Cutting out a Pro-Poor Budget

In developing countries each time the budget has come, it means the elimination of benefits for the poor and elevated benefits for the rich. The hopes of the governments for making their countries as the most vibrant economies are laudable but the development policies have no relevance to the man in street.

The majority of the people in poor countries yearns for a pro-poor budget. Promoting pro-poor growth requires a strategy that is deliberately biased in favor of the poor so that the poor benefit proportionally more than the rich.

In general a pro-poor budget is one that takes into account the needs of the poor. It is one that seeks to make a difference in the lives of the poor. It is one that would impact positively on the poor so as to enable them to actively participate in and benefit from the process of development. A pro-poor budget would enable the poor to have increased opportunities In order to be healthy, educated, productive and responsible people. Such a budget would have to have a deliberate bias so that the poor would benefit proportionately more from government expenditure than the rich.

The first step in achieving a pro-poor budget is the identification of who the poor are. The understanding and measurement of poverty has evolved over time. Today it is generally accepted that poverty is not only a money related deprivation, but a combination of several deprivations that result in lack of well being. Consequently budget provisions must respond, to this complex situation of poverty. This is no easy task. In formulating a pro-poor budget there is need to have up to date information of the levels, intensity and types of deprivations that make up poverty.

There are many reasons, both practical and strategic, to establish a conceptual linkage between gender and poverty for promoting gender-sensitive budgets. It would be a mistake to simply equate the two categories. Gender imbalances and inequalities should run across every social, economic and political classification. The exclusion and deprivation experienced by the poor is not the same, and tends to be even more acute for women than for men. Gender allows us to stop envisioning the poor as a homogeneous category of people, whose needs can be addressed in a uniform way.

Pro-poor growth should direct resources disproportionately to the sectors in which the poor work (e.g. agriculture), areas in which they live (underdeveloped regions), factors of production which they posses (such as unskilled labor), outputs, which they consume (such as food), translated into strategy of pro-poor growth - employment generation combined with price stability of goods and services which are essential items. Policies need to be designed to reflect concerns of poverty.

In order to address poverty effectively the budget will need to have more direct rather than indirect means of taxation. This would help reduce prevailing high-income inequalities and help spread the benefits of economic growth.

Pro-poor growth means that the poor benefit disproportionately from economic growth. This is to say the proportional income growth (i.e. their income growth rate) of the poor must exceed the average income growth rate. The per-capita income growth rate of the poor must exceed growth rate.

Three obvious policy messages emerge. First, policies to promote growth should help the poor although they could do so more if they made growth pro-poor rather than neutral as it currently is. Second, reducing initial inequality, particularly asset inequality, should receive highest priority, due to its triple effect on poverty. Third, reducing gender inequality should equally be of highest concern to policy makers that want to achieve pro-poor growth.

It is clear that pro-poor growth that directly reduces poverty must be in sectors where the poor are and use the factors of production they possess. The vast majority of the poor is in rural areas, a majority depends directly or indirectly on agriculture for their livelihood, and the factor of production the poor possess and use most is labor, sometimes land, and even more rarely human capital. Thus pro-poor growth must be focused on rural areas, improve incomes and productivity in agriculture, and must make intensive use of labor. These things are nearly tautological, but often forgotten and are clearly not reflected in public policies or in the allocation of public funds by national governments or donors.

Heavy investment in the human capital of the poor will yield two benefits on poverty reduction. It will increase economic growth and it will make growth more pro-poor. The record of East Asia is a good illustration where high human capital accumulation promoted growth and poverty reduction.

Beyond a concern for increasing average incomes and reducing poverty, there is a greater appreciation for a need to enhance the security for the population if one is to ensure sustainable pro-poor growth. The security of the poor is threatened by physical threats. Thus, the poor are forced to avoid risks that may carry high rewards, can get trapped in cycles of poverty and insecurity, and are regularly pummeled by shocks that militate against sustainable reductions in poverty.

Our budget-makers need to remember that real enemy is poverty and deprivation, that their key weapon is their skill and professionalism and that their modus operandi is their humility. They are the custodians of a value system that defines our objective as demonstrating every single day that we are a caring democracy.

Attaining a pro-poor budget is a big challenge. It requires a bottom-up approach; that ensures that poverty eradication is a central issue and not a donor driven requirement. The principles of equity and accountability with particular attention to efficiency and effectiveness have to be continually respected at each stage of the budget process. www.asifjmir.com

Desperate need for apt policy planning

The stump oratory must have reached people about sharpshooter or inept public managers’ actions, GDP growth rate is declining; foreign exchange reserves are depleting fast, record downfall in exports and of foreign investment. Ipso facto, no previous government in past decades confronted issues like these when financial stability has become a forgotten song, it has miserably. Yes, the government has completely failed in efficient service delivery to the poor. Consequently, it has contributed sweet nothing in reducing poverty and hunger that goes on to sustain stark national inequalities in wealth, assets, incomes and opportunities.

