IMF concerned at low investment in social sector

ISLAMABAD: The International Monetary Fund (IMF) has raised concerns over Pakistan’s persistently low investment in the social sectors, warning that this underinvestment is perpetuating poverty and widening inequality across the country.

This was stated in the Fund’s latest report titled “2024 Article IV Consultation and request for an Extended Arrangement under The Extended Fund Facility”.

The government should continue to maintain substantial fiscal contingency reserves to ensure the Benazir Income Support Program’s (BISP) capacity to disburse emergency cash transfers.

This would be a crucial component of building climate resilience, the report added.

IMF official supports reforms in public sector

Pakistan has announced plans to expand the scope and coverage of BISP - a landmark social safety net program which provides cash transfers to the country’s most vulnerable household; and has committed to gradually increasing these investments to 2.4% of GDP by fiscal year 2025 and 2.8 percent by fiscal year 2028.

The government also announced a significant increase in funding for the BISP fiscal year 2025. The allocation has been raised by 27% to Rs599 billion.

The quarterly unconditional cash transfer (UCT) under the Kafaalat program will rise from Rs10,500 to Rs13,500 by January 2025. This will help address inflation and provide greater financial assistance to the poorest households.

An additional 500,000 households will be enrolled in the UCT program, bringing the total number of beneficiaries to 9.8 million by the end of 2025. This expansion will ensure that more vulnerable families receive support.

The government will continue to improve BISP’s administration. The National Socio-Economic Registry (NSER) will be expanded to cover all poor households, and electronic payment systems will be piloted nationwide to streamline cash disbursements.

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The IMF advised Pakistan to transition from energy tariff subsidies to direct cash transfers through BISP. This will reduce market distortions and ensure that vulnerable households continue to receive support, it contended.

Despite modest improvements in recent years, Pakistan’s health and education indicators still lag behind those of its regional counterparts and other lower-middle-income countries, the report stated.

It highlighted that the decline in social sector spending as a percentage of GDP has exacerbated Pakistan’s economic struggles. With poverty rates hovering around 40%, a significant portion of the population faces limited access to essential services and economic opportunities, particularly in rural areas where high-productivity jobs are scarce.

The informal labour market, coupled with insufficient safety nets, leaves millions of Pakistanis without the means to participate in a modern economy.

One key area of concern is the BISP, the country’s primary social safety net. Although BISP has played a vital role in providing cash transfers to vulnerable households, the program’s current scope and funding are insufficient to address the scale of the problem.

Without greater investment in programs like BISP, the country risks squandering its human capital, especially its large youth population who are unable to fully integrate into the labour force.

The IMF also underscored that the low levels of spending on health, education, and social protection have hindered efforts to foster economic inclusion. Without sufficient investment in these areas, the labour force remained concentrated in low-productivity sectors, such as agriculture, and is unable to transition to more productive activities.

The IMF stressed that addressing these structural issues was crucial for Pakistan to unlock its economic potential and reduce the widespread inequality that hampers long-term growth.

In a backdrop of insufficient investment in critical sectors such as health and education, the government committed to significant reforms and increase in social safety net provisions.

The report highlighted an urgent need for Pakistan to reverse its decline in social sector spending. Expanding programs like BISP and increasing investments in health and education are vital steps toward reducing poverty, fostering inclusion, and preparing Pakistan’s workforce for a more productive future.

The government alignment on strengthening social protection measures must include BISP playing a pivotal role in supporting the country’s vulnerable populations.

Spending on CCT programs like Taleemi Wazaif (education) and Nashonama (health) is envisaged to be increased by 32%. This will allow for higher enrolment in these programs, which focus on human capital development.

Copyright Business Recorder, 2024