Many countries, including Pakistan, are actively engaged in developing a new set of social policies and expanding the social safety net not only to help the poor victims of calamities, but also those vulnerable to disruption. technologies in a post-covid-19 world.
In 2020, around 600 social protection programs were launched around the world. However, at this stage, direct cash transfer (DCT) to help the poor and vulnerable is considered a more effective and efficient mode due to the boost it gives to entrepreneurship with a social multiplier effect. .
Recurrent DCT for people in distress is also akin to the universal basic income initiative, still at the stage, in nearly a dozen countries.
A review of ten-year basic income studies ending in 2019 by Stanford University, covering both rich and poor countries, shows that people receiving cash were more likely to be ” engage in risky business activities due to the insurance provided by DCT. Even though Basic Income may discourage a certain type of work, the review shows that it encourages other desirable activities such as entrepreneurship which has a social multiplier effect with more people at work and less without work. People have chosen to do things that motivate them.
Improved purchasing power of the poor receiving cash has also contributed to rising domestic demand and emerging economic recovery
Before Covid-10, some powerful lobbies were opposed to any significant expansion of the social security network, arguing that it could discourage people living on paid leave from seeking employment. But in the three months ending in mid-June 2020, around 1.1 billion people have received cash payments around the world, much of which has been approved by governments with little political opposition. According to the World Bank, cash transfers accounted for about a third of all social protection programs linked to the pandemic in 2020.
In Pakistan, Prime Minister Imran Khan is actively developing the social safety net under the aegis of the Ehsaas project. He recently announced that cash will be transferred directly to the accounts of 30 million poor families from June to help them obtain essential food items. It can be noted that food prices continue to rise despite government efforts to reverse the trend, due to rising energy prices and supply issues. So far 12 million families, each receiving Rs 12,000, have benefited from the cash transfers, an official report says.
Improving the purchasing power of the poor receiving cash has also contributed to increased domestic demand and the nascent economic recovery.
However, the affordability of governments to increase 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 from fiscal space provided by rescheduling of bilateral external debt. But bilateral external aid flows are gradually being limited to the carry-over of past debts.
In most other countries as well, whether developed or developing, the financing of social security programs has been primarily through a combination of foreign and domestic debt. But there is a movement to raise money by cutting inefficient spending and through philanthropic giving. Similar efforts appear to be underway in Pakistan as well.
With the aim of removing irrational tax exemptions, the Federal Revenue Council has submitted a bill to the National Assembly which is due to enter into force on July 1. The International Monetary Fund estimates that the proposal will generate an income of 140 billion rupees although some media reports suggest that the collection would be targeted at half of the amount.
A Donor Coordination Group (DCG) has been established by the Poverty Reduction and Social Security Division. DCG will serve as an Ehsaas channel to engage with the private sector as well as with other donors. The pledges and commitments of the private sector, international agencies, philanthropists, civil society and individuals will be overseen by the DCG. The question here is: will the domestic private sector and wealthy individuals divert their funding currently provided by community organizations / philanthropists into government coffers? Only time will tell.
To quote Mr Sakib Sherani, some 66 percent of the government’s allocation for the Covid-19 response and economic stimulus has remained unused. Due to the use of the latest technology and the dedicated efforts of Senator Dr Sania Nishtars, the disbursement in the case of the Ehsaas program, according to official figures, amounted to Rs144bn against an allocation of Rs150bn. However, only 17 billion rupees were disbursed against 200 billion rupees intended to help daily workers. And utility stores got Rs 10 billion for an allocation of Rs 50 billion despite the continued rise in food prices.
The latest technology has helped a centralized system quickly transfer funds to beneficiaries at their doorstep, but it is not clear whether a federal agency lacking in local knowledge is able to prepare an accurate list of those eligible for assistance, account given the state of politics observed in recent Senate polls.
The government should conduct a survey to assess the social multiplier effect of CSDs. On this basis, as many current subsidies as possible can be transferred to the DCT mode as has already been decided in the case of fertilizers. Previously, the subsidy was driven by importers and the fertilizer industry. A renowned analyst suggests that land managed by government departments should be distributed among landless peasants.
And to encourage local entrepreneurship, the DCT must be strengthened by re-establishing representative local governments for infrastructure development, as provided for in the constitution. In the rich world, many cash-related initiatives were one-time transfers, aimed at stimulating consumption and guarding against income shocks. In most developing countries, these programs were recurrent and targeted the poor and vulnerable.
However, US President Bidens’ US bailout is the third round of stimulus packages since the United States was hit by the coronavirus. The package provides direct payments of $ 1,400 to most adult Americans and $ 350 billion in aid to states and local governments. Analyst David Brooks says the United States is a transfer state where the government redistributes huge sums of money to people who believe they would spend in the right way.
But right now, around 270 million people around the world are at risk of starving to death, 320 million children are out of school and 495 million jobs have been lost, according to data from United Nations agencies compiled by Aga Khan University in Karachi.
Posted in Dawn, The Business and Finance Weekly, January 22, 2021
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