Public Expenditure & Income Transfers

When allocation of resources are guided by just efficiency of the resource use, public intervention is absolutely necessary to avoid poverty. Public intervention may take the form of providing social services to the poor or resources are transferred to the poorer sections of the society. The provision of social services for the common man are far from adequate; Pakistan ranks 128 in the Human Development Index with adult literacy of 35.7 percent, access of potable water and sanitation to only 68 and 38 percent of population respectively. Similarly, the participation rate at primary level is 70 percent and almost 50 percent of the students drop out by the fifth grade. Moreover, not only health facilities are inadequate, the quality of services is also very poor. Unfortunately, there is no study on the incidence of the public sector expenditure in Pakistan though it is generally felt that the incidence of public expenditure may well be quite regressive.

A number of schemes have been implemented to provide social services to the poorer sections of the society in the past. They include, among others, Rural Works Programme, Integrated Rural Development Programme, People’s Works Programme, Five Points Programme and Ta’meer-e-Watan Programme. However, these programmes have not been very successful due to various problems associated with implementation. The most recent and a very ambitious initiative is the Social Action Programme which aims at increasing the literacy rate to 70 percent by the end of the century. Over 1992-93 to 1997-98, the enrollment rate at primary level is expected to increase from 68.9 to 87.7 percent incase of boys and from 53.7 percent to 81.6 percent in case of girls. Besides, the programme aims at improving the quality and standard of education by improving teachers’ training, revision of curriculum and better learning environment. It also emphasizes the basic health facilities, population welfare, rural development and women development. A successful implementation of such a programme may turn the incidence of the expenditure from regressive to progressive.

There are transfers of income both at the individual level as well as at the state level. That 30 percent of the households have been the recipient of private transfers which formed 26 percent of their consumption shows a wide network of income transfers on voluntary basis. If the lowest income group is taken into consideration, 48 percent of them were the recipient and almost half of their consumption was financed through the transfers [see World Bank (1995)]. At the state level, the system of zakah and ushr and Baitui Maal have been instituted to transfer the income to the poorer sections of the society. Out of zakat fund each individual is provided with a monthly stipend of Rs 225 and there is rehabilitation grant of Rs 3,000 as a one-time transfer. However, the impact of these measures has been relatively smaller because the number of beneficiaries compared to level of poverty is small and because of the complaints regarding the distribution of zakah. Essentially speaking, the government has been able to collect very small amount of zakah revenue which reduces both the number of beneficiaries and the amount of stipend. In 1993-94 total collection of zakah revenue was Rs 2,844 million, i.e. 0.2 percent of the GDP. It is estimated that if all those liable to pay zakah on fixed and savings account had paid the zakah then the yield from these two sources only could be Rs 4,762 million. The collection of ushr is even smaller; only Rs 0.2 million were collected in 1993-94.

Baitul Maal was established in 1992 and two most important schemes are the food subsidy scheme and the individual financial assistance scheme. A person who does not receive zakah and has income of less than Rs 1,500 can receive the grant from Baitul Maal. Those having shelter receive Rs 500 plus Rs 50 for each child per month and those without shelter receive Rs. 300 plus Rs 50 for each child per month.

Source: Poverty Alleviation in Pakistan: Present Scenario and Future Strategy, Mohibul Haq Sahibzada. Republished with permission.