Category: Blog

Pakistan currently collects 11.4 percent of GDP in taxes with an estimated tax gap in excess of 50 percent of current collections. A large part of the tax gap is from income tax collections. The widening of Pakistan’s overall tax gap can be attributed to a host of inter-connected factors including fragmented tax administrations, weak enforcement, low compliance, generous and distortionary exemptions and concessions, and narrow tax bases.

Improving income tax is critical for Pakistan to fund service delivery, increase social protection spending and lower compliance costs for taxpayers. With the right policy and administration, income taxes can be the most progressive tax instrument for the government.

Background

Pakistan inherited the tax structure of pre-partition India as per the Government of India Act. After independence, Pakistan adopted the Income Tax Act 1922 as its official income tax law, which was extended to the whole country except some special areas.

Between 1922 and 1979 as many as 71 amendments to the Act of 1922 were passed by the legislature, which made the law cumbersome. To address this, the then government promulgated a new tax law in 1979 to replace the Income Tax Act of 1922. In 2001, the Government of General Pervez Musharraf replaced the 1979 Act by a new tax ordinance. The Income Tax Ordinance of 2001 has so far been amended over 2500 times.

It is important to note that income tax is almost one third of the tax revenue generated in Pakistan, constituting about 32.1 percent of Pakistan’s total tax revenue and 3.7 percent of its GDP in the financial year 2020. In recent years, successive governments have put in place various measures to increase income tax revenues; whether it is by increasing the documentation of the informal economy or bringing improvements in the complex tax code.

Low Performance than Comparator Countries

Pakistan’s income tax collection from salary, business, property and capital as well as from other sources is not only less than its comparator countries but also far lower than its own potential. Low tax collection is a result of gaps in both tax policy and administration.

Figure Sources: Figure 1: World Development Indicators (2017-19) and Figure 2: Addressing Pakistan’s Chronic Fiscal Deficit, 2020

Tax Reform Challenges

While, the primary purpose of taxation is to generate revenue, Pakistan had to deal with issues related to a fragmented tax base, generous income tax thresholds and weak enforcement in the past.

A Fragmented Tax Base

Pakistan’s current income tax regime suffers from a fragmented tax base. All non-agriculture income tax is collected by the federal government through the Federal Board of Revenue (FBR), while Agriculture Income Tax (AIT) is collected by provinces at a lower rate. The agricultural income tax gap was recorded at Rs.69.5 billion in the financial year 2020.

While provinces remain reluctant to revise the AIT rates or reform this complicated process, this fragmentation in the tax base has also resulted in significant loss of revenue, as citizens evade taxes by declaring their non-agriculture income as agriculture income.

Generous Income Tax Thresholds

Generous income tax thresholds and rates to make tax structure progressive in Pakistan have also led to extensive loss in tax collection. Larger minimum tax thresholds and lower marginal tax rates for some sectors have further narrowed down the tax base by encouraging tax evasion at the margins. These practices have also overly burdened the compliant sectors, while not enforcing tax law in others. For instance, many sectors of the economy, such as agriculture, continue to remain taxed far below their share in the GDP, while others like petroleum products have been taxed heavily. Such measures not only decrease tax morale and create further distortions in economic activity, but also exacerbate inequality in the country.

Only 2.74 million people file personal income tax in Pakistan, which is just 4.1 percent of the labor force and 1.3 percent of the population in Pakistan. It is important to note that 35 percent of the individual filers pay zero income tax i.e. they fall below the taxable income and did not pay taxes during the year. In addition to this, 64 percent of all filed income tax is from corporate income tax.

Weak Enforcement and Costly Compliance

Tax compliance is costly and difficult because the law on taxation and its practice are very far from each other. While the number of tax filers has doubled from 1 million, due to new prohibitions, tax filers are discouraged to continue filing because of additional questioning of their previous records.

Moreover, the audit and verification of industry’s compliance or tax returns is also a cumbersome process. Although a self-assessment system was one of the biggest achievements in the income tax code, extensive questioning of every single item in the tax returns as well as the companies’ profit and loss statements, and balance sheets in the first assessment order has defeated the purpose of self-assessment.

