Impact of Floods on Unemployment and Poverty Chart 13.1: Impact of Determinants of Poverty on the Incidence of Poverty 1% change in Leading to% change in Incidence of Poverty • Real Per Capita Income-1.289 • Food Prices relative to the Overall Price Level 2.742 • Real Per Capita Pro-Poor Spending-0.066 • Level of Income Inequality 1.262 Therefore, the incidence of poverty is very sensitive with respect to the rise in food prices relative to the overall rate of inflation. Also, the growth in real per capita income, level of income inequality and pro-poor spending matter from the viewpoint of impact on poverty. There is need also to identify the factors which determine the level of income inequality in Pakistan. Here the modified PALMA ratio is used to measure inequality. This is the ratio of share in national personal income of the top quintile to the bottom quintile. Determinants of the level of income inequality are shown in Chart 13.2 below. Chart 13.2: Impact of Different Variables on Income Inequality 1% change in Leading to% change in the Level of Income Inequality • Real GDP 0.890 • Employment-0.890 • Level of Corporate Profitability 0.188 • Nominal Interest Rate 0.017 • Real Level of Pro-Poor Spending-0.061 • Direct Tax Revenue as% of GDP-0.376 • Lagged Level of Inequality 0.367 Source: BNU Macroeconomic Model The chart clearly reveals that there is a big fall in inequality if there is a faster increase in employment, more pro-poor spending, and direct taxation. The projections of the level of poverty are made from 2017-18 to 2022-23 and are highlighted in Figure 13.3. The level of employment is also shown in the Chart. Despite the GDP growth rate of near 6 percent in 2020-21, there has been a significant increase in the number of poor. The primary reason is the big divergence of almost 4 percentage points between the rate of increase in food prices and the overall rate of increase in the consumer price index. 131