Email

Heavy subsidies and ignored social funds: highlights from the last 10 years of Pakistan's economy

As the budget comes out, it’s pertinent to survey Pakistan’s economic performance in the last 10 years
Updated Apr 27, 2018 10:13pm

Since the restoration of democracy in 2008, Pakistan has witnessed extensive constitutional and economic reforms, the main ones being the 18th Amendment, National Financial Commission (NFC) 2010, Benazir Income Support Program (BISP), Kisaan Package and of course the China Pakistan Economic Corridor (CPEC).

While the 18th Amendment and the BISP were feathers in the Pakistan People’s Party’s cap despite their turbulent five years in government from 2008-13, the Pakistan Muslim League-Nawaz has never shied from brandishing their credentials when it comes to megaprojects.

As the outgoing government presents its budget today, it’s pertinent to survey Pakistan’s economic performance in the last 10 years and see some of the most persistent trends in the country’s economy, no matter the party in charge.


This piece concludes a two-part series looking back at the last 10 years of Pakistan's economic performance. Read part 1 here.


Subsidies

The power sector continued to enjoy heavy subsidies throughout the tenures of both the PPP and the PML-N. This was by far the most subsidised sector of all, receiving 96 percent of total subsidies provided by the government at one point.

Given the pattern, it is unlikely that the support to the power sector will waver any time soon. Fewer funds, therefore, would be available for other areas.

Restructuring the National Finance Commission

In 2010, the PPP government brought landmark changes to the NFC award in order to address grievances and the pervading sense of deprivation among the smaller provinces of Pakistan.

The most important move in this direction was the structural shift towards multiple criteria of distribution of finances, rather than just population alone, which formed the basis of previous awards.

Poverty, area, and revenue collection and generation were added to the mix, which benefits provinces other than Punjab.

Punjab’s share will further decline after the results of the 2017 census, while funds for the other provinces will increase further.

However, provinces are not bound to allocate money for social welfare programmes. Even though poverty is one criteria of distribution of the NFC award, social welfare expenditures by the provinces have been unimpressive.

Karachi continues to be a contentious point. Despite being the biggest contributor to taxes at both the provincial and federal level, as well as the country's most populous city, Karachi’s share in allocated funds is negligible, which does little to ease political, social and ethnic tensions in the metropolis.

Welfare and safety nets

In 2009, the PPP government announced a well-acknowledged framework of social welfare for the country’s poor in the form of the Benazir Income Support Program (BISP).

Initially a monthly cash grant of Rs1,000, the amount given out under the programme was increased in subsequent budgets to Rs1,200 and then Rs1,500.

The system of payments has been computerised and transactions are facilitated through the BISP card, which works just like an ATM card.

Though the BISP should remain in place, it has a few loose ends that need to be tied up.

For one, the BISP has no graduation strategy. A beneficiary in 2009 is still a beneficiary today, likely to be one in 2030, and will remain in poverty.

This is because the grants are inadequate if we are to lift its beneficiaries out of poverty. The main reason is that the grants are worth less and less every year because they do not keep pace with inflation.

Continuous resource allocation for the same person for years on end also constrains the government’s ability to widen the scope of the grant for others. This calls for an objective reconsideration of the programme.

For example, the transfers under the BISP are unconditional at the moment but, in future, they can easily be linked with some conditions such as health vaccination from government hospitals and sending children to government schools, as is the case with a social programme in Mexico called PROGRESA.