In addition to this, the verification process is also usually manual, which requires companies to spend additional time translating financial information from their expensive digitized systems.

While weak and slow enforcement allows for rent-seeking opportunities, the number and quality of tax audits is insufficient to correct self-assessment by taxpayers. Currently, the collection on demand is just 4 percent in the country, whereas the rest is reliant on enforcement.

Overreliance on Withholding Tax

In Pakistan, almost 70% of all income tax is collected as withholding tax. To bring more people into the tax net, especially in the informal sector, FBR now levies a high rate on withholding taxes for those not filing their tax returns. However, the international experience is that overreliance on withholding taxes can become counterproductive as instead of bringing more people in the tax net, it may actually reduce them.

Reforming the Income Tax Regime in Pakistan

Harmonization of Income Tax

As a fragmented tax base makes it easier for citizens to evade taxes, it is important to harmonize income tax in Pakistan. The agriculture and non-agriculture income should be taxed on the same principles, preferably by FBR and all collections by FBR should be sent as straight transfers to provinces to reduce provincial administrative costs.

Moreover, it is important to frequently revise the AIT rates to capture value-added, and also use ‘presumptive income taxes’ with appropriate tax rates applied on the difference of estimated value of agricultural outputs and cost of production.

Rationalize Income Tax Rates

It is important to conduct an analysis of the potential loss in tax collection and adjust tax structures in line with regional comparators. Moreover, tax rates should be stable and not change with every finance bill to avoid speculation on tax policy. Pakistan may also consider flat rates versus multiple tax rates but any reform in this direction needs to be viewed in light of its impact on progressivity of income tax.

Widening the Income Tax Base

Currently, the formal economy in Pakistan is over-taxed, while its informal economy suffers from the problem of being under-taxed. This not only narrows down the income tax base, but also discourages people from entering the formal economy due to higher taxes. Currently, the income tax base, including informal economy, is estimated to be around Rs 50 trillion. Hence, it is pertinent that the government focuses on increasing the tax base rather the tax rate for the few, who are taxed.

Improving Tax Administration

It has become increasingly important to strengthen tax enforcement procedures and institute risk-based audits. Strict monitoring measures and investment in human resource capacity building will also be required to improve the performance of FBR.

The complexity that has been brought into the tax code during the past 20 to 25 years is a huge problem for the industry. Hence, automation of the tax systems is pertinent for a successful transition towards a more digitized system with lower compliance costs.

Kashaf Ali is a Research Assistant at the Consortium for Development Policy Research (CDPR).

Interestingly, the best advice the prime minister has received so far about how to increase exports and revenue has come from his special advisor on institutional reforms and austerity, Dr Ishrat Hussain. Speaking at a Karachi Chamber of Commerce and Industry (KCCI) webinar recently, Dr Hussain, who is also a former governor of the State Bank of Pakistan (SBP), suggested that Pakistani businesses should diversify out of sunset industries, those that are past their peak and in decline, and invest in sunrise industries, those that are new and growing. He also very wisely said that Pakistan should take advantage of the rapidly growing market for commercial services, especially Information Technology (IT) and IT-enabled services, and also try and integrate itself into the supply chains of China and other dynamic Asian markets. The idea is to emulate countries like Taiwan and South Korea and gear our industrial production away from import substitution, which means we only get to export our surplus, and towards what is demanded in growing export markets. The overwhelming focus so far on import substitution industrial production has left us in a position where we hardly produce any raw material anymore, except agri products.

Countries of the economic size and strength of Pakistan cannot afford to swim against international trends for too long. Yet that is exactly what we have been doing for decades. As Dr Hussain pointed out, engineering goods currently account for 67 percent of total global exports while textiles make up about only six percent. In our case, though, textiles form 60 percent of all exports and engineering goods only 6-7 percent. And the fact that Pakistan’s export structure in 2020 is the same as it was in the early 1990s while the rest of the world and even our neighbouring countries have moved way ahead just about says it all. Little wonder then that while world exports have grown from $2.5 trillion in 1992 to $20 trillion in 2020, Pakistan market share of the total declined from 0.18 percent to 0.12 percent in the same period. “Had Pakistan maintained even that share our exports level would have been $36 billion at least – 50 percent more than what we have actually realised,” he noted.

