Heavy subsidies, better sharing of finances: How Pakistan’s economy has performed in the last decade

As the budget comes out, it is pertinent to survey Pakistan’s economic performance in the last 10 years

Since the restoration of democracy in 2008, Pakistan has witnessed extensive constitutional and economic reforms, the main ones being the 18th amendment, National Financial Commission 2010, Benazir Income Support Programme, Kisaan Package and, of course, the China Pakistan Economic Corridor.

While the 18th amendment and the income support programme were feathers in the Pakistan People’s Party’s cap despite its turbulent five years in power from 2008 to 2013, the Pakistan Muslim League-Nawaz has never shied from brandishing their credentials when it comes to mega projects.

As the outgoing government presents its budget today, it is pertinent to survey Pakistan’s economic performance in the last 10 years and see some of the most persistent trends in the country’s economy, no matter the party in charge.

Continuing subsidies

The power sector continued to enjoy heavy subsidies under both the People’s Party and the Muslim League. This was by far the most subsidised sector of all, receiving 96% of total subsidies provided by the government at one point.

Given the pattern, it is unlikely that the support to the power sector will waver any time soon. Fewer funds, therefore, would be available for other areas.

Restructuring National Finance Commission

In 2010, the previous government brought landmark changes to the National Finance Commission award in order to address grievances and the pervading sense of deprivation among the smaller provinces.

The most important move in this direction was the structural shift towards multiple criteria of distribution of finances rather than just population, which formed the basis of previous awards.

Poverty, area, and revenue collection and generation were added to the mix, which benefits provinces other than Punjab.

Punjab’s share will further decline when the 2017 census is figured into the calculations while funds for the other provinces will increase further.

However, provinces are not bound to allocate money for social welfare programmes. Even though poverty is one criteria of distribution of the finance commission award, social welfare expenditure by the provinces has been unimpressive.

Karachi continues to be a contentious point. Despite being the biggest contributor to taxes at both the provincial and federal level, as well as the country’s most populous city, Karachi’s share in allocated funds is negligible, which does little to ease political, social and ethnic tensions in the metropolis.

Welfare and safety nets

In 2009, the People’s Party government announced a well-acknowledged framework of social welfare for Pakistan’s poor in the form of the Benazir Income Support Program, or BISP. Initially, a monthly cash grant of Rs 1,000 was given under the BISP but it was increased in subsequent budgets to Rs 1,200 and then Rs 1,500.

The system of payments has been computerised and transactions are facilitated through the BISP card, which works just like an ATM card.

Though the BISP should remain in place, it has a few loose ends that need to be tied up. For one, the BISP has no graduation strategy. A beneficiary in 2009 is still a beneficiary today, likely to be one in 2030, and will remain in poverty.

This is because the grants are inadequate to lift its beneficiaries out of poverty. The main reason is that the grants are worth less and less every year because they do not keep pace with inflation.

Continuous resource allocation for the same person for years also constrains the government’s ability to offer the grant to others. This calls for an objective reconsideration of the programme.

For example, the transfers under the BISP are unconditional at the moment but, in future, they can easily be linked with some conditions such as health vaccination from government hospitals and sending children to government schools, as is the case with a social programme in Mexico called PROGRESA.

This article first appeared on Dawn.