Under mounting political pressure, Prime Minister Imran Khan is rebranding, revamping and expanding social safety nets for the poor hit by the ongoing stability programme and economic downturn.
However, the PTI’s overall plan is not much different from the traditional ones the previous governments tried to reduce poverty. Operating on the periphery, such programmes do little to improve livelihoods or stimulate mainstream economic activities in any meaningful way.
The overall development spending by the government and private investment, which create jobs and shore up economic growth, are at a low ebb with a not-so-promising outlook for recovery. No country can witness progress if there is a small fraction that is well-off among a sea of poor people, says Prime Minister Khan.
It is true that orthodox policies have failed to deliver sustainable GDP growth. Often the inferior quality of growth does not create jobs or reduce poverty. Decent jobs with fair wages are getting scarce. GDP also does not measure the living standards of the teeming millions. With little focus on human resource development, growth is not socially sustainable.
The move initiated in the early 1970s to evolve a long-term, people-centred development strategy to mainstream the poverty issue died down as governments struggled to resolve one crisis after another by taking the same “correction course” again and again while expecting different results. Pakistan signed up for International Monetary Fund (IMF) programmes 22 times.
Unskilled labour suffering from malnutrition is producing low value–added goods from a globally uncompetitive, narrow industrial base
Cheap, illiterate and unskilled labour, often suffering from malnutrition or ill health, is engaged to produce low value–added goods from a narrow, globally uncompetitive industrial base. Industrial diversification is hamstrung by poor social and physical infrastructure and not-so-congenial business environment.
With the slack in domestic demand for goods and services, and stagnant exports, the installed industrial capacity in Pakistan (also suffering from low agricultural productivity) remains underutilised.
Economist Sakib Sherani suggests: “Swap existing high-cost loans with subsidised credit for high spill-over sectors (with high linkages and employment intensity... subsidise wages to protect jobs.”
The process of capital formation required for fresh fixed investment and distribution of wealth — needed to create prosperous consumers — is skewed to favour a few. Only affluent consumers can buy a diversified range of goods and services and contribute a lion’s share of the stepped-up domestic savings for stimulating investment. The bulk of deposits in banks and the National Savings Scheme comes from individual and household savings, which is used for financing businesses, including big corporations and cash-strapped governments.
Owing to a low rate of savings, investment and capital formation, the country’s borrowings have surged 40 per cent in 15 months to a record Rs41.49 trillion in September 2019. Debt serving and defence expenditure account for the bulk of government spending.
Socioeconomic development has become more problematic on the back of a surging number of vulnerable people who are hit by rising cost-push inflation that is the worst form of taxation. Double-digit inflation is the main contributor to tax revenue. Administrative fiat may have helped in improving documentation, but fetched revenues lower than official targets. If the surge in the currency in circulation in a sluggish domestic market is taken as an indicator, the informal economy has expanded.
According to a media report, the Federal Board of Revenue (FBR) has stated that it will be able to collect only Rs4.5 trillion this year, which is Rs1tr short of the budgeted target.
Policymakers need dollar investment in government papers and are unlikely to cut the discount rate any time soon. To quote former chief economic adviser of the State Bank of Pakistan (SBP) Dr Mushtaq Khan, “with supply factors driving inflation , the rupee gaining strength and a growing output gap (the unused capacity in the economy) , maintaining high interest rate makes little sense.”
In January, headline inflation jumped to 14.6pc, highest in 12 years. A former top adviser to the Ministry of Finance says: “Rising prices is not reforms, but an acknowledgement that the government has failed to implement governance reforms.”
About 40pc of the population is below the poverty line spending 50-60pc of their income on food. If food prices go up, more people are pushed below the poverty line.
Launching the Ehsaas Kifalat (EK) programme in Islamabad recently, Mr Khan said a stipend of Rs2,000 would be given to 7m poverty-stricken women. EK is essentially a revamped version of the Benazir Income Support Programme (BISP). However, the health card scheme is the PTI’s original idea. Health cards have reportedly been distributed to 6m families, letting their members seek medical treatment of up to Rs720,000.
Another proposal is to distribute cows, buffaloes, chickens etc to help vulnerable families feed their undernourished children while letting the households earn additional income. But this will start in the next phase of the EK programme. Under the BISP, loans are given to women to buy animals etc.
Anecdotal evidence shows that individual philanthropy in such cases has worked. Abdul Razak, an employee of the Sindh government, gifted a poor old widow living in his village in upper Sindh a small flock of chickens. The woman was able to earn enough to get her only daughter married without having to borrow money from anyone. But some cash should also be provided for an initial period for rearing the animals lest they are prematurely sold in times of severe financial distress, says Mr Razak.
Perhaps of more significance is the National Youth Development Programme titled Kamyab Jawan for promoting self-employment. That includes the Hunarmand Naujawan scheme for imparting skills training to 500,000 youths.
The response from the jobless to subsidised credit under the Kamyab Jawan project has been overwhelming. But given the past experience, the bulk of loan applications may not stand the critical test of banks’ prudent lending. Self-employment is the right option to help people make a decent living as the corporate sector is shedding labour. The programme should be pursued with vigour and innovation.
It is often said democracy works for the few, not the many. For democracy to function properly, elected representatives need to give priority to the implementation of programmes and policies approved by the electorate in fair and free polls. And the people’s representatives should be accountable to voters for their performance in elections, and no one else. Economic growth cannot be sustainable without corresponding social development.
Published in Dawn, The Business and Finance Weekly, February 10th, 2020