This means that all these years successive governments have been doling out tax incentives and subsidies to the wrong industries and kept at it even in the clear absence of any encouraging results. That way they also ignored up and coming sectors that were trying to penetrate international markets and would have been a far more productive bet. India, on the other hand, has been able to increase its share of total exports from 0.4 percent at the start of the 1990s to 1.7 percent now precisely because governments there did a far better job of keeping an eye on what expanding markets required most urgently and adjusting their local production accordingly.

Pakistan can no longer delay overhauling its export machinery. Fortunately, there are a number of examples, especially in the region, to learn from. Rather than look, without any notable success, for fresh markets for our stale export mix, the commerce ministry must identify new demand trends and then look to become part of the supply chain. Much has changed in the new century about how much of the world conducts its commerce. Yet Pakistan, for some reason, has latched on to ideas and incentivised industries that never really did too many favours to national reserves. This tendency will have to change for the revenue position to improve. Everybody knows that tax collection is not going to improve in a hurry and the surge in remittances is of a very temporary nature, so exports will have to be the game-changer when it comes to the country’s fiscal position otherwise soon there won’t be enough donors and bailout programmes to keep us on our feet. The present government seems pretty determined to focus, and spend, on sectors that can deliver export earnings in the medium- to long-term. It should take Dr Hussain’s advice and look for sunrise industries that it can cater to, and let the sun set on the old model that has got it nothing to write home about in so long.

Ijaz Nabi is the Board Chairperson, Consortium for Development Policy Research (CDPR)

Around 130 million girls of schooling age, equivalent to the entire population of Mexico or half the population of Indonesia, remain out of school worldwide. Lack of access to education is part of a broader realm of gender inequality as females continue to face barriers in making important decisions related to later life outcomes such as marriage and labor market on their own. These inequalities are a result of patriarchal cultures that assign more resources and power to males, and remain dominant in many developing countries. Expanding education opportunity for girls can help in addressing these gender inequalities since education can endow girls with knowledge, skills, and resources to make life choices to improve their welfare.

In my Job Market paper, I study long-term and intergenerational effects of expanding educational opportunities for girls through a large primary school construction program in Punjab, Pakistan. This is a setting with low levels of education and significant gender disparities in educational attainment. Education levels are particularly lower for girls as parents are not comfortable sending their daughters to walk long distances to school due to safety concerns and social norms. To analyze the impact of expanding educational opportunity, I use variation across birth cohorts and regions in the timing of a large school construction program that started in the 1960s in response to the low education levels. Since most of the school construction happened in rural areas where distances to existing schools were longer, I restrict my focus to rural areas in this study as they are more likely to benefit from improved access to schools.

Did the school construction program work?

I start by analyzing the impact of the school construction program on educational attainment. Since schools are segregated by gender, I analyze impacts of new schools separately by gender using data from household surveys and the population census. I find that the construction of an additional primary girls’ school per 1000 girls of primary school going age at the district level increased the likelihood of receiving any education and completing primary school by 4-5 percentage points and to an overall increase in their years of education by 0.5 years. Given that the mean years of education for the relevant cohorts is only 2.4 years, these effects are quite large and explain around 30 percent of the overall growth in schooling for girls between birth cohorts 1954 to 1958 and 1984 to 1988. Comparatively, there are no statistically significant effects of an additional boys’ school on their educational attainment. My findings suggest that improved access to schools is the driving mechanism behind the results on educational attainment as mobility restrictions, due to social norms, are only relevant for females in this setting.

What about impacts on later life and intergenerational outcomes?

In terms of long-term outcomes, my results suggest that improved educational attainment does not lead to significant effects on the marriage market (as measured by likelihood of marriage, age at marriage, education of spouse) or fertility related outcomes (age at first birth, total children born, child mortality). Exposure to school construction does alter marriage market outcomes for males with their spouses being more educated. However, I do not find evidence of similar effects for females since the male education distribution has not changed as a function of school construction. Moreover, as adults, females who are more exposed to the program are less likely to be part of the labor force. This effect is driven by the lower likelihood of them working in the agriculture sector. One possible explanation for the reduced labor force participation results for females in this context is the female labor force participation may go down first and then increase with education.

The benefits of increased education for females are, however, transmitted to the next generation.  Children born to mothers that are more exposed to the school construction program have higher educational attainment, especially daughters. These results are consistent with existing evidence on intergenerational effects of mother’s primary education on children’s education in the rural Pakistani context.

Why the lack of effects on long-term outcomes?

The lack of impacts on later life outcomes such as age at marriage, age at first birth, total children and labor force participation despite the increased educational attainment suggest the importance of other barriers that females face in this context. A possible reason for the lack of desired effects on later life outcomes is that education levels (at the primary level) are not enough and there is a need to invest in higher levels (secondary schooling) for girls to have the desired long-term outcomes such as delays in age at marriage, and improved labor force participation.

My findings are also consistent with and contribute to a growing literature that finds that females in developing countries continue to face barriers in their ability to make important decisions related to the labor market and the marriage market on their own. These barriers persist despite significant improvements in human capital through education, skill acquisition, or raised generalized self-efficacy.

Policy Recommendations

My findings suggest that gender inequality, restrictive social norms, and low levels of education limit the benefits of increased educational attainment on later life outcomes for rural females. These findings provide valuable insights to policy makers interested in returns to girls education in developing countries. More research is however needed to better understand interventions that can be designed to offer feasible ways to improve long-term outcomes for females in settings where social norms and the economic position of males may mediate the effect of increased educational attainment on longer term outcomes.

Salman Khan is a PhD student at University of Illinois, Chicago, and an IDEAS alum.

While the current government in Pakistan has taken a multi-dimensional approach and introduced some measures to eradicate poverty, along with specific COVID-19 emergency interventions, many challenges still remain. We lay out our thoughts below on whether Pakistan is on track to achieving SDG1 by 2030, given that another 10 million are expected to move into poverty due to the pandemic.

Over the past two decades, Pakistan has made significant progress in fighting poverty, reducing it by more than half since 2000. As one of the first countries in the world to declare Sustainable Development Goals (SDGs) as part of its national development agenda and updating the national poverty line in 2016[1], Pakistan has remained committed to improving multi-dimensional poverty measures.

Progress in the last decade

As per the latest official figures, the poverty headcount ratio declined from 29.5% in 2013-14 to 24.3% in 2015-16. Of all 114 countries for which the World Bank measures poverty indices, Pakistan was amongst the top 15 that showed the largest annual average percentage point decline between 2000 and 2015.  Despite this, by 2015, around 50 million people still lived below the national poverty line. Since then, the pace of poverty reduction has slowed down. This is partly due to the macroeconomic crisis resulting from structural economic issues and the lack and inadequate implementation of pro-poor policies.

Measuring poverty

Lack of accurate and consistent poverty estimates has been a key hindrance in formulating effective pro-poor policies in Pakistan. The use of monetary poverty lines tied to currency conversion rates with differing purchasing power parities, along with the use of different methodologies has led to inconsistent measures. For instance, between 2010 and 2015, show a decline in poverty headcount while an independent policy think tank estimated that around 38% of the population was still living below the poverty line in 2015; which in absolute terms meant an additional 13 million people falling into poverty. Bureaucratic and political delays in regularly updating the National Socio-Economic Registry (NSER) survey has also led to issues in targeting (the last round of the NSER survey was carried out in 2010-11).

In 2016, the government tailored a widely used global poverty measure, the Multi-Dimensional Poverty Index (MPI), for Pakistan. The aim was to capture the three main deprivation indicators: education, health, and living standards. Based on 2017-18 estimates, 38.3% of the population was deprived in at least one of the three indicators – an improvement from previous years, largely from progress in sanitation and child mortality. However, deprivation resulting from a lack of access to electricity increased.

