unemployment in Pakistan is 5.5 %, under-employment is 16 % and disguised unemployment is 20 %.
11- Denationalization
It is the common observation that in developing countries like Pakistan, the state owned enterprises are facing the problem of continuous loss. These losses are due to some internal problems. Those institutions, which are facing loss, should be denationalized to increase the efficiency and to reduce the burden on economy.                      Nationalization policy was adopted according to Nationalization Act of 1974.


12- Islamic Economic System

Islamic economic system is the best economic system all over the world. Vicious circle of poverty easily can be removed by adopting the Islamic economic system. This system is very useful to reduce consumption, to increase investment, to remove corruption and unequal distribution of income and wealth. 
13- Remove the Illiteracy
Literacy rate in Pakistan is only 57 %, which is almost 100 % in developed countries. Due to illiteracy, we have shortage of skilled and trained people. To remove the vicious circle of poverty, we have to increase the literacy rate.
14- Discourage the Joint Family and Caste System
Most of the population is connected with the joint family and caste system in developing countries like Pakistan. Due to joint family system, people sometimes, do not take interest in their separate business activities. People prefer only those jobs, which are according to their caste in caste system. 
15- Reduction in Unproductive Expenditure
Unproductive expenditure is a social evil. In Pakistan, people not only spend more on customs and traditions but also sometime they have to borrow to perform the customs and traditions. People spend a large portion of their income on litigations, marriage, birth and death occasion which reduces their savings.
16- Reduction in Consumption
Due to international demonstration effect, our population wants to copy the life styles of the rich nations. In this way, they allocate the huge portion of their income to adopt the life styles of rich nations. In this way the consumption of population is very high and saving is very low. To remove the vicious circle of poverty, it is necessary to reduce the consumption.
17- Provision of Infrastructure
Basic infrastructure is necessary for economic development. Provision of roads, transports, communications etc. will encourage the economic development. In this way vicious circle of poverty can be broken. Government has allocated an amount of Rs. 133 billion to improve the infrastructure.
18- Fair Distribution of Wealth
To remove the vicious circle of poverty, suitable income and wealth distribution is compulsory. In developing countries, the gap between haves and haves not is increasing day by day. Due to unequal distribution of wealth, poor population remains away from economic activities and it results in creation of vicious circle of poverty. In Pakistan, 50 % national resources are in the possession of 20 % population. On the other hand 20% poor population has only 6.37 % national resources.


19- Save the Resources from Litigations
Most of the population especially in rural areas is facing the problem of litigations in developing countries like Pakistan. They are wasting resources in litigations. It is unproductive use of income and reduction in saving and investment. Saved resources from litigations can be utilized to break vicious circle of poverty. 
20- Check on Out-flow of the Best Brain
To remove the vicious circle of poverty, expert staff, trained labour and efficient management is required. But in developing countries, there is an out-flow of the best and talented brain. A country has to check on out-flow of the intelligent people to break the vicious circle of poverty.
21- Increase in the Efficiency of Entrepreneur
Spreading education and training institutions can improve efficiency of entrepreneur. Efficient entrepreneur is helpful to break the vicious circle of poverty.
22- Political Stability
Political stability is essential for the development of any country. In developing countries like Pakistan, there is political instability and the policy instability of the stable government. To get free from the vicious circle of poverty, political stability is needed.
23- Stable Fiscal Policy
To remove the vicious circle of poverty, stability of fiscal policy is essential. Due to change in tax structure, consumption pattern of people is affected. If government reduces the taxes, it will cause to increase in real income, more saving and investment. It will cause to remove the vicious circle of poverty.

            VCP is the major obstacle in way of economic development. Without its removal, economic development is impossible. It can be removed through adopting self-sufficient policy. Government should adopt labour intensive technologies to remove unemployment and poverty.

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