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Opinion

Economic notes

June 19, 2018

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Economic reforms: Part-XXV

The second Poverty Reduction Strategy Paper (PRSP) was prepared in 2009, after a lapse of eight years. The methodology was getting out of fashion and, in terms of its effectiveness, was not on the same footing as when it was originally launched.

But the real change was the new political regime in the country. The military government had finally given way to a political set up which radically altered government priorities and dismantled institutions (such as the local government system) established under the military rule. The PRSP survived as a tool for monitoring the poverty related initiatives of the government, though it lost its principal position as the statement of economic and social policies. The development partners also found limited utility even though they did help in the process of its formulation.

However, the last decade saw some major initiatives in poverty-reduction efforts. Some of them deserve mention in some detail. Two, in particular: the Benazir Income Support Programme (BISP), and the devolution of social sectors to provinces under the 18th Constitutional Amendment. In this part we discuss the BISP.

As part of its social safety net initiatives, the military government had started an income support programme for the poorest of the poor back in 2000. Under the programme, administered by the Bait-ul-Maal (which was set-up by the second Nawaz government), a modest cash stipend of Rs2,000 was annually paid to some one million households –out of an estimated 6-7 million considered the poorest. The households were carefully screened through several databases including household surveys and the list of those eligible for zakat. The total budget for the programme was around Rs2 billion.

A taskforce established in 2008 by the new PPP government, for social-sector programmes, recommended the use of income support programmes to transfer significant resources to the poorest of the poor. They recommended a six-fold increase in the stipend (Rs12,000) and coverage of 7.5 million households. Besides being a budgetary challenge, this was a phenomenal expansion, and its administration would have posed great operational difficulties. The cabinet hurriedly approved the programme within the first month of its term but mercifully kept a budget of Rs34 billion (17-fold increase) on the ground that there would be delays in the identification process. The programme was named after former prime minister Benazir Bhutto.

In the beginning, identification was a big issue. Amusingly, the parliamentarians were asked to name up to 300-500 people who they thought were qualified for the assistance. Clearly, such methods were not just ad hoc but also induced misuse of funds. The World Bank offered to help undertake a detailed survey to identify the deserving population. The scorecard method was adopted to identify the target population. A census of households was carried out initially for 16 districts but was gradually extended to the whole country. The Poverty Scorecard Census (PSC) identified eligible households through the application of a Proxy Means Test (PMT) that determines the welfare status of a household on a scale of zero to 100.

The characteristics used in the test included household size, type of housing, toilet facilities, education, child status, household assets, agricultural landholding and livestock ownership. Those scoring less than 17 points were declared the poorest and eligible. This gave a target population of about 7.5 million households (or about 50 million people). The women of the households were made the recipients of the stipend.

Nearly a decade since it has been in operation, BISP has earned considerable recognition and appreciation of the development partners. However, it is important to emphasise that, barring a few soft loans, an overwhelming share of BISP’s finances comes from the budget. The development partners showcased the programme to find a strong basis for their other operations, including some BOP support.

A critical point for the survival of BISP came in 2013 when the government changed. Two moot points were: (i) whether to continue the programme with a heavy budgetary cost, and, if so, (ii) whether to keep its name which was associated with a political rival. Former prime minister Nawaz Sharif, rising above political considerations, decided to continue the programme and let its name be associated with Benazir Bhutto.

The IMF passionately supported BISP under its programme and included its funding as an ‘indicative target’, which was diligently monitored and evaluated throughout the programme. BISP received unprecedented increase in funding in the first three years, as the total disbursements rose to more than Rs106 billion – a more than three-fold increase since its inception. The stipend was increased by more than 50 percent to Rs18,600 annually, and coverage was gradually increased to 5.7 million households. Once, Nawaz Sharif was miffed when informed that BISP was being funded from our own budgetary resources. He thought that such large resources were contributed by the international financial institutions (IFIs).

BISP faces a number of issues that will have a bearing on its future viability. First, a considerable amount of resources, at different times, were spent on publicity and advertisements, bordering at political campaigning. Necessary firewalls have to be developed to ensure public resources are not wasted. Second, continued unconditional transfer for a long period will promote dependency that would greatly compromise the essential nature of BISP being a supplemental support. Consequently, a graduation qualification will have to be introduced, or only conditional transfers will have to be allowed, such as based on sending children to school and supporting them until their education is completed.

Finally, the cost of the programme will increasingly be called into question, particularly after the National Finance Award (to be discussed in the next part), that has transferred a much larger share of resources to the provinces. The subject of social welfare is also with the provinces. A high fiscal deficit at the federal level is a source of economic instability and needs immediate correction.

To be continued

The writer is a former finance secretary.

Email: [email protected]

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