COVID-19 and increased vulnerabilities

Vulnerabilities play a central role in perpetuating poverty as poor households lack necessary human, financial, and physical capital to withstand the negative impacts of sudden shocks. It is no surprise that COVID-19 is expected to be up to 10 times more deadly for the poor. A recent UNDP study of 70 countries, including Pakistan, estimated that COVID-19 may set poverty levels back by 9 years, with an additional 490 million people falling into multidimensional poverty.

Prior to COVID-19, Pakistan’s economy was already struggling with a fiscal crisis and undergoing an IMF-sponsored macroeconomic stabilisation programme. With one of the lowest human development indicators around, the government estimates that 56.6% of the population has now become socio-economically vulnerable due to COVID-19. As one of the youngest countries in the world, with nearly two-thirds of the population under the age of 30, a consistent GDP growth rate of 7% is required to absorb the young workforce. With a projected growth rate of only 2% post-pandemic, unemployment rates may rise drastically, perpetuating the cycle of poverty.

Despite a declining poverty rate over the past few years, the IMF has also projected a sharp reversal ahead, which may push almost 40% of Pakistanis below the national poverty line. The cost of the expected economic slowdown due to COVID-19 containment measures, invariably relying on some form of lockdown, will mostly be borne by the estimated 24.89 million daily wage earners, piece-rate workers, and self-employed in. These groups are more vulnerable to pandemic-induced poverty due to a lack of access to social protection programmes.

What didn’t work in the past?

Pakistan has a long history of poverty reduction policies and interventions. However, the persistently high poverty levels reflect the inadequacy of these measures resulting mainly from a focus on static measures and limited outreach. Poverty reduction programmes account for just about 2% of GDP; due to lack of coordination, inefficient implementation, and inadequate monitoring and evaluation, there is often duplication and fragmentation across these programmes.

Despite deep-rooted economic inequalities and the sheer number of people impacted, policymakers have largely steered clear of addressing the issue of inequality. It is estimated that 40% of all children born in abject poverty will remain in the lowest income quintile, another 40% will improve slightly from very poor to poor, while only 10% will be able to transition out during their lifetime[2]. Research also shows that while relatively high economic growth in 2001-04 was not pro-poor, the low growth period of 2005-10 saw better poverty indices. This indicates that policy interventions for the poor are not all the same; there is a need to have a more targeted approach for transitionary and inter-generational chronic poor.

What Pakistan has done right?

Early indications point to the government’s commitment to poverty reduction, as it has pledged to reduce poverty by 6 percentage points to 19% by 2023. Measures include increasing poverty alleviation expenditures and ensuring that vulnerable groups such as women, children, and people with disabilities receive needed aid.

One such measure is the integration of more than 134 fragmented and insufficiently managed social protection programmes, and prone to political manipulation, under ‘Ehsaas’. This is a new overarching programme launched in 2019, built on the framework developed under the Benazir Income Support Programme (BISP). BISP is one of South Asia’s largest cash transfer programmes and Pakistan’s flagship social protection initiative. Launched in 2008, BISP currently caters to 5.7 million ultra-poor families via unconditional cash transfers to women.

In response to COVID-19, the government quickly implemented the Ehsaas Emergency Programme, under which low-income households gained access to financial assistance through text messages. In the first phase of this programme, 12 million families were provided with a monthly stipend of 12,000 PKR ($72). More recently, the programme has been extended to include 17 million families, around half of the total population of Pakistan.

The government has also made efforts to de-politicise poverty measures. There is great optimism that under the current government, the NSER survey, which will cover at least 27 million households, will be completed by 2021 and enable smart poverty targeting.

Is Pakistan still on track to achieve SDG1?

Even before the pandemic, Pakistan was categorised as being ‘off track’ to halve multidimensional poverty by 2030, and less likely to achieve SDG1 with current interventions. This has largely been due to inadequate policy responses from successive governments, despite some good progress on poverty alleviation in the early 2000s. The current government, however, has taken some steps in the right direction. While there is growing consensus on the benefits of a rapid policy response, there has historically been a lack of focus on more long-term sustainable efforts.

