EDITORIAL: The constant refrain in the International Monetary Fund (IMF) document titled “Pakistan: 2024 Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility (EFF) – Press Release; Staff Report; and Statement by the Executive Director for Pakistan” is that insufficient emphasis is placed on social sectors (education and health) as well as on the Benazir Income Support Programme (BISP) dedicated to provide assistance to the vulnerable, which is perpetuating poverty and widening inequality across the country.
While clearly the onus of this persistent lack of adequate allocation to these sectors lies with all previous administrations, civil as well as military, yet it is relevant to note that the ongoing EFF is Pakistan’s twenty-fourth programme and, disturbingly, the Fund’s observation, while spot on, does not absolve it of responsibility as none of the programme designs has included a time-bound quantitative measure and/or structural benchmark in terms of allocating adequate budgetary resources to the social sectors and on BISP.
Needless to add, the budget for the current year, approved by the Fund as a prior condition for the ongoing EFF, raises allocations for the social sectors and BISP that are lower than the existing inflationary pressures, and instead envisages a 21 percent rise in current expenditure in spite of the very limited fiscal space.
And what is baffling in light of these observations by the Fund is that the ongoing EFF conditions include the following two agreed policy measures that will have an even greater negative impact on the poor and vulnerable, push many more low to middle income families below the poverty line (currently estimated at around 40 percent) and create even more challenging socio-economic conditions for the government: (i) an emphasis on generating higher revenue through raising existing indirect taxes, which constitute 75 to 80 percent of all revenue collections, whose incidence is greater on the poor than on the rich, a factor that has compromised the capacity of many lower to middle income earners to continue to send their children to school or indeed meet the medical costs of their families; which in turn will (ii) impact on the growth rate with a consequent impact on employment and output. This, it is feared, would activate the contingency measures that have been identified in the Fund documents which, as expected, would raise indirect taxes even further.
The report further contends that “insufficient investment in social sectors, especially in health and education, has been inadequate to tackle pervasive poverty and entrenched inequality.
While some health and education indicators have improved in recent years, they still lag regional and lower-middle income peers, and spending has steadily declined relative to GDP.” And this “directly harms progress on inclusion and the adaptability of the labour force from low-productivity (including agriculture) to more productive and developed activities.”
In other words, the provincial governments and the State Bank of Pakistan’s policy thrust to dedicate resources to specific vulnerable groups at concessional or zero interest rates will have limited positive outcome in the medium term while higher budgetary outlays to these sectors have the potential of transforming the economy but in the long term.
And that provides the key as to why our administrations have not focused attention on investing in social sectors: short-term measures are linked to the political cycle while long-term measures are not.
To conclude, there is no doubt that Pakistani governments have never ever prioritised social sector expenditure though there has been much international and domestic appreciation for BISP launched in 2008 - strengthened by each subsequent administration which reflects ownership by all political parties even though there were attempts to rename it.
This across the board ownership is a key ingredient to its success and as recommended by the Fund the best way forward would be to channel education and health programmes for the vulnerable and the poor through BISP as well as subsidies (including electricity and gas) to ensure that only the identified beneficiaries, through National Socio-Economic Registry, are the recipients.
Copyright Business Recorder, 2024
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