Caring for the poor
By Shahid Javed Burki
Tuesday, 30 Jun, 2009
HOW should Pakistan care for its poor whose number is increasing at an alarming rate? With very little GDP growth in 2008-09, there may not be any increase in income per head of the population.
We know from the empirical work done at some development institutions that the GDP must increase at a rate equal to twice the rate of increase of population for the incidence of poverty to remain unchanged. For the incidence to decline, GDP increase has to be higher, perhaps as much as three times the rate of population growth. It needs to be even higher when income distribution is inequitable, as is the case in Pakistan.
For Pakistan this translates into a growth rate of six to seven per cent a year. The economy is failing in this respect. This means that the dismal performance of the economy in 2008-09 must have added to the number of people living in poverty. The incidence may have increased from 50 million to 55 million.
As was indicated in the budget for 2009-10, only a small increase in GDP is likely in 2009-10 and for a couple of years after that. If these estimates hold, there will be a further growth in the number of poor, perhaps by 10 per cent a year. This rate of increase is more than five times the increase in population which means that the proportion of poor in the population will increase significantly.
The increase will be even higher in the less developed parts of the country. This is clearly an untenable situation, which could have severe political and social consequences. A rising incidence of poverty means a higher rate of unemployment, particularly in the country’s large cities.
In Pakistan’s case, there is a very young population — the median age now is 18.2 years. This means a very large number of young people are without productive jobs. The problem Pakistan faces today has two dimensions. The state needs to assist the poor to meet their basic needs. And it needs to engage the youth in productive work. How does the government plan to address the problem? An answer was provided in the budget. Islamabad is adding additional resources to a number of programmes aimed at alleviating poverty as well as providing relief to the poor.
Much of the effort will be focused on a relatively new mechanism created by the present government and called the Benazir Income Support Programme (BISP). Under this, the government is providing direct cash transfers to the poor.
This is in keeping with the approach developed in institutions such as the World Bank that favour cash payments rather than subsidies directed at the poor. Development institutions have learnt through experience that subsidies, more often than not, don’t reach the intended beneficiaries. In countries such as Pakistan, where the state is weak, there are enormous leakages in such programmes. Cash transfers can be better monitored.
The component of “conditional cash transfers” is being added to the BISP, I suspect at the urging of the World Bank that has tried this approach in several countries in the Middle East that have fallen behind the rest of the developing world in terms of human development. The idea is to provide cash to families in return for taking action such as sending girls to school; keeping children in school for periods that are long enough not only for them to learn to read and write but also to make them responsible
citizens; and immunising children against communicable diseases. There is one additional advantage to adopting this approach. It encourages people to use the private sector for obtaining some of the services on which cash flows are conditioned. In this the burden is not placed on the public sector which is very weak in countries such as Pakistan.
Some of this has already begun to happen. Over the last couple of decades, the private sector has become actively involved in the sectors of education and health which were previously the concerns of the state. While much of this is being done for profit, there is also the active involvement of the non-government sector in education and health.
Even when the private sector is doing this for generating incomes for itself, it is not targeting its activities at the relatively well-to-do. Since the poor even in the vey poor areas are prepared to pay for health and education, the private sector is bringing services to them. The conditional cash programme the government is now including in its on-going efforts will provide the poor additional income to spend on these services. This will encourage further private enterprise in the social sectors.
The government is making a very large commitment to the BISP. “During fiscal year 2008-09, Rs22bn was distributed to 1.8 million families,” said Ms Hina Rabbani Khar, state minister for finance, in the budget speech. “During fiscal year 2009-10, it is proposed to increase the allocation to BISP to Rs70bn ...this would constitute more than a 200 per cent increase … and five million families would benefit.” Each eligible family would receive, on average, Rs14,000 of cash in 2009-10. This is 14.5 per cent more than the Rs12,222 provided in the previous year.
As is the experience in other parts of the world where such programmes have been tried — they are popular in Latin America and the Middle East — care needs to be taken to ensure that money reaches the right pockets. A number of targeting mechanisms have been tried and some of them have worked.
Those that have succeeded are based on good information about the poor. This is done by building what are called ‘poverty maps’ based on censuses and household surveys. The government seems to be moving in that direction. According to Ms Khar, “a census would be completed within three months in 16 districts of Pakistan as a pilot to benchmark incomes. This would be extended to the entire country within the calendar year. The Benazir Income Support cards would serve as vehicles of transparent management and addressing the needs of the vulnerable.”
The government has also indicated the willingness to commit resources to public works programmes in both rural and urban areas in order to provide temporary relief to the urban unemployed. These programmes work well when there is good oversight. In Pakistan’s case this could be provided by the local government institutions.
All these are palliatives, however. The real solution to the poverty problem lies in getting the poor engaged productively in the economy as wage earners and that will need both a high rate of GDP growth as well as the development of labour-intensive sectors of the economy.