Category: Blog

The government of Pakistan continues to negotiate a new program with the International Monetary Fund. While all signs indicate a program is likely, Professor Ali Hasanain of the Lahore University of Management Sciences explains why the IMF can’t fix Pakistan.

Pakistan is hoping to soon conclude negotiations with the International Monetary Fund (IMF) to receive a loan of approximately $10 to $12 Billion in what will be its thirteenth IMF bailout. Of the past twelve programs, only one was completed satisfactorily. This loan will add to approximately $10 Billion in bilateral loans that Pakistan raised recently from China, the UAE, and Saudi Arabia.

Much has been written about why Pakistan needs the IMF’s help, including foreign exchange reserves in sharp decline, substantial debt servicing obligations coming due this year, and difficulties in raising money due to deteriorating credit ratings. Most commentators have however ignored Von Clausewitz’s caution to ‘beware the vividness of transient events’ and focused on tactical points, such as the merits of taking loans from friendly countries before seeking the Fund’s help. With a handful of notable exceptions, few have asked why Pakistan remains in perpetual need of the IMF’s support.

Pakistan’s Economic Problems Aren’t New

The basic contours of Pakistan’s fiscal problems are not new nor do they come as a surprise to the government. First, budget deficits have become perpetual: Pakistan has an extremely low tax net, with only 1.7 Million tax filers in a country of 210 Million. Yet despite this, expenditures are substantial: the government substantially subsidizes a large number of public sector enterprises, including the railways, the national airline, and the Pakistan Steel Mills. It also subsidizes electricity, gas, water, major agricultural products, and many other sectors. In some years an overvalued currency has added to these woes, and in others significant external aid has masked them, but the underlying fundamentals have not changed substantially in more than half a century.

Second, beyond financial worries, the barriers to economic growth are also not new. Two decades ago, Pakistani Prime Minister Nawaz Sharif met with Singaporean Prime Minister Lee Kuan Yew and asked him to assess Pakistan’s economic troubles. Prime Minister Lee identified obvious problems such as poor land title documentation; extremely high defense and debt servicing costs; rampant corruption; crime and violence that frightened away foreign investments; and resource allocations done not through commercial imperatives but connections. Nothing is strikingly different today.

Government Must Better Articulate Reform Strategies

One pattern that has emerged since then is that political regimes typically inherit a crisis, seek an IMF bailout, and use the financial space created to claim victory without embarking on the sort of painful, fundamental reforms that the economy needs. Some commentators have argued that the Fund is complicit in entrenching the country’s woes because it has continued to lend, repeatedly and over decades, in the knowledge that true reform is unlikely. There may be a kernel of truth in this argument, but Pakistan is ultimately responsible for charting its own path.

Greater leadership and an articulation of a long-term plan beyond the IMF is required for any genuine economic reform to take place. For example, while the government took the brave step of removing the Hajj subsidy earlier this year, it failed to clearly articulate why this was economically necessary. Similarly, it has drawn down subsidies on electricity and gas, but failed to describe to the public why this will benefit the economy in the longer-term. Instead, Prime Minister Imran Khan has spent hours in his speeches talking about the austerity of his immediate office operations, even though the Prime Minister and President Houses combined only spend 0.03 percent of the Federal Budget. The government must focus on sensitizing the public to the need to undertake painful cuts in public sector enterprises and educating people on the fundamentals of economic reform.

Reform Depends on Political Change

The IMF can help Pakistan avoid insolvency, but a new program will do little to spur the comprehensive set of economic reforms that the country needs. Reform depends on internal voices questioning why each loan taken is not accompanied by a well-monitored plan for repayment. It also depends on political change. It is no great insight that Pakistan’s economic woes emanate primarily from its political problems. Political contests seldom compete on public service delivery and instead thrive on entrenched special interests and the prioritization of private local benefits over public development.

What then will drive political change? Two key changes in recent years emerge: one, Pakistan’s demographics make it among the youngest populations in the world, and the relative voice of the youth is getting louder; two, Pakistan is urbanizing, and a decrease in the importance of rural politics may over time reduce the role of patronage politics in society. An IMF program will resuscitate the economy in the short term, but it will ultimately be changes in Pakistan’s politics that create lasting reform.

Ali Hasanain is an Assistant Professor of Economics at LUMS and a CDPR Fellow.

This article was originally published by John Hopkins School of Advanced International Studies here.

