Caring for the poor and vulnerable

The Pakistan Institute of Development Economics (PIDE), an official socio-economic think tank has voted for lockdown arguing that vacillation would not be able to contain the spread of the disease and its consequences on the economy would be unbearable in the long run. "Containment is the key here!" asserts PIDE Bulletin on the subject (Slowdown or Shutdown Pakistan's Dilemma).
Prepared by Durr-e-Nayab and Nadeem ul Haque, both from PIDE with inputs from Madeeha Qureishi & Shahid Hafeez Kardar, the PIDE COVID-19 Bulletin carries research that would aid in informed policymaking to tackle the issue.
The official policy makers advising Prime Minister Imran Khan on how best to tackle the health and economic ramifications of Covid-19, one would hope, have, consulted the PIDE Bulletin before finalizing their recommendations.
The Bulletin claims that Pakistan is now facing what has come to be known as the 'Lockdown Paradox'- the paradox to save economy by shutting it down fast.
"The relation between the pandemic and the measures meant to mitigate it presents this painful paradox. A prolonged period of fighting the outbreak would delay an economic rebound in the long run, with an increased health cost as well.
"The Dilemma - Quicker the normal life shuts down, the faster the health crisis could be resolved. But how would the poor and the vulnerable cope with a complete shutdown?"
PIDE has noted the likely unemployment in various given scenarios. Layoffs are inevitable, especially in industries like travel, retail stores, food outlets and the informal sector.
Taking all the factors into account, including the state of the economy, both in the short and long run; employment structure of the country; prevailing poverty levels; and the state of healthcare delivery and available expertise, the authors of the Bulletin believe that a complete shutdown would be more effective than a slowdown.
"The biggest issue that has to be faced in this regard is how the poor especially the informal workers can be protected.
Here are some initial thoughts of the authors:
• Making use of the Benazir Income Support Program (BISP).
• Local government structures, which go down to the Union Council level, can be used. They work at the grassroots levels and can identify the poor in their communities. This may, invariably, result in some leakages, so monitoring mechanisms through district level bureaucracy can be utilized.
• In some cases, especially to the most vulnerable and also to minimize mobility, food and basic necessities may need to be distributed through the local government system.
• To manage this well it would be wise to maintain full transparency and disclosure as well as high level monitoring. In such times, it is vital to maintain trust. This is all the more important, given the past erosion of trust in government and society. Providing at least a minimum level of protection to the vulnerably employed is not an easy, but an unavoidable, task.
• Big businesses, of any nature falling in this category, should be compelled by law to continue paying their workers. They should be explained that the shorter this outbreak is the better it is for their businesses, so they need to pitch in at this time. No lay-offs allowed during the shutdown by law.
• Even those at the borderline of formality such as large and growing businesses like retail, education, and leisure businesses can be instructed to bear some of the burden.
• In both cases, there can be negotiated positions like future tax credits, and other similar advantages. Those employed in the informal sector, fall in the most vulnerable band, and probably have no resources to manage a shutdown. They must be taken care of by the government.
"Apart from food and other distributions, there could be targeted utility subsidies. Information on baseline users of utilities, which can be easily gauged from the already computerized billing system, can be provided relief by the government.
"We will look into the fiscal dimension in coming days but for the time being finances could be found through redirection from some projects that can be delayed.
"We can gain comfort from the words of Gregory Daco, chief US economist at the Oxford Economics, when he says, "The more rapidly you want to contain the virus, then the more severe the lockdown has to be and the more severe the disruption to economic activity is...", and that, "The hope is, the more severe the lockdown, the sharper the rebound will be." It is like a trade-off between the immediate and the long-term economic and health costs.
"We premise that both the costs would multiply in the long run if we try to keep the normal life going. These are not normal times, and as they say, desperate times need desperate measures."
Another Bulletin (Caring for the Poor and Vulnerable) prepared by Dr Nasir Iqbal, with inputs from Dr Nadeem ul Haque and Dr Durr-e-Nayab, has tried to evaluate the economic cost of the pandemic from the vulnerable group's perspective and gave policy options to minimize its impact, especially by making BISP as the pivot.
The official statistics show that:
1. The share of vulnerable employment is around 56% (52% among male and 71% among female).
2. As for sectoral share of vulnerable employment, it is more than 80% in agriculture; about three-fourths in wholesale and retail trade; near to 50% in hotel and restaurants; more than three-fifths in real estate and business; and approximately two-fifths in transport and communication sector.
The Bulletin considers three GDP growth scenarios to map poverty and unemployment. These being:
1. High impact [0 to 1.5 % GDP growth - massive economic recession]; 2. Medium impact [from 1.5 to 2.5 % GDP growth - almost half of the projected GDP growth]; 3. Low impact [from 2.5 % to 3.5 GDP growth - mild recession in the economy). Unemployment will increase by 0.21 million (low impact scenario) to 0.62 million (high impact scenario) from a base of 3.86 million in 2019. Total unemployment ranges from 4.07 million (low impact scenario) to 4.48 million (high impact scenario).
Due to COVID-19, it is projected that poverty rate will increase from 23.4% (baseline poverty) to 33.7% (in case of low impact scenario) followed by 44.2% (in case of medium impact scenario) and 58.6% (in case of high impact scenario). Apart from poor, a bulk of population share (around 19%) fall in the category of vulnerable groups - income just above the poverty line. Longer economic recession would push these people into the poverty.
Based on these poverty rates, it is projected that poverty will increase by 20 million people (low impact scenario) to 70 million people (high impact scenario) from a base of 54 million people. The number of poor could, thus, increase from 75 million people to 125 million people, depending on the depth of the economic recession due to COVID-19.
Under such circumstances, safety nets, especially cash transfers can provide quick financial support to overcome basic needs of vulnerable and poor segments of society.
The PIDE Bulletin recommends doubling the cash transfer rate under BISP for the next three months with increased enrollment by raising the cutoff score from 16.17 to 25. There are already Rs 180 billion rupees parked in BISP for this year with low utilization. So, the additional burden will be adjusted there.
Some specific recommendations:
i. Increase the cash assistance to 8000 (half of the basic income) for next three quarters for the already enrolled BISP beneficiaries.
ii. Include an additional 5.5 million families along with existing 4.5 million families. Additional beneficiaries could be included using National Socio Economic Registry (NSER 2011-12), the census data used by BISP for targeting purpose, by increasing the PMT up to 25 score. Apart from these families, BISP with the help of NADRA using mobile contacts may also allow poor families to get cash assistance even if they are not included in the NSER. With the help of mobile companies and NADRA, BISP can target these families quickly and disburse mobile money. BISP can use BISP Beneficiary Committees (BBCs) to spread information about new enrollment.
The PIDE Bulletin calculated the expected cost using two scenarios for adding 10 million families to the safety net taking an average family size of 6.5 persons:
i. Scenario 1: An additional enrollment of 5.5 million families with the ongoing stipend amount of Rs 5500 per quarter. The additional cost for one quarter under this scenario would be Rs 30.25 billion.
ii. Scenario 2: Increase the cash assistance to 8000 with an additional enrollment of 5.5 million families: The additional cost for one quarter under this scenario would be Rs 55.25 billion.
PIDE Bulletin believes that the additional cost of Rs 55.25 billion could be managed from the existing BISP budget. BISP has excluded around one million families from the existing net which provides enough space for BISP to expand its coverage.