There is increasing evidence, across South Asia, that an ‘income-mediated’ approach to SDG1 will have limited success and more ‘expenditure led’ policies are required.  Looking ahead, well-informed income and poverty projections can provide a blueprint for more proactive, targeted and sustainable policies, with a focus on alleviating extreme poverty.

[1] Research by Lahore University of Management Sciences (LUMS) in collaboration with Oxfam.

[2] Instead of using the Food Energy Intake (FEI) approach, a Cost of Basic Needs (CBN) approach is now employed

This blog has originally been published on the International Growth Centre (IGC) website here.  

This blog builds on three presentations from a webinar cohosted by CGD and the Consortium for Development Policy Research (CDPR) on September 22, 2020. You can view the webinar here.

When the COVID-19 pandemic reached Pakistan in late February, it was expected to hit the country badly. The concern was that with poor health and nutrition indicators and the fiscal restraints imposed by an ongoing International Monetary Fund (IMF) stabilization program, Pakistan would be unprepared to respond. The health fears were stoked further in late May when Pakistan’s R0 value (a measure of contagious disease that indicates an epidemic for values greater than one) surpassed two and the positivity ratio (the percentage of those tested found to be infected) peaked at 22 percent in mid-June.

When the COVID-19 pandemic reached Pakistan in late February, it was expected to hit the country badly. The concern was that with poor health and nutrition indicators and the fiscal restraints imposed by an ongoing International Monetary Fund (IMF) stabilization program, Pakistan would be unprepared to respond. The health fears were stoked further in late May when Pakistan’s R0 value (a measure of contagious disease that indicates an epidemic for values greater than one) surpassed two and the positivity ratio (the percentage of those tested found to be infected) peaked at 22 percent in mid-June.

In response, Pakistan intensified its lockdown. Despite the limitations, the government also rolled out a spate of health, income support, and business financing interventions to mitigate the economic hardships. By mid-August, the virus was under control, as seen in the sharp decline in daily cases and deaths. Civil unrest, feared in the early stages when the country faced a generalized lockdown and a severe income shock to low-income urban households (nearly half the population), did not materialize. Importantly, despite the fiscally demanding coping interventions, Pakistan remains on the pre-COVID-19 macro-stabilization trajectory.

COVID-19, of course, is not behind us—it may return and may again severely test the government’s management capacity. To prepare for this, the lessons learnt from coping with the crisis as it has unfolded thus far will be valuable both to Pakistan to manage a possible second wave, as well as to other countries.

Assets on the eve of the crisis

The country’s poor health outcomes are reflective of the underlying inadequate health infrastructure. The 2010 devolution of health services to the provinces would also pose coordination challenges. Even more worrisome was the widely held perception of a weak implementation capacity enfeebled further by the tight fiscal space. On the assets side of the balance sheet, there was a world-class digital highway to deliver cash support to the poor, the Benazir Income Support Program (BISP) and widespread mobile phone and internet connectivity. Large and regular household and business surveys had created data banks that would facilitate micro-lockdowns. Importantly, while there were misgivings about governance in general, the government and civil society had a track record of meeting catastrophic emergencies with resilience and order (for example, the 2005 earthquake, floods in 2010, and the 2014 military operation against terrorists). Pakistan Center for philanthropy estimates that Pakistanis give 1.2 percent of GDP in charity which equals charity contributions in the United Kingdom (1.3 percent of GDP) and Canada (1.2 percent of GDP), and around twice India’s.

Although fiscal policy was tight in March, the overall macroeconomic position had improved over the previous eight months. The government had eliminated the current account deficit of US$2 billion a month inherited from the previous government. Reserves were building up and the previous two quarters’ fiscal adjustment had resulted in a primary surplus. Significantly, the government was gaining confidence in its economic management capabilities that would be important in pumping much needed liquidity into the economy to cope with COVID-19.

With these assets, the government embarked on a three-pronged program focusing on virus containment, cash transfers, and business support.

Virus containment 

Given the uncertainty surrounding the spread and duration of the virus and the fiscal realities, it was decided early on that the containment strategy would strike the right balance between lives and livelihood.

