Income support and Covid-19 lockdown – Mosharraf Zaidi

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Now that the lockdown, by any other name, has been announced. It is even more important to design an income support instrument that we think of as much more than just a stand-alone intervention. The instrument I proposed in my column yesterday represents a starting point for a whole-of-government response to the economic crisis that the Covid-19 virus has instigated.

The proposal for a Rs15,000 grant to the bottom 2.75 million households that are already BISP cash grant recipients raises a number of important questions. First, why 2.75 million? Second, how will we know this is actually reaching poor people? Third, how will this money be delivered to these deserving households? Fourth, why Rs15,000? Fifth, how will the government pay for this? And sixth, why not food rations, or other forms of support, why just cash?

Why 2.75 million? The proposal for 2.75 million households is because this constitutes one fourth of the overall, bottom two quintiles of household income in the country. Ideally, the grant should be for all households in the bottom 40 percent, which would come to roughly 11 million households. As of right now, there is no existing instrument to reach these 11 million households – though one can be devised relatively quickly (more on this later).

Second, how will we know this is actually reaching poor people? The BISP database can be as big as seven million, if needed, but is closer to about five million households, after recent filtering queries. The 2.75 million households is a good immediate target because it makes up just over half of all BISP households, and each one of those households is amongst the bottom 40 percent of households, by income. BISP targeting is not perfect, but it is among the best in the world, with repeated assessments by donors and independent evaluators saying so.

Third, how will this money be delivered to these deserving households? The BISP programme already has robust delivery mechanisms; however, the Covid-19 crisis offers an unprecedented opportunity to scale up the technological innovations already being considered and tested in BISP and Ehsaas. Working with JazzCash, EasyPaisa, and other telcos and banks’ mobile wallets or digital payment interfaces, BISP can transfer Rs. 15,000 payments directly to BISP recipients, through their mobile phones. Because retail digital transactions are still relatively rare, users would still need or want to get their hands on the actual cash.

In such cases, recipients would simply need to go to a retailer authorized by the telcos or banks and collect the money. Old, 2G, or ‘feature’ phones are fully capable of being recipients of the special codes that allow money to be collected against them, as Jazz CEO Aamir Ibrahim explained to me. Of Jazz Cash’s eight million active mobile wallets for example, 6.5 million are on the old-fashioned ‘feature’ phones, and only 1.5 million on smartphones.

Mobile companies have the full capacity to run algorithms and determine which of their 160 million subscribers overlap with the target group of 2.75 million, further sharpening the precision of the intervention. The most important aspect of the mobile or digital approach to targeting is that it will help evolve Pakistan’s archaic approach to social programming, away from the post-colonial structures that require large crowds gathering at kutchehris and DC offices, towards physical distancing enabling solutions that limit the overhead transactions costs that governments tend to bear when government itself is the interface.

Fourth, why Rs15,000? The average total household income in the bottom 40 percent of households by income in 2015-2016 (our most recent official household income data) is Rs22,000. Food expenditure in these two quintiles takes up just under half of all income, or roughly Rs15,000. Roughