Published Date: Jul 5, 2013
Of pro-poor expenditures
Pakistan spent nearly two trillion rupees towards poverty reduction in
FY12. Hard to believe? But that is exactly what the Finance Ministry
stated in its Poverty Reduction Strategy Paper (PRSP) Progress Report,
2011-12, released this week.
One wonders if this money spent on pro-poor expenditures was too
much for it or just peanuts, because there is no way to find out if all
this spending actually made any difference at all. Independent
economists are already pessimistic about the socioeconomic impact of
large government spending.
For instance, in his PSDP review for the International Growth
Centre last year, Dr Hafiz Pasha had concluded that for every Rs 100
allocated in the PSDP, only Rs 63 to Rs 75 eventually reached the
PRSPs background is in order here. The government documents show
that the PRSP is an analytical framework that started in the year 2000,
and over the years since, it has evolved to focus on the economic
growth-poverty reduction nexus. This approach has the key donors
blessings. The PRSP Secretariat in the Finance Division regularly
reports on the budgetary expenditures.
PRSP monitors a number of sectors identified for pro-poor
spending incurred by the federal and provincial governments, including
social safety nets. In the 11 fiscal years since the introduction of
PRSP regime, nearly Rs 8.5 trillion worth of expenditures have been
shown as pro-poor.
Shouldn such a large amount make a lasting impact on poverty or
improve the living standards? But it appears that the PRSP Secretariat
is just aggregating the public spending in the 17 identified sectors.
Thats perhaps done because the 2005 Fiscal Responsibility and Debt
Limitation Act requires the governments to spend at least 4.5 percent of
GDP on poverty reduction and social sector every year.
Dr Vaqar Ahmed, Deputy Executive Director at the Islamabad-based
think tank, SDPI, told BR Research that the expenditures shown in the
PRSP reports are not necessarily pro-poor.
"One cannot term building residential colonies (e.g. for
teachers or doctors) or constructing roads and bridges as pro-poor
development per se. Yes, the poor labour may benefit from such projects,
but the bulk of the proceeds go to the builders and developers," he
A major shortcoming in this framework is that over 70 percent of
the money was spent on current or recurring expenditures in FY12. But
meeting payroll expenses or paying for fuel allowances and utility bills
or replenishing office stationary can hardly qualify as pro-poor. Yet,
about 69 percent of the spending aggregated under PRSP expenditures
between FY02 and FY12 was expensed on current expenditures.
To have a clear picture of which spending is pro-poor and which
is not, Dr Vaqar suggested that policymakers need to first come up with a
classification for pro-poor expenditures and its methodology. After
that, they need to calculate the efficiency of past expenditures,
through identifying rates of return and outcome indicators. He lamented
that these things were missing in the PRSP progress reports.
Interestingly, subsidies are also included in the PRSP
expenditures. About Rs 689 billion are included in FY12 – nearly 35
percent of the total Rs 1.98 trillion – as pro-poor expenditure. Not
only that, subsidies are also listed under safety nets, as if whole
population is below the poverty line.
"Untargeted subsidies are also mentioned as pro-poor
expenditure. SDPI, in its recent report, has clearly highlighted that
the spending on wheat subsidy operations is ineffectual, as only about
six percent of poor farmers have access to the subsidy mechanism. The
rest is pocketed by large landlords, corporations, and layers of
middlemen," Dr Vaqar said.
In this scenario, the new government must come up with an
accurate estimate of pro-poor expenses. Otherwise, the term pro-poor
will also be misused and abused with terms like
elief and common man.