The next step, learning from previous emergencies, was to set up a centralized National Coordination Center (NCC) chaired by the prime minister, with all provincial chief ministers and key federal ministers as members to facilitate coordination. To operationalize decisions of the NCC, a National Command and Operational Center (NCOC) was established in late March, chaired by the minister for planning and with representation of military and federal agencies. NCOC met daily, tracked the virus round the clock, and implemented containment measures.

Virus containment was built on South Korea’s model of testing, tracking, and quarantine. It rested on two platforms: at the grassroots level, thousands of personnel of provincial health departments and civil administration services were mobilized; and a technology platform was set up to identify positive cases and track them to isolate hot spots. The objective was to move from broad to micro lockdowns. By mid-June, 5 percent of the country’s 212 million people was locked down, capturing 43 percent of total active cases, the threshold for tolerable economic disruption.

Several measures show the impact of the strategy: R0 fell from greater than two in mid-May to under one (indicating that the disease was dying down) at end-June (the country’s contact tracing factor of  1 to 15 meets world standards); the positivity ratio fell from 22 percent in mid-June to under 2 percent in mid-August; daily deaths fell from 144 to single digits; compared to Pakistan, mortality per capita in India is a multiple of 17, a multiple of 46 in Iran, and a multiple of 5.5 in Bangladesh. Correlates such as hospitalization and utilization of PPE (all monitored by NCOC) corroborate these trends.

The crisis response underscores the importance of reliable health data. Preparing for a possible second round, several data shortcomings need to be addressed. These include lack of publicly available data on death, widespread diseases such as tuberculosis to assess collateral damage, and public attitudes towards vaccination. COVID-19 testing also needs to be ramped up. Good data will help assess the impact of interventions given that demographic features may have contributed to the low incidence of infections, such as the youth of the population, reduced mobility, and exposure to other diseases—factors that might have strengthened immunity.

Cash transfer

Ehsaas (Pakistan’s social protection program that incorporates the BISP) was assigned the responsibility of providing cash support to poor households to cope with the economic shock of the crisis. Ehsaas data shows that 24 million daily wage earners support 160 million people—some two-thirds of Pakistan’s population—and there was widespread anecdotal evidence of huge suffering because of the lockdown-associated income shock.

The macroeconomic discipline leading up to March created the fiscal space to cope with the income shock. The government allocated Rs 144 billion for income support to 16.9 million families ($75 per family over two months), later increased to Rs 200 billion (0.48 percent of GDP). Three categories of recipients were identified. The digital highway to transfer cash to category 1 families (4.5 million with asset score of 16.17 identified in the BISP program) already existed. Utilizing available data, it was extended to category 2 (4 million families with asset score between 16.16 and 26—the asset score measures the value of assets a household owns).

Identifying category 3 was more demanding. Endemic poverty in Pakistan is largely rural.  COVID-19-related income shocks were mainly in the urban areas so the BISP digital platform had to be extended to include deserving urban households. An SMS campaign was launched to capture urban wage earners suffering the income shock; 139 million messages were received of which 66 million were unique as identified via the National Database & Registration Authority (NADRA) card. These were then cross checked with other data linked to the card, such as large expenses, tax payments, and so on. Due diligence by union council (local government) representatives in the locked down areas (working closely with NCOC), a time-consuming process to be certain, helped identify an additional 3.5 million families.

Ehsaas has responded well in providing income support during the crisis. Overall, the program has a good conversion rate measured as the ratio of the amount withdrawn to the amount disbursed to the banks for payments to beneficiaries. Payments to category 3 is a challenge because of the complex verification process. The capacity to carry out rapid assessments of continued COVID-19 related disruption will need to be developed and the digital highway of cash transfers to the urban poor, currently not captured systematically on Ehsaas platforms, will need to be constructed and evaluated for impact.

Ijaz Nabi is the Country Director at IGC Pakistan and Chairperson at CDPR. He is also a Non-Resident Fellow at the Center for Global Development (CGD) and this article originally appeared on the CGD website here.  

For more information, watch the full session of the webinar on which this blog is based.