With the prolonged International Monetary Fund-led stabilisation programmes, high inflation and low growth, along with the absence of long outstanding structural reforms, the income equalities have been increasing in Pakistan and the middle class shrinking.

Successive governments, meanwhile, kept their respective fiscal and monetary policies focused on the top and bottom of the population — the top with fiscal incentives, tax amnesties and energy and financial subsidies and the bottom with cash transfers and handouts. While the trickle-down appeared a pipedream, the size of the population in need of handouts has expanded.

Launched in 2008, the flagship social safety net — Benazir Income Support Programme (BISP) — to alleviate adverse effects of slow economic growth and 30-year high inflation and the then global financial crisis has octupled in terms of fiscal allocation by now.

Starting with Rs34 billion, the BISP allocations for the current year are estimated at Rs316bn (over eight times higher) and the number of beneficiary families has increased by more than three times from 3 million in 2008-9 to well over 9m in 2023. In contrast, the total population has increased by less than 20 per cent during the period, indicating clearly that the number of those in need of financial support to survive was increasingly disproportionate to population growth.

The number of BISP beneficiary families has increased by more than three times whereas the total population has increased by less than 20pc

Not surprising then that one of the key themes of even the ongoing fiscal stabilisation programme under the International Monetary Fund remains “poverty reduction and social protection”. In the absence of the latest data on poverty count, empirical evidence would suggest that on top of continuous cycles of low growth and high inflation, during the recent phase of Covid-containment, an additional number of the country’s middle class may have already fallen below the poverty line or on the verge of poverty.

The government generally concedes these challenging conditions. In its latest communications with the IMF, it said the country continues to face a challenging economic and political environment. While successfully navigating the Covid-19 pandemic with low infection rates and almost 70pc of the population vaccinated, the war in Ukraine has created uncertainty through higher international commodity prices and adverse external financing conditions. This has already resulted in higher inflation, elevated spreads, and a wider current account deficit.

It has promised that reducing poverty and strengthening social safety remains a key priority. The Covid-19 pandemic has laid bare the disparities facing our vulnerable population, which need to be addressed to foster inclusive growth and ensure that the country becomes more resilient to future shocks.

Going forward, in light of rampant inflation and ongoing energy price reforms, the government has committed to “exceptionally broaden BISP in FY22-23”. To that end, it will use BISP not only to support regular BISP beneficiaries (ie, families with a poverty-means tested (PMT) score below 32) but also to help prevent non-BISP Kafalat beneficiary middle-class families from falling into poverty (ie, families up to the middle quintile with a PMT score below 37). The latter would be supported through a special temporary cash transfer scheme (Sasta Fuel Sasta Diesel — SFSD) during the current fiscal year.

For the current fiscal year, the government has budgeted Rs316bn for executing all regular BISP programmes worth Rs300bn and expanding the unconditional cash transfer (UCT) Kafalat base by one million families to 9m beneficiary families worth Rs16bn. This is a new end of June 2023 structural benchmark under the yet-to-be-approved IMF programme.

In addition, the government has also given an undertaking to review the UCT Kafalat programme by the end of September 2022 to ensure the stipend is adjusted for inflation in FY22 by the end of December 2022. It has promised to build on World Bank advice and seek ways to find fiscal space to also implement meaningful improvement of the still low BISP Kafalat generosity level.

The government has promised to review the conditional education and stunting cash transfers to better align them with actual child schooling and food costs. Moreover, the government will reinstate the quarterly disbursement schedule of the Kafalat stipend. To highlight the importance of regular BISP spending for the most vulnerable segments of society in the Fund-supported programme, the authorities have asked the IMF to elevate the indicative target on regular BISP spending to performance criteria.

Talking about SFSD support for the middle class, the government has committed to extending the new SFSD scheme throughout FY23 to provide a monthly benefit of Rs2,000 to 2m non-BISP Kafalat beneficiaries with a PMT score below 37 at a total cost of Rs48bn with a sunset at the end of FY23. That would take the total amount to about Rs364bn.

On top of that, the government has also given an undertaking to work with the World Bank on the establishment of a National Socio-Economic Registry (NSER Live) points in all regions to give people an opportunity to re-declare their status in case of a shock including, for instance, to personal circumstances or from a regional climate disaster and to have their eligibility decision regarding their UCT and conditional cash transfers checked.

The government will phase out the Ehsaas Rashan Riyat programme (ERR) in FY23. Execution has remained well below expectations at about Rs5bn in FY22, relative to the planned Rs90bn, and largely excluded the most vulnerable as it relied, by design, on the use of internet-connected smartphones and access to ERR-participating supermarkets. The government will, however, continue the Kamyab Jawan Pakistan Programme (KJPP) in a modified form to boost the financial inclusion of the poor through subsidised financing for small and medium enterprises, agriculture and low-cost housing.

Published in Dawn, The Business and Finance Weekly, August 22nd, 2022