 

Agriculture remains the backbone of Pakistan’s economy. This sector employs almost 42 percent of the labor force, and provides a livelihood (including via ancillary services) to almost 62 percent of the population. The agriculture sector also contributes 18.9 percent to the country’s GDP. However, the sector has consistently underperformed for many years and displays some of the lowest levels of productivity in the world.

A recent seminar organized by the Consortium for Development Policy Research (CDPR) and the International Growth Center (IGC) in collaboration with the Punjab Government “Development in Punjab: Setting New Priorities in Agriculture and Industries” presented studies on the potential of using technology to overcome barriers to growth in agriculture.

While the share of agriculture in the GDP of an industrializing country typically goes down with time, increases in productivity due to technological advancements often ensure the sector does not stagnate. This has not happened in Pakistan. Over the past twenty years, the share of agriculture in GDP has gone down from 27 percent to 18.9 percent. Agricultural productivity also lags significantly behind the rest of the world. For example, Pakistan produces 3.1 tonnes of wheat per hectare compared to 8.1 in France, 2.5 tonnes of cotton compared to 4.8 in China, and 63.4 tonnes of sugarcane compared to 125.2 tonnes in China. Low yields have economy wide impacts; they result in lower incomes for farmers, lower export earnings, and also inhibit the growth of agricultural byproducts.

Reasons behind low productivity are multiple and varied. These include unpredictable and declining availability of water, the lack of cold storage solutions, inefficient logistics networks, declining investments in the agriculture sector, and poor extension services for farmers. As a result, it is estimated that nearly half of the agricultural output is wasted. The 3.81 percent growth observed in fiscal year 2017-18 was due to government policies in the form of subsidies and friendly procurement prices, which are at best short-term fixes.

Many of the problems hindering agriculture sector’s performance are systemic and hence pervasive across almost all economic sectors. Most issues will continue to affect productivity till major reforms are undertaken. However, improving extension services to farmers does not require any structural reform. Use of modern technology to enhance outreach to farmers and impact farming methods can result in significant improvements in productivity and yields.

Government of Punjab remains committed to improving service delivery in agriculture through the use of technology. Two ways in which the government is transforming agriculture in Punjab were discussed at the seminar and are presented below.

The innovative use of technology can greatly enhance the quality of agriculture extension services. One way is to propagate the use of precision farming – i.e. the practice of using information technology to make farming more efficient. Typically it involves the use of a wide variety of tools – such as GPS guidance, control systems, sensors, robotics, drones, autonomous vehicles, variable rate technology, GPS-based soil sampling, automated hardware, and telematics – to help farmers make better decisions about planting and growing crops. Based on these tools, farmers are given advice on soil quality, weather forecasts, fertilizer application, and a host of other factors. Precision agriculture is aimed at making farming activities more accurate and controlled to ensure profitability, sustainability, and efficiency.

Adeel Shafqat, researcher at the Center of Economic Research Pakistan, and project manager for Precision Agriculture for Development (PAD) discussed the objectives of this project and its contribution to easing provision of advisory services to farmers based in Punjab. PAD provides customized agricultural advice to farmers through mobile phones. The project has been developed in response to the recognition of the increasing availability of high quality agricultural data in developing countries such as Pakistan, but with poor access by farmers.

PAD uses a combination of phone calls, text messages and an application to build profiles of farmers, encompassing location, crop variety, water management, soil type, rainfall, and other variables to provide customized input and management advice. The most common areas in which farmers need advice include seed selection, fertilizer application, and pest and disease management. However, a major obstacle faced by PAD, and one that severely affects farm productivity, remains low literacy levels amongst farmers. The impact of ICT is constrained by its usability, leaving considerable scope for the efficacy of current extension workers.

Another way technology can be used is to incentivize extension workers to work more efficiently. Agriculture extension services continue to be plagued by capacity constraints impacting both the quality of information and outreach. In an-ongoing study, IGC researchers have partnered with the Agriculture Department in Punjab to help improve existing systems to monitor the performance of extension staff. Zahra Mansoor, a researcher at World Bank and working on the project, presented early findings from the study, testing interventions that best incentivize field staff. The project builds on AgriSmart, an application already in use by the department to track key performance indicators, manage human resource and obtain farmer feedback on quality of extension service. Early results of AgriSmart show substantial increases in individual farmer visits, time spent on extension services, and the total number of village visits.

