Many countries including Pakistan are actively engaged in developing a new set of social policies and widening the social safety net not only to help calamity-hit poor but also those vulnerable to technology disruptions in a post-covid-19 world.
In 2020, about 600 social protection programmes were launched worldwide. However, at this point, direct cash transfer (DCT) to help the poor and vulnerable is seen as a more effective and efficient mode because of the impetus it provides to entrepreneurship with a social-multiplier effect.
The recurring DCT to those in distress also resembles the universal basic income initiative, still in an experimental stage, in nearly a dozen countries.
A review of basic income studies over ten years ending 2019 by Stanford University — covering both rich and poor countries — demonstrates that people receiving cash were more likely to engage in risk-taking commercial activities because of the insurance provided by DCT. Even if the basic income may discourage some sort of work, the review provides evidence that it encourages other desirable activities such as entrepreneurship which has a social multiplier effect with more people in work and less out of work. People chose to do things that motivate them.
The improved purchasing power of the poor receiving cash has also contributed to the rise in domestic demand and nascent economic recovery
Prior to Covid-10, some powerful lobbies were opposed to any significant widening of the social safety network, arguing that it may discourage people living on doles from seeking jobs. But in three months ending mid-June 2020 about 1.1 billion people received cash payment worldwide, much of which was approved by governments with little political opposition. According to the World Bank, cash transfers accounted for about one-third of all pandemic-related social protection programmes in 2020.
In Pakistan, Prime Minister Imran Khan is actively expanding the social safety net under the umbrella of the Ehsaas project. He recently announced that cash would be directly transferred to the accounts of the 30 million poor families from June to help them get essential food items. It may be pointed out that prices of foodstuff continue to rise despite the government’s effort to reverse the trend, owing to a hike in energy rates and supply-side problems. So far 12m families, each getting Rs12,000, have benefited from the cash transfers, says an official report.
The improved purchasing power of the poor receiving cash has also contributed to the rise in domestic demand and nascent economic recovery.
However, the government’s affordability in upscaling the social safety net may become more problematic due to the third wave of coronavirus and its impact on economic recovery and tax revenues. So far most of the funding has come from external support mainly from international financial institutions and fiscal space provided by bilateral foreign debt rescheduling. But the inflows of bilateral external assistance is being gradually restricted to the roll-over of past debts.
In most other countries also, whether developed or developing, funding of social safety programmes has been done mainly through a combination of foreign and domestic debts. But there is a move to raise funds by curbing spending in inefficiencies and through philanthropist donations. Similar efforts seem to be underway in Pakistan as well.
In a move to withdraw irrational tax exemptions, the Federal Board of Revenue has submitted a bill in the National Assembly to be effective from July 1. The International Monetary Fund estimates that the proposal will generate a revenue of Rs140bn though some media reports suggest that additional collection would be targeted at half the amount.
A Donors Coordination Group (DCG ) has been set up by the Poverty Alleviation and Social Safety Division. The DCG will serve as an Ehsaas channel to engage with the private sector as well as other donors. Pledges and commitments by the private sector, international agencies, philanthropists, civil society and individuals will be overseen by the DCG. The issue here is: will the domestic private sector and rich individuals divert their funding now being done through community/ philanthropist organisations to government coffers? Only time will tell.
To quote Mr Sakib Sherani, some 66 per cent of the government allocation for the Covid-19 response and economic stimulus has remained unutilised. Owing to the use of the latest technology and Senator Dr Sania Nishtar’s dedicated efforts, the disbursement in the case of the Ehsaas programme, according to official figures, amounted to Rs144bn against an allocation of Rs150bn. However, only Rs17bn has been disbursed against Rs200bn earmarked for the relief to daily wage earners. And utility stores have gotten Rs10bn against an allocation of Rs50bn despite the continuous rise in foodstuff prices.
The latest technology has helped a centralised system to promptly transfer funds to beneficiaries at their doorstep but it is not clear whether any federal agency deficient in local knowledge is capable of preparing an accurate list of persons eligible for help, given the state of politics witnessed in the recent Senate polls.
The government needs to carry out a survey to evaluate the social multiplier effect of DCTs. On that basis, as many current subsidies as possible may be shifted to the DCT mode as already decided in the case of fertiliser. Earlier, the subsidy was directed through importers and the fertiliser industry. A noted analyst suggests that land managed by government departments should be distributed among landless peasants.
And to encourage local entrepreneurship, the DCT needs to be reinforced by restoring representative local governments for infrastructure development as provided under the constitution. In the rich world, many cash-related initiatives were one off-transfers, aimed at stimulating consumption and cushioning against income shocks. In most developing countries these programmes were recurring and aimed at the poor and the vulnerable.
However, US President Biden’s American Rescue Plan is the third round of stimulus since the US was hit by the coronavirus. The package provides for direct payments of $1,400 to most adult Americans and $350bn in aid to states and local governments. Analyst David Brooks says that the Unites States is a transfer state — the government is redistributing massive amounts of money to people having faith that they would spend the right way.
But as of now an estimated 270m people around the world are at risk of starvation, 320m children are out of school and 495m jobs have been lost, according to the data of UN agencies compiled by Aga Khan University, Karachi.
Published in Dawn, The Business and Finance Weekly, January 22nd, 2021
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