Vicious Circle of Poverty

Poverty is a curse and the biggest hurdle in development of a country. In underdeveloped countries there prevails vicious circle of poverty. There can be various factors responsible for it, for example; underutilization, mis-utilization or un-utilization of resources, low capital formation, population growth, low rate of saving and investment etc etc.

Vicious circle is like as in the following picture:


It shows that when a country is poor, incomes of people are low, when incomes are low they hardly meet the need of bread and butter, in this situation they are unable to save so country has low rate of saving. When there is no saving what would be there to invest. Hence low rate of investment. When there would be no investment, there would be low capital formation and low productivity per worker and because of this workers have low income. So this circle goes on. And it a big hindrance in the development of least developed countries.
In Pakistan’s scenario, people have low incomes, so they can not save, and according to figures saving rate is 14% of our GDP which should be 25%. Now we can not say that this low rate of saving is all because of low incomes, we have consumption oriented economy so people are less willing to save. Middle income people are not left with enough to save and high class social group is more interested in lavish spending. Similarly with have very low level of capital formation and investment. People are not willing to invest, now its also not wholly because of vicious circle of poverty, its partly because of unstable political and social situation of our country, power crisis and terrorism, these factors are also contributing to low investment because of lack of trust. Since the investment is low so productivity is also low.


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