The Asian Development Bank estimates that 40 million people in Pakistan live below the poverty line. In its stated bid to ensure national security, Pakistan is spending more on arms and defense, and less on social security and protection, public distribution systems and welfare programs.

In the direst situations suicide rates among the poor are on the rise. Ironically, while national level defaulters on debt benefit from enhanced facilities to restructure debt and continue borrowing, the overwhelming burden of national debt is borne by the poor.

Lacking job opportunities in rural areas cause migration to urban cities. This takes the form of low quality jobs in the informal economy, or in the case of women and girls, prostitution or domestic service. Migration under conditions of economic stress exacerbates food insecurity. Owing to weak economic and social profile of the country, the adult population could not be gainfully employed, resulting in an 8.3 per cent current unemployment rate (more than 10 per cent in urban areas), plus substantial under-employment. Today, of the current workforce of some 48.40 million- as many as 8 million- are unemployed.

More and more workers, especially women, are being forced from the relatively protected formal sector to the unprotected informal sector. This is accompanied by concentration of assets and resources in the hands of the rich and newly prosperous, who have been able to take advantage of the economic opportunities offered by modernization and globalization.

Graft and corruption in government are a significant cause of continuing poverty and hunger. Despite NAB being there, corruption is on the increase and being accentuated by the companies of the developed countries through their underhand dealings with the national officials.

Sitting in luxurious offices the economic managers of Pakistan juggle with statistics rather than conducting surveys. This is often done to draw statistics acceptable to donors or financial institutions. To duck the WB in 2001, for instance, it drafted the poverty reduction strategy, just about the time when the WB initiated a new line of credit (PRGF) for countries that were equipped with such a strategy.

The increase in the tax-GDP ratio is apparently marginal but in the numerical terms, bulk of the burden has been shifted from direct to the indirect taxes and the share of the regressive sales tax being recovered at the highest rate over the globe has sharply gone up. It is affecting the whole population. The sales tax formed over 44 per cent of the total tax collection during the fiscal 2002-03. The result is that quantum of sales tax has grown from 27.11 in 1998-99 to 42.33 per cent during July 2004-January, 2005.

The Oil Companies' Advisory Committee fixes the prices of various products on fortnightly basis. It is claimed that the committee fixes the prices in a very transparent manner keeping in view the international prices. But the transparent formula was never made public either by the government or the committee. Oil companies have thus been licensed to plunder the poor.

Pakistan currently has about 74 percent of the population living on $1 per day and 86 percent living on $2 per day, implying that one out of every three households going to sleep hungry every day.

The narrow focus on economic growth has not only failed to eliminate poverty, it has also resulted in policies that have created new forms of, or aggravated existing conditions of poverty and hunger. Shaukat Aziz institutionalized policies that opened up economy and shrunk government’s direct responsibility for redistribution of assets and benefits. Public support and subsidies were systematically torn down, and market based price systems were made the primary determinant of allocation and distribution. With privatization and withdrawal of government subsidies for domestic industry, a significant proportion of the work force was shunted into the informal sector. By and large, previous government achieved economic growth at the cost of well being of workers, small-scale agricultural producers and consumers. The greatest beneficiaries of PM Shaukat Aziz’ adjustment programs were the rich, large private producers, distributors, traders, and MNCs.

Poverty and hunger are violations of human rights. They result in exclusion and feelings of hopelessness and helplessness. The human rights of people to housing, water, and sanitation—guaranteed under international law and commitments of development targets made at global summits, including the Millennium Summit and the World Summit on Sustainable Development—drag on to erode. By ratifying a number of international human rights instruments, such as, the International Covenant on Economic, Social and Cultural Rights, Pakistan has voluntarily accepted the obligations to progressively realize human rights to food, health, adequate housing, water and sanitation, which are essential for the well being of its citizens.

Pakistan needs policies that protect the rights of people to water, land, forests, other natural resources, biodiversity and indigenous knowledge. Policies are also needed that ensure people’s access to a services essential to their development especially among the poor and historically marginalized, this includes education, social security, healthcare and information, etc. Access must be equitable and the quality of services must not vary according to socio-economic or gender backgrounds. (www.asifjmir.com)