Creating efficient safety nets in Pakistan —Syed Mohammad Ali


Creation of a database based on household profiling for the entire country is an administratively complex and costly exercise. But once completed, it can improve the productivity of, and synergy between, social protection programmes

Social safety nets are necessary to alleviate poverty within broader macroeconomic growth policies that take a long time to trickle down benefits to the poor and disadvantaged. Special programmes for poverty alleviation are therefore necessary, especially for countries like our own which has recently been through an economic crisis that has reversed poverty alleviation gains made in during the earlier part of the decade.

Moreover, attempts to stabilise the economy through steep reductions in fiscal and current account deficits as part of the on-going International Monetary Fund loan arrangement have led to a curbing of public and development expenditures. To mitigate this situation, the need for efficient safety nets to ensure the very survival of the sizeable population of very poor people in Pakistan is thus vital.

Before assessing the effectiveness of the latest social safety nets that have been put in place, such as the Benazir Income Support Programme, it is instructive to take a quick look at other major social safety nets which have existed within the Pakistani context for a much longer time.

Since the passage of the Zakat and Ushr Ordinance in 1980, Zakat is deducted compulsorily once a year from Sunni Muslims at the rate of 2.5 percent on the value of specified financial assets. One of the strongest points in favour of Zakat is its access to an earmarked source of revenue. Reliance on a specific source not only ensures sustainability, but the nature of the tax (on financial assets) is such that the burden falls mostly on upper income households. Therefore, Zakat has the potential of playing a strong redistributive role.

There are however problems with Zakat, particularly its degree of targeting efficiency, which have to do with the capacity of the Zakat department, the degree of patronage exercised through this mechanism, as well as the means by which the authenticity of its beneficiaries is determined.

The Pakistan Bait-ul Maal was established in early 1992, mainly to provide assistance to those in need (such as the minorities) who are not covered by Zakat. Funds for the Bait-ul Maal essentially come in the form of non-lapsable grants from the federal government and smaller grants from the provincial and local governments.

The Bait-ul Maal’s limited coverage is one of its biggest problems. Also, there is a likelihood of overlap with recipients of Zakat. Unlike Zakat, it no longer has any identifiable source of income. Its exclusive reliance now on budgetary support makes it particularly vulnerable to changing fiscal conditions, and transparency also remains a serious problem in terms of the level of discretion which exists with high-level functionaries in allocating funds.

While the principal form of cash transfers to the poor is through the publicly administered Zakat system (along with private charitable contributions), the number of beneficiaries of the two major programmes of Zakat and the Pakistan Bait-ul Maal are only 1.7 million and 1.2 million respectively in Punjab, for instance. These programmes in effect cover a very small number of the households (less than 35 percent) living below the poverty line (7 million) within Punjab itself. It is suspected that the situation in the other provinces is no better. Moreover, it has been estimated that Zakat and the Pakistan Bait-ul Maal add just 4 percent to the incomes of the households bordering on the poverty line and meet less than 40 percent of the incomes of the 20 percent poorest households.

Ushr is another religious tax levied under the Zakat and Ushr Ordinance on agricultural produce exceeding 948 kg of wheat, or the equivalent value of other crops. While Ushr has the potential to become a major source of help to poverty-stricken rural households, is essentially moribund. The issue is whether the tax should be revived and its collection improved through a stronger tax administration, or should the focus instead be on imposing agricultural income tax instead, which is incrementally determined on the amount of land held and the water used to irrigate these lands.

In the area of social security, the federal government also operates an employees’ old age benefits insurance scheme through a semi-autonomous institution, the Employees’ Old Age Benefits Institution. But the coverage of workers under this scheme remains limited. The House Building Finance Corporation continues to operate a subsidised housing finance scheme but it has problems too. It has been accused of having an urban and middle class bias, loans are not being paid back, and in recent years, access to funding has become a serious problem.

In view of such on-ground contentions and challenges, the government has been working since the past four years with some major donor organisations to prepare a National Social Protection Strategy (NSPS). In mid-2007, the prime minister of Pakistan approved the NSPS. Besides expanding educational and health services for the poor, and providing school meals and free textbooks, programmes like the Pakistan Bait-ul Maal are meant to be expanded and given autonomy. Moreover, the NSPS has also committed the government to provide regular cash transfers to over 6 million of the poorest people in the country within the first five years of implementation under the Benazir Income Support Programme.

Initially, the current government had decided to provide Rs 1000 per month cash transfers directly to women of poor households across the country under the BISP, and to subsequently offer employment generation and other opportunities to these identified families. Initially, politicians from all political parties in power were given the responsibility to nominate deserving candidates, but now a poverty scorecard approach is being adopted for selecting beneficiaries on the basis of information including household size and composition, education, household assets etc.

This latter method is certainly a much better way to identify deserving candidates than leaving it up to politicians. However, verifying incomes obtained through the informal economy is still not easy. Once the selection process for the BISP is completed, the selections should be further validated through community participation and public display of the lists of the households selected for the cash transfer, and distributing cash transfers on a pre-notified date in the presence of the public to lend authenticity and credibility to the process.

Creation of a database based on household profiling for the entire country admittedly is an administratively complex and costly exercise. But once completed, it can be shared between the cash transfers agency, the Pakistan and Punjab Bait-ul Maals and the Zakat Council so as to improve the productivity of, and synergy between, social protection programmes to minimise duplication and correct serious exclusion errors in the selection of beneficiaries and avoid arbitrariness and corruption, so that the help being offered reaches those in most need of it.

The writer is a researcher. He can be contacted at ali@policy.hu

Courtesy: Daily Times

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