The story that emerges from these two projects is that use of technology can make agriculture more efficient and profitable by providing accurate data to farmers and extension workers, and by improving the performance of extension workers themselves. While structural reforms are essential, there is no reason why poor extension services should continue to negatively affect productivity in the digital age. 

Bakhtiar Iqbal is a Research Assistant at the Consortium for Development Policy Research

The explosion in population and urbanization has left a growing number of people without access to decent, stable housing. The last census in 2017 confirms the housing stock is now 32.2 million of which 39% is urban. The urban population is expected to grow by 2.3 million per year over the next 20 years, which translates to 360,000 households at 6.3 individuals per households. Ownership remains concentrated in the top income bracket leaving a limited supply of housing for low-income households. Shelter insecurity at the bottom income strata and lack of affordable housing has thus become a compelling public policy issue.

The last blog discussed the issue of housing, its root causes and some possible solutions. This blog looks at a few areas in the present discourse that require clarification.

What is affordable housing?

There is not much clarity on precisely what is affordable by the consumer, in this case the average Pakistani household. Globally, housing is defined as affordable if a basic housing unit, which provides a minimum amount of personal space (anywhere from 250 to 500 square feet) and amenities, is accessible at 20% to 40% of gross monthly household income for either rent or mortgage. A basic working tool for computing actual and affordable housing prices is presented below to help bring some realism into the discussions on affordable housing and provide a basic framework for informed deliberations on housing economics and planning policies and strategies.

The list of factors, discussed below, impacting housing costs, and eventually ‘affordable’ and ‘actual’ price is not exhaustive, and can be expanded and contextualized, if required, for greater accuracy.

Occupancy: This refers to the number of persons living in a residential building and can be measured in terms of Households per Dwelling Unit (HH/DW). For the simulations presented here, we have taken average occupancy as 1.5 HH/DW for single family houses and 5 HH/DW in case of multi-storied apartments.

Household Income: According to the Household Integrated Economic Survey (HIES) 2015-16, the average Pakistani household of 6.3 persons, has a monthly income of PKR 29,150. This comes out to be almost half the internationally accepted poverty level of USD 2 per capita per day, which comes to PKR 57,790 per average Pakistani household per month, and even lower than the subsistence level of USD 1.4 per capita per day, or PKR 39,753 per household per month.

Affordability Ratio: The official National Reference Manual on Planning and Infrastructure Standards (NRM)[1] presents models to determine affordability in terms of investment in years of household income, by taking into account the household propensity to save and duration and interest rates of loans, etc. A household can afford a total outlay on housing not exceeding 2.7 times its annual income, as derived from financial analysis of House Building Finance Company loan conditions, which are more favorable than bank loans. If past personal savings and zero/low interest loans from relatives, etc., are included, the rule of thumb for affordability may be stretched to a capital investment equal to 3.5 times the annual household income. The simulations here stretch this ratio still further to 7 times the annual household income, assuming the most favorable terms for loan interest and repayment period.

Land Area: The NRM gives the size for a plot of category ‘F’- for the lowest income group – as 72 sq.m. (775 sq.ft.). Assuming one household per plot, this would work out to be 122.8 sq.ft. per person. However, the pressure on housing may lead to the average occupancy exceeding 1.5 HH/DW[2]. The land area requirements per person can be reduced by increasing occupancy, for example, by increasing the number of stories for multi-occupancy dwellings.

Constructed Area: The NRM gives a maximum floor area ratio (FAR) – the ratio of a building’s total floor area to the size of the piece of land upon which it is built – of 150% for category ‘E’ and ‘F’ plots. This comes to 1162.5 sq.ft. per plot, or 184 sq.ft. per capita for a single household occupancy. This compares favorably with the average available floor area of 102 sq.ft. per person in Asian cities[3]. Thus, there is room for increasing the density/occupancy. For multi-storied apartments Building Regulations for Punjab recommend an FAR of 1:5[4].

Land Price: Land price is highly variable within and across urban and rural locations, determined largely by the distance of the dwelling unit from the place of work and services such as health and education and commercial activity. Thus, the availability of social infrastructure and transportation impacts both the effective cost of living and the market price of land. In ‘greenfield’ developments, land prices are lower, but infrastructure development cost would need to be added to the actual price of housing. ‘Infill’ development, in both urban and rural locations, takes advantage of existing infrastructure, reducing ‘development’ cost but would be reflected in higher prevailing land prices.

Built Area Price: Building costs are also highly variable, mainly due to materials and technology used in the ‘grey’ structure, apart from the differences in the quality of finishes. In rural locations, where land prices are lower, larger land areas are affordable, allowing for low-cost single-storied and low-tech structures. In prime urban locations, where land prices are high, land areas per DW end being reduced, necessitating multi-storied construction with its accompanying higher costs.

Table 1: “Greenfield” development is not an “Affordable” option for the average Pakistani Household

Table 2: “High density Infill” is the only “Affordable” option in existing cities

Table 3: “Infill” in existing rural settlements is the most “Affordable” option

(These tables are based on simulations done by Mr. Kamil Khan Mumtaz.)

Policy Implications

Greenfield developments are not an affordable housing option for the average Pakistani household. Infill developments with high density multi-storied apartments, in existing cities, may be the only affordable housing option for urban populations. Infill development in existing rural settlements remains most affordable housing option, with the added advantage that increased land area per person, would facilitate production-based livelihood opportunities in organic farming, artisanal manufacture, forestry and animal husbandry.

Secondly, the role of subsidies as a solution to providing low-cost housing needs to be qualified. Somebody has to pay the actual price. ‘Cross-subsidy’ can of course work up to a point, if one product is over-priced to make up the balance for another product that is underpriced. The beneficiary will simply en-cash the freebee in the market place while the subsidizer has to bear the extra cost. The problem is when the subsidy is provided in the form of ‘common’ goods, such as public land, utility infrastructure, access to social infrastructure, tax waivers and financing terms etc. Here the cost is borne by the public exchequer. And when that is not only running on ’empty’, but is deeply in debt, subsidies are not affordable.

Thirdly, while densification of existing low-density urban areas has to be a part of the solution, terms such as ‘High Rise’, and ‘Vertical’ development need to be qualified. ‘High Rise’ normally means more than twenty stories. It implies very high costs of construction using high-tech materials, construction technologies and systems such as lifts, air-conditioning, etc. with a high load on the urban utility infrastructure on high valued land. This game of mega-structures and mega-bucks can only be played by big corporate entities: financiers, developers, consultants, builders, who all make super profits, but the money leaves the local economy. By contrast, low-rise, low-tech, high-density would be two or three, maximum five stories, implying lower costs and walk-up structures that can be built by small local builders. So, the money spent remains in the local economy.

 

 

Image Source: Housing in Pakistan and Why Children Live on the Streets

[1] National Reference Manual on Planning and Infrastructure Standards, Government of Pakistan, Ministry of Housing & Works, Environment & Urban Affairs Division, Islamabad, 1986, p 45.

[2] NRM, p 46.

[3]Hong Kong: 15 sq.m. or 161 sq.ft. per capita; Africa: 8 (86sq.ft.); Asia: 9.5 (102.26sq.ft.). in UN Habitat, Floor Area Per Person in Cities, UN Habitat 2001

[4] Local Government & Community Development Department, Government of the Punjab, Model Building and Zoning Regulations for Developing Authorities in Punjab, 2007, p 14.

With the highest rate of urbanisation in South Asia, access to affordable housing has become a key issue for Pakistan’s lower and middle classes. The causes for the urban housing shortage are multiple and varied, and to an extent, poorly understood. A whole host of structural and other limitations have choked the housing supply in Pakistan. The Consortium for Development Policy Research (CDPR) recently organized a Lahore Policy Exchange talk on ‘The Urban Housing Crisis’ to bring together policymakers, practitioners, academics and researchers on one platform to provide valuable insights on the nature of the housing crisis and housing needs at the community level, possible solutions and government plans to respond to this. This blog highlights interesting takeaways from this talk.

Nature of the Crisis

The rising gap between demand and supply of housing has now become a global phenomenon. However, the issue is especially pronounced in Pakistan.

The sixth Housing and Population Census (2017) confirms Pakistan is now the seventh most populous country in the world. Its overall population is growing at 2.4%, while urban population growth is even higher at 2.7%. More than half of Pakistanis will be living in urban areas between 2030 and 2040. This rapid population growth is causing an overall housing shortage, currently estimated at close to 10 million units. Whereas, the annual urban housing gap is between 3.5 and 4 million units, mostly (62%) amongst the economically weaker segments of the population. In Punjab alone the Urban Unit has estimated a housing shortfall of 2.3 million units. The situation may worsen as household size shrinks, leading to potentially higher demand even with the same population.

