Targeting the poor and vulnerable

The Coronavirus is going to have an adverse impact on the living standard of millions of families in Pakistan. Households which are already poor will suffer further deprivation. As the GDP growth rate plummets and actually falls in absolute magnitude, there will be a further increase in the incidence of poverty in Pakistan.
Therefore, there are a number of key questions: Prior to Coronavirus what percentage of the population was poor? Where are the poor households located in terms of the provincial distribution? Within a province what is the number in rural and urban areas respectively? How can they be targeted?
The first attempt to identify the incidence of poverty at the individual household level and the resulting regional distribution of poor households was the nationwide survey to determine the Poverty Score of individual families. A Proxy Means Test (PMT) was applied in each case. The survey was started in 2010 by the Benazir Income Support Program with support from the World Bank. The survey has been completed and updated periodically in parts.
The PMT has identified 7.7 million households with a cut-off score of below 16.17 out of the total number of 27 million households covered across Pakistan, implying a somewhat low incidence of poverty of 33 percent. This has created a large and reliable national registry of the socio-economic status of households in Pakistan. However, there is need for updating the database as information on a large proportion of the household's dates back to 2010, almost a decade ago.
The government has included in the relief package a special unconditional cash transfer of Rs 12,000 per household for 12 million households for a period of four months. The additional 4.3 million will enable coverage also of households which will fall below the poverty line after the Corona virus. With the average family size of seven this implies that 84 million people will be covered by this intervention. This is equivalent to coverage of 40 percent of the population of Pakistan.
An attempt is made below to broadly and approximately determine the location of the 12 million poor households. The approach adopted is to identify the location of the bottom two income quintiles of the national population from the findings of the latest Household Integrated Economic Survey (HIES) carried out by the Pakistan Bureau of Statistics in 2015-16 and then projecting the estimates to 2019-20.
The estimates are given in Table 1 below. Given the underlying lower incidence of poverty in Punjab and Khyber-Pakhtunkhwa their share in the 12 million cash transfers is lower than their respective population shares. Balochistan and rural Sindh have a relatively higher proportion of poor population. As such, their shares are somewhat higher than as indicated by the overall population shares.
Turning to the incidence of vulnerable population, there is need to focus on the distribution of self-employed and employees in the informal sector of Pakistan. This will indicate which sectors need a special incentive package to minimize the unemployment resulting from the economic impact of the Coronavirus.
The Labour Force Survey (LFS) carried out by the PBS provides very useful information on the employment situation in Pakistan. Fortunately, the last LFS was recent in the year, 2017-18. According to this survey the distribution of employment in the informal sector of the non-agricultural economy can be derived by economic sector and in the rural versus urban areas, as shown in Table 2.
61 percent of the total employment in Pakistan is in the informal sector and almost half of this employment is in the rural areas of the country. Economic sectors with a large share of informal employment include manufacturing, construction and wholesale and retail trade. Within the informal sector, over 41 percent of the workers are self-employed and 48 percent are employees in Small and Medium Enterprises (SMEs) and household enterprises. The number of employees in these enterprises is 13 million.
The Prime Minister has announced a package of incentives for revival of the construction sector. This will not only focus on reducing unemployment in daily wage construction workers but also on increasing the demand for output from the large number of industries which provide inputs into construction sector. Consequently, this will also sustain more employment in these feeder industries.
The incentives include a tax amnesty. Money invested in building projects will not be treated as black money and therefore not subject to investigation. The tax regime in the construction sector will be simple and in the form of fixed taxes and some taxes on the sector will also be withdrawn. In addition, Rs 30 billion subsidy is being provided for low cost housing.
The incentive package is strong on the supply side. But the issue is that during a deep recession what will be the demand for housing? Therefore, there is need for a strong incentive for households to invest in housing at this time in the form of access to credit. Currently, housing finance is only 1.4 percent of the total credit extended by commercial banks to the private sector. This could be facilitated by the creation by the SBP of a special housing finance facility, with interest rate not above 7 percent, and restricted to housing costing not more than, say, Rs 5 million. Also, costs of construction may be reduced by the withdrawal of the excise duty on cement of Rs 2000 per ton.
The big missing gap in the incentive packages announced by the government to counter the negative impact of the Coronavirus is special measures to sustain the operations of the SMEs in the country, who provide employment to over 35 percent of workers outside agriculture. A strong strategy needs to be developed to prevent closure of SMEs as the likelihood of their recommencement of operations is low.
The steps to protect SMEs from big losses and possible closure with ramifications on employment and the level of exports include, first, SMEs have traditionally been starved of bank credit, with a share of only 6 percent of the total credit to the private sector. The facility of deferred loan facility already offered will benefit only a minority of SMEs. There is a dire need for access to credit in the form of working capital at this time with an initial grace period. The commercial banks may be motivated to expand their credit operations with SMEs by the granting of a generous tax credit on the increase annually in the quantum of loans made available to SMEs. Also, tax deductibility of the provisioning for bad non-performing debt of SMEs in the income tax law should be increased. Simultaneously, a credit guarantee scheme should be set up for SMEs by the SBP. Second, monthly bills of up to Rs 75,000 of electricity and up to Rs 50,000 of gas may be made eligible for temporary deferral. Further, the withholding tax on these electricity bills may also be temporarily withdrawn.
In conclusion, we wait with great deal of anxiety on the extent of spread of the Coronavirus. Meanwhile, any lockdowns will hopefully not cause severe economic downturn and the relief and incentive packages will be delivered effectively. This is a unique time in the country's history and we pray that we will emerge from this crisis as people more united, disciplined and closer to our Islamic faith.
(The writer is Professor Emeritus at BNU and former Federal Minister)

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Table 1

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Targeted Distribution of 12 million cash transfers by BISP

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                                                             (number in million)

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                           Urban          Rural           Total       % of Total

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Punjab                      2.0            4.2             6.2              51.7

Sindh                       1.3            1.9             3.2              28.6

Khyber-Pakhtunkhwa          0.2            1.4             1.6              13.3

Balochistan                 0.2            0.8             1.0               8.3

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Total                       3.7            8.3            12.0             101.9

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Table 2

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Distribution of Employment in the Informal Sector

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                                     Number of              % in            % in

                                    Employed in           Informal         Urban

                                 Sector (million)          Sector          Areas

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Manufacturing                           9.9                  63               51

Construction                            4.7                  94               28

Wholesale and Retail Trade              9.2                  97               57

Transport & Communications              3.8                  82               41

Community & Personal Services           9.1                  48               57

Others                                  1.2                  22

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Total                                  37.9                  61               49

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