Rethinking poverty, wages and taxation |
THIS year, the World Bank revised its global poverty lines once again.
The World Bank now uses three different poverty thresholds, depending on a country’s income category. For upper-middle-income countries, the poverty line is $8.30 per person per day. For lower-middle-income countries, it is $4.20 and for low-income countries, the line stands at $3.00 per person per day. Pakistan is classified as a lower-middle-income country, so the relevant benchmark for us is $4.20 per person per day. At first glance, this figure may not appear alarming. But what does $4.20 per day actually mean for Pakistani households? If we simply convert it using the market exchange rate, the number will look impossibly high. However, the World Bank does not use the market dollar for poverty measurement. Instead, it relies on a concept called the Purchasing Power Parity (PPP) dollar.
A PPP dollar does not represent the value of one US dollar at the exchange counter. It represents what one dollar can buy in the United States, translated into the amount of local currency needed to purchase the same basket of goods and services at home. In simple terms, if a product costs $1 in the United States, how many rupees would be required to buy an equivalent product in Pakistan? According to the latest international estimates, Pakistan’s PPP conversion factor is about 72.3 rupees per international dollar. This means spending roughly Rs72 in Pakistan........