An important aspect of the housing gap is affordability. The growing inequality is particularly well-demonstrated in Lahore. Households at the bottom 68% of the income distribution can afford just 1% of the available housing, while households at the top 12% can afford 56% of the available housing. More than 47% of urban households live in low quality/substandard housing, often located in informal settlements/ slums called Katchi Abadis, without security of tenure while scores are forced to live on sidewalks and underneath bridges.

The Housing Dilemma

According to data compiled by Ammar Rashid (Visiting Faculty at QAU), housing prices in Pakistan have gone up by 134% in the past five years (2013 to 2018) [data from zameen.pk]. Urban plot prices during the same period have also gone up by 151%. Pakistan’s GDP per capita however has barely grown by double digits at 20% (2012-2018). This problem is especially pronounced in Pakistan, as its house price to income ratio remains much higher than both developed and similarly placed economies.

Source: Towergate Insurance

Real estate development in Pakistan has often been militarized, unregulated and elite-focused. The major real estate booms have been tied to global financial flows such as during the cold war in the 1960s, Afghan war during the 1980s, post 9-11 and now under China Pak Economic Corridor (CPEC). These periods have seen the creation of Defence Housing Authorities, Bahria towns and now investments in peripheral cities (such as Multan and Hyderabad).

Pakistan’s real estate market has seen returns much higher than elsewhere, with a significant total asset portfolio. Yet, this sector is taxed a minute fraction of its actual value. At the same time, the sector remains deeply obscure in terms of its transparency ranking.

Source: Data compiled by Ammar Rashid as part of his ongoing research

Why has this happened?

This situation is deeply connected to how we treat real estate in Pakistan. Pakistani real estate has become a capital trap. Less than 50% of the national savings find their way to the financial sector. The rest are invested in real estate or other forms of capital formation. The decline in financial savings between 2000 and 2005 neatly coincides with a period of real estate boom that has continued ever since. As a result, the country’s land is increasingly being used as a speculative/ fictitious commodity rather than a productive asset. At the same time deposit pools in the banking sectors continue to remain low, leaving little for growth-pushing investments. The skewed property tax structure also explains, to a certain degree, why significant investments are made in owning plots as opposed to constructing houses.

Private developers find government rules and regulations inadequate to facilitate their efforts for providing low cost housing. The formal housing development sector has not only failed to meet the demand for low-income housing but has also been responsible for manipulating and distorting land prices. Moreover, property taxes are levied against constructed buildings, not vacant plots, leading to lopsided investment in empty plots.

Government entities like the Lahore Development Authority (LDA) have not been successful in fulfilling their mandate. LDA’s core function is to design and implement a master plan for Lahore. However, LDA lacks a planning framework to effectively respond to the housing (including low-cost housing) needs of Lahore. Moreover, building regulations at the provincial level are not standardised. Every Tehsil Municipal Administration (exclusively responsible, for zonal planning, municipal services and maintenance of the tehsil/town) has its own building bylaws which result in poor implementation and weak enforcement.

Lack of access to subsidised state land and affordable mortgage finance has effectively meant that low-income households in Pakistan have been shunned from owner-occupied housing. There are very limited credit facilities for the urban poor within the formal banking structure. Pakistan has a very tiny mortgage market at merely 0.5% of its GDP compared to a South Asian average of 4%. This is mainly due to lack of an inclusive financial sector. Moreover, the percentage of Pakistanis with bank accounts is only 13% compared to 53% in India, 31% in Bangladesh and 83% in Sri Lanka (Data compiled by Ammar Rashid as part of his ongoing research). Hence, mortgage policies need to be aligned, so that rentals can lead to ownership of houses. Pakistan also needs effective foreclosure laws to encourage banks to lend.

Providing housing alone is not adequate. The surrounding social and physical infrastructure (access to schools, market, healthcare, transport) is just as critical. The availability of affordable housing, in proximity to mass transit and linked to job distribution, has become severely imbalanced during the period of rapid urbanization and growing density convergence across Pakistan’s major cities. For a financially challenged segment, a sustainable way to retain housing is equally important. Eventually private sector developers like Ansaar Managament Company, focused on affordable housing solutions, also need to exit from the community once housing schemes are developed.

How is the Government Responding?

In short, a weak regulatory framework, rapid price growth, commodification of land for private use by elite groups, incentivizing of speculative trading, failure of zoning, an ineffective tax policy and underutilization of scarce urban land, amongst other reasons have resulted in a skewed development model. Within this, emphasis on low cost housing has naturally been minimal.

