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Commitment to poverty alleviation

Federal Finance Minister Ishaq Dar in his budget speech 2015-16 maintained that the PML-N government’s focus on poverty alleviation is greater than that of the PPP-led coalition government and, as proof of his contention, noted the budgeted commitment of 102 billion rupees for the Benazir Income Support Programme (BISP) for next fiscal year comparing it unfavourably with 60 billion rupees budgeted in 2012-13 – the last year in the five-year tenure of the PPP-led coalition government.

To further undermine the priority accorded by the PPP-led coalition government to its poverty flagship project that bore the name of its assassinated former leader Benazir Bhutto the Federal Finance Minister did not cite the budgeted amount but the disbursed amount for 2013 which was 40 billion rupees. In his speech he stated, “from Rs 40 billion in June 2013, we have increased the size of the programme to Rs 97 billion during the current year. We are further enhancing this allocation to Rs 102 billion, representing more than 155% increase since 2012-13; until 2012-13, the cash transfer program was covering 4.1 million families, which would be taken to 5 million during the current year. By end of next financial year the number of beneficiary families would increase to 5.3 million, showing an increase of 29% since 2012-13. Besides the above program, we are providing an additional Rs 2 billion to Bait-ul-Maal for supporting its welfare activities, notably the hospitalisation costs for the vulnerable people. The allocation has been increased by to Rs 4 billion for 2015-16, which is 100% increase”.

Four observations on Dar’s comments are in order. First, 2013 was an election year with the PPP-led government out of power on 16 March 2013 and the caretakers in control of finances till 6 June 2013 or, in other words, the PPP was not in power during the last three and a half months of fiscal year 2013-14. Second, to make comparisons with 2012-13, or from two years ago which was an election year when expenditure revenue priorities change rather dramatically is like comparing apples and oranges. Third, zero percent of a million is zero and hence to maintain that allocation rose by a 100 percent – from 2 to 4 billion rupees – on the government’s contribution to Baitul Maal for hospitalisation costs of the vulnerable is hardly worth boasting about; and finally BISP has so far not contributed to growth of the economy and accompanying programmes envisaged by Farzana Raja of the PPP notably micro finance scheme, education and skills training need to be added to this programme.

Ishaq Dar in his budget speech then proceeded to mention the government’s focus on poverty alleviation in general terms and most disturbingly relied almost exclusively on the ‘trickle down’ theory as the way forward. The two statements that he made in this regard in his speech are (i) promoting inclusive economic growth for creation of job opportunities and providing resources to alleviate poverty from third year onward and (ii) “public sector investment will spur growth that will create job opportunities for our youth. Both through employment effect of this investment as well as poverty alleviation programs undertaken by the Government people will be lifted from poverty”.

The trickle-down theory can be defined as economic benefits, notably tax concessions and lower interest rates, to businesses and upper income levels, would eventually be passed down to the general public through higher employment opportunities, increased sales and higher productivity. Lowering tax rates, the Laffer curve maintains, could fuel growth and thereby its impact would trickle down in terms of cheaper products and services.

The question is whether the budget 2015-16 has the necessary conditions to ensure trickle-down of wealth to the general public? The answer is in the negative as Ishaq Dar’s third budget (i) does not place any limits on domestic borrowing (there is an International Monetary Fund’s limit on borrowing from the State Bank of Pakistan not on borrowing from the scheduled banks which incidentally crowded out private sector borrowing in 2014-15); (ii) focuses on reducing interest rates, Dar cited the lowest ever rate in recent history as a positive, but ignored the well argued and economically sound working paper prepared by the Planning Commission that was submitted to the APCC. The paper argued that lowering rates “has not significantly impacted the investment climate suggesting that the problem lies with other determinants of investment”. And mentioned an exhaustive list of impediments to growth that require “better fiscal discipline, sustainable balance of payments, revival of investor and consumer confidence, improved energy availability, better governance and meaningful monitoring of economic activity;” (iii) foreign direct investment has continued to decline second year in a row notwithstanding our improved credit rating which is partly the outcome of Pakistan being on an IMF programme and partly due to the 3 billion dollars generated from Eurobonds and sukuk but at rates almost double the global market rate; and (iv) law and order issues remain an impediment to growth and unfortunately since Dar took over the finance portfolio, he has not released the required amount for implementation of the National Action Counter Terrorism Agency and his third budget is no exception; and (v) Dar’s decision to over-value the rupee has compromised our exports and heavy taxes on petroleum and products have not made our industry more competitive in the foreign market. Unfortunately, Imran Khan’s shadow budget also relies on this trickle-down theory and may need a revisit.

John Kenneth Galbraith stated that the trickle theory was really a horse and sparrow theory of an earlier century namely “if you feed a horse enough oats some will pass through to the road for sparrows.” Some Keynsians argue that wealthy tax cuts do not always lead to increase in higher production through ploughing back the profits into production but for personal gain. And given the penchant of our rich – politicians/industrialists/rich landlords/retailers – to bank abroad (one has only to look at data of billions of dollars held by Pakistanis is Swiss accounts and the real estate in the UAE) to abandon supply side economics and become a Keynsian.

So how did Dar specifically deal with poverty in his budget? There ways: First and foremost he cited the current plan (2013-18) as a comprehensive roadmap which set timelines for achieving high growth – a plan as well as timelines that Dar has ignored in his allocations and revenue generating measures.

In his speech Dar referred to two Prime Minister’s schemes focused on poverty alleviation namely (i) PM’s insurance scheme envisaging a 9 billion rupee outlay however given that its implementation is from 2015-18 critics argue that this may be deferred for next year subject to availability of resources though one would hope that the pilot in 23 districts be launched this year and hopefully funds disbursed under this head equally between the four provinces; and (ii) PM’s interest-free loan scheme which envisages 50,000 rupees for those men and women with a score of up to 40 on the poverty score card. The Finance Minister mentioned in his speech that “in 2014-15, Rs 1.75 billion has been released for this scheme. So far, this scheme has benefited 44,000 persons and it has shown 100% recovery rate”. These two schemes need to be supported but they could have been brought under the umbrella of BISP as envisaged by Farzana Raja.

According to the Human Development Index compiled by the World Bank, 60.3 percent of Pakistan’s population lives on under 2 dollars a day, and our ranking has been 146 out of 187 countries – from 2011 till 2014 (improved by one placement from 2010). The Survey cited Ahsan Iqbal’s vision 2015, requiring three consecutive terms for the PML-N to complete, as being people centric and aimed at reducing poverty through strengthening data collection, increasing coverage of household data at district level, and mainstreaming social protection into all government policies to ensure social equity and inclusion, following rights based approach and extending the scope of employment creation. Nice words but no different from what previous government aimed for and ignored while making budgetary allocations.

To conclude, BISP is a good programme and well managed by PPP’s Farzana Raja and appreciated by donor agencies, which is reflected by their support for it. The PML-N government needs to first undertake a poverty assessment, and if it is rising as corroborating data indicates, then it needs to not rely on the trickle down theory for poverty alleviation but focus on more targeted programmes. It is advisable to take ownership of good programmes launched by one’s political adversaries for that way lies gaining considerable political mileage at their cost.

Anjum Ibrahim, "Commitment to poverty alleviation," Business recorder. 2015-06-15.
Keywords: Economics , Poverty alleviation , Coalition government , Beneficiary families , Vulnerable People , Expenditure revenue , Tax concessions , Higher productivity , Fiscal discipline , Economic activity , IMF programme , Foreign market , Government policies , Pakistan