Of pro-poor expenditures

Pakistan spent nearly two trillion rupees towards poverty reduction in FY12. Hard to believe? But that is exactly what the Finance Ministry stated in its Poverty Reduction Strategy Paper (PRSP) Progress Report, 2011-12, released this week.
One wonders if this money spent on pro-poor expenditures was too much for it or just peanuts, because there is no way to find out if all this spending actually made any difference at all. Independent economists are already pessimistic about the socioeconomic impact of large government spending.
For instance, in his PSDP review for the International Growth Centre last year, Dr Hafiz Pasha had concluded that for every Rs 100 allocated in the PSDP, only Rs 63 to Rs 75 eventually reached the people.
PRSPs background is in order here. The government documents show that the PRSP is an analytical framework that started in the year 2000, and over the years since, it has evolved to focus on the economic growth-poverty reduction nexus. This approach has the key donors blessings. The PRSP Secretariat in the Finance Division regularly reports on the budgetary expenditures.
PRSP monitors a number of sectors identified for pro-poor spending incurred by the federal and provincial governments, including social safety nets. In the 11 fiscal years since the introduction of PRSP regime, nearly Rs 8.5 trillion worth of expenditures have been shown as pro-poor.
Shouldn such a large amount make a lasting impact on poverty or improve the living standards? But it appears that the PRSP Secretariat is just aggregating the public spending in the 17 identified sectors. Thats perhaps done because the 2005 Fiscal Responsibility and Debt Limitation Act requires the governments to spend at least 4.5 percent of GDP on poverty reduction and social sector every year.
Dr Vaqar Ahmed, Deputy Executive Director at the Islamabad-based think tank, SDPI, told BR Research that the expenditures shown in the PRSP reports are not necessarily pro-poor.
"One cannot term building residential colonies (e.g. for teachers or doctors) or constructing roads and bridges as pro-poor development per se. Yes, the poor labour may benefit from such projects, but the bulk of the proceeds go to the builders and developers," he stated.
A major shortcoming in this framework is that over 70 percent of the money was spent on current or recurring expenditures in FY12. But meeting payroll expenses or paying for fuel allowances and utility bills or replenishing office stationary can hardly qualify as pro-poor. Yet, about 69 percent of the spending aggregated under PRSP expenditures between FY02 and FY12 was expensed on current expenditures.
To have a clear picture of which spending is pro-poor and which is not, Dr Vaqar suggested that policymakers need to first come up with a classification for pro-poor expenditures and its methodology. After that, they need to calculate the efficiency of past expenditures, through identifying rates of return and outcome indicators. He lamented that these things were missing in the PRSP progress reports.
Interestingly, subsidies are also included in the PRSP expenditures. About Rs 689 billion are included in FY12 - nearly 35 percent of the total Rs 1.98 trillion - as pro-poor expenditure. Not only that, subsidies are also listed under safety nets, as if whole population is below the poverty line.
"Untargeted subsidies are also mentioned as pro-poor expenditure. SDPI, in its recent report, has clearly highlighted that the spending on wheat subsidy operations is ineffectual, as only about six percent of poor farmers have access to the subsidy mechanism. The rest is pocketed by large landlords, corporations, and layers of middlemen," Dr Vaqar said.
In this scenario, the new government must come up with an accurate estimate of pro-poor expenses. Otherwise, the term pro-poor will also be misused and abused with terms like
elief and common man.