The government needs to encourage a shift away from the treatment of land as a speculative commodity, ensuring a more efficient and productive use of this limited and scarce resource. This can be done by regulating and taxing the real estate sector, regularizing katchi abadis /slums, altering land development patterns, and introducing targeted and incremental public housing.

Prime Minister’s Naya Pakistan Housing scheme directly plans to address the housing shortfall for the low-income segment by promising to create five million houses over the next five years. Just this month, the Prime Minister also launched a low-cost finance scheme. He also promised that the future of urban development in Pakistan will be vertical. So far, the newly established housing task force, under the PTI government, has remained very active with more than two dozen meetings held since its inception.

At the same time, the Government of Punjab is working on reforms to start estimating property tax based on capital rather than rental value, to encourage a more productive use of land. This way empty plots will also be taxed. The Urban Unit has also worked on a spatial planning strategy to encourage a vertical (instead of a horizontal) spread of urban centers through zoning efforts. A proposed Punjab Spatial Planning Authority (PSPA) will make the zonal plans (for agriculture, residential and industrial zones). Integration of different economic sectors (water, transport etc.) will be an important element of the role of the PSPA.

The Naya Pakistan Housing schemes encourages active private sector investment in construction of housing. Through revenue collected from front commercial and high-priced residential areas developed by the private sector, a cost subsidy will be provided to low-income groups. The government’s role will be to ensure subsidies to the poor (on land, utilities, finance etc.) while overall investments will be made by the private sector.

The issue of Katchi Abadis is mostly a structural problem that federal and provincial governments are now beginning to address. Legal framework is needed to guarantee the right to housing as per the constitution. The Government of Balochistan has recently introduced for the first time a law around Katchi Abadis and created an authority.

A federal housing authority proposed as an umbrella organization to coordinate efforts may have limited impact as housing is a provincial subject. In addition, the role of LDA and the Urban Unit needs clarity once this authority is in place. So far, the necessary legislation for setting up a designated housing authority has not yet been formulated.

In any case, a very detailed strategic transition roadmap is required especially in light of a possibly new local government definition. With weak enforcement, these plans will not materialize.

Hina Shaikh is a Country Economist at the International Growth Center (IGC).

 

 

 

 

 

 

 

The past decade has seen an exponential rise in social protection initiatives – mostly in the form of unconditional cash transfer programs. In Latin America, Africa and South Asia, these emerge as promising interventions to reduce poverty. There is also a rising global trend of using conditionalities linked to such transfers to increase school enrolment, and access to improved health and nutrition.

The discourse on social protection to alleviate poverty is still recent. An emerging debate surrounding social protection is regarding what comes next? The inclusion of some form of ‘graduation’ (i.e. programs that help people to exit poverty) is being seen as a more sustainable solution to poverty compared to simple cash transfers. This blog explores what this means for the future of social protection in Pakistan and whether cash transfer programs should continue to exist and expand.

Social protection and poverty

Social protection can be effective in smoothing consumption and sustaining an existing standard of living, but it does not lead to exiting poverty in the long-run – it only helps the poor deal with it. Most social protection programs are developed on a rights-based approach, with the aim of distributing wealth and ensuring a dignified living for the most vulnerable. Hence, social protection is often an inclusive and universal tool for social equity. Within social protection, cash transfers are a growing component.

Pakistan’s Benazir Income Support Program (BISP) was launched in October 2008 as a major component of the then National Social Protection Strategy (NSPS) amidst a difficult economic and financial situation. Today BISP has emerged as Pakistan’s flagship social protection initiative, and one of South Asia’s largest safety net programs. Its scientific means of targeting makes BISP’s performance among the top five social safety net initiatives in the world. It is a federal-level program with certain administrative processes being managed at the provincial and district levels.

BISP transfers are made solely to women. These compose of an unconditional cash transfer program as the backbone of BISP, a conditional cash transfer component to incentivize primary school enrolment of beneficiary families’ children, and a series of complementary initiatives including pilot graduation schemes to provide income support to beneficiaries. As of January 2018, BISP had disbursed over Rs 563 billion as unconditional cash transfer to over 5.6 million families (approximately 17 percent of the country’s population).

BISP’s external evaluation confirms poverty in Pakistan fell by 20 percentage points between 2008 and 2016. As the country’s largest cash transfer program, BISP claims credit for a third (seven percentage points) of this reduction in absolute poverty.

