The cost of current financial crisis will be borne primarily by hundreds of millions people who had no share in the benefits of the previous economic expansion, says an International Labour Organisation study. The ILO report “World for work report 2008” deals with “income inequalities in the age of financial globalisation.”

Commenting on the report Mr Raymond Torres, Director of the ILO’s International Institute for Labour Studies said that, “the report shows conclusively that the gap between rich and poor households widened since the 1990s.”

The present global financial crisis is bound to make matters worse unless long-term structural measures are adopted. According to a UN expert, at present nearly one billion people worldwide are hungry. The real problem of hunger is not linked to inadequate food supplies but to the lack the purchasing power to buy available food.

While employment on the global level had risen by 30 per cent between early 1990s and 2007, the share of wages in the total national income of the many countries had declined. The largest drop of 13 per cent was observed in the Latin America and Caribbean while advanced countries saw a fall of nine per cent. The earnings of chief executive officers of 15 largest companies in the US was 520 times more than average worker in 2007 as compared to 360 times in 2003.

Similarly, the income inequality also increased significantly in Asian region which enjoyed higher growth rates but the benefits did not trickle down to the poor. Pakistan is also no exception where high growth rates accompanied by the rising inequality is evident from the increase in the Gini co-efficient from 0.27 in 2001 to 0.29 in 2005.

The emerging scanario is more depressing for Pakistan. According to the official estimates , the ratio of the people living below poverty line had declined from 34.5 in 2001 to about 24 per cent in 2005. Those were the years when Pakistan was experiencing economic boom and the economic managers were under pressure to show that the poor have also benefited from it.

But very little was done in this respect. Instead all efforts were concentrated on the demand side which instead of creating employment and reducing prices pushed up the prices of various essential items and made the life of the common man more difficult. The official estimates were not accepted at their face value and stirred a heated discussion among the various interested circles. It was claimed that the figures did not show a true picture and the real figures were much higher.

Now we live in an entirely changed situation. Even before the emergence of the current global financial crisis, the country was experiencing abnormal rise in fuel and food prices and unemployment. The rise in the food prices has affected the poor and middle class the most as they spend a major portion of their income on essentials of life. According to an estimate, the poorest one-fifth of the population spends 50-58 per cent of its income on buying cereal.

The recent report of Oxfam GB, a UK-based non-governmental organisation, titled ‘Food crisis in Pakistan: real or artificial’ states that due to food inflation the number of poor increased from 60 to 77 million. As a result of increased prices, people are forced to cut their expenditure even on food. A recent survey indicates that 32 per cent people have to cut their expenditure on food.

Similarly, according to the same survey, the rising cost of food, fuel and electricity have more adversely affected the 56 per cent people. The adviser to prime minister on finance in his meeting with the businessmen in Karachi said 44 per cent of the total population is living below the poverty line and 28 per cent in extreme poverty.

The food market is deregulated since 1999. However, the abnormal rise in the prices is only a recent phenomenon. The surge in food inflation started from April- 2006 and peaked at 12.6 per cent for that year in December-2006. This happened despite the fact that not only the wheat crop was good in 2006—07 but the yields obtained in almost all important major crops were either at or 10-year highs. The per capita availability of wheat and rice had increased by 1.7 and 21.3 per cent respectively.. Thus there was no genuine reason or the gap of demand and supply for prices to rise abnormally.. It was argued that this was mainly due to the increase in the international prices.

However, the argument was not tenable as Pakistan is an agricultural country which meets its food requirement from its own production and imports only in case of emergency. It may be argued that why the wages are not fixed at the international levels?

Now, when the global prices of many commodities have come down, why the benefit of this reduction is not passed on to the consumers? On the other hand, traders and industrialists ask the government to intervene in the market on their behalf when prices dip as in the case of sugar-- the retail price fell to Rs20 per kilo..

There seems to be no improvement in the economic situation. The industrial growth has declined in the last two months and it is feared that Pakistan would not be able to achieve its GDP growth target in FY 2009. It is industries that create employment and self-reliance. Therefore, it is likely that the unemployment situation may worsen.