A longer term solution?

In search of more sustainable solutions to chronic poverty, it may not be sufficient to simply retain unconditional cash transfer programs without exploring conditionalities and some variants of graduation. Conditional transfer programs can achieve multiple policy goals and address vulnerabilities (such as lack of access to education, healthcare and nutrition) faced by the poor. Interventions that increase incomes and assets to a point where participants are ready to graduate from their reliance on safety nets are also considered long-term solutions to poverty. While support for conditional cash transfers is easier to find, experience with graduation programs is more mixed.

One of the most successful graduation approaches in South Asia that have assisted the ultra-poor to sustainably escape poverty is the Targeting the Ultra-poor Program (TUP), pioneered by BRAC in Bangladesh. Evidence suggests that TUP has been effective and portable across diverse low-income settings.

Under the BRAC model, a long-term graduation approach is structured around careful sequencing of five core building blocks – targeting, consumption support, savings, skills training and asset transfer – with ‘graduation’ out of extreme poverty and into sustainable livelihoods as the end goal. Under this program, women receive livestock and two years of training (two-week intensive classroom training followed by weekly visits) to help them work with the livestock. With the right mix of interventions, the poorest are shown to graduate out of extreme poverty in a time-bound period.

How well can graduation be replicated in Pakistan?

Increasing support for graduation in Pakistan is a reflection of the fear that
social assistance may create dependency and laziness amongst beneficiaries. However, graduation programs may not work as well in other countries, especially when scaled up.

Firstly, for graduation to offer a sustainable solution it has to focus on the long-run. True success of graduation should be gauged in how well it addresses inter-generational poverty. Diverting income towards asset accumulation in the short run can impact longer-term development (such as through investment in children’s welfare). In Pakistan, with limited space for social spending and low human development indicators, this choice between cash transfers and graduation becomes even more critical.

Secondly asset provision alone is not enough – complementary training and savings are just as crucial for the success of the graduation programs. Life skills coaching for multiple years as part of a graduation program like TUP by BRAC was a huge investment incurred by the implementing organization and required a mix of social and technical skills that may not be as readily available in Pakistan.

Thirdly, sustainable graduation is not a credible promise in the absence of conducive market conditions. Without any major public or private sector intervention to help create new markets, household-level enterprises are severely constrained. Cash transfers may relax some liquidity and credit constraints, but cannot replace an overarching economic development strategy.

Fourthly, targeting is key to the success of graduation. It is important to know more about intended beneficiaries and expand the information base beyond knowing the extent of poverty to knowledge about skills, capacities and interest. Graduation works best when it incorporates individual beneficiary profiling through household visits to ensure appropriate life choices are made for each household. Pakistan’s current poverty database, the National Socio-Economic Registry, is a static measure of the condition of poor and does not capture any of these dynamics.

Future of cash transfers in Pakistan

Till the time the state is unsuccessful in generating requisite growth and jobs, the need for programs like BISP will remain. When fiscal space for development expenditure shrinks, poor are hit the hardest. BISP was designed to cushion the impact of economic downturns on the poor. The need to support and retain BISP as a nutritional safety net has become even more pressing as the country continues to grapple with macroeconomic crisis and cuts in social sector spending. This situation coupled with low tax-to-GDP ratio hovering around 12 percent means fiscal space for social spending will remain restricted in the near future.

Researchers also find the poorest remain unable – rather than unwilling – to take advantage of the graduation approach as they lack capacity to do productive work. Graduation works best for those slightly higher up on the poverty scorecard. The increasing focus on graduation should certainly not drive resources away from households most in need of long-term protection (ultra-poor, children, elderly and disabled).

Graduation programs in isolation may not even warrant as social protection. These programs do not cushion beneficiaries against risks or shocks – except in the short term when people can sell off their assets nor do they provide any regular or predictable transfers apart from the first few initial months. A more strategic approach for those engaged in graduation could be to advocate for a comprehensive social security system accompanied by active labour market support to beneficiaries.

Moreover, BISP’s role as an ‘automatic stabiliser’ in the face of macroeconomic shocks to stimulate economic growth has so far received little attention. Social protection provides continuous income to the poor irrespective of the actual macroeconomic situation, preventing sudden dips in consumption. Cash transfer programs helped several countries in Europe (with advanced social protection systems) to get out of the 2008 crisis relatively unscathed.

Hina Shaikh is the Country Economist at the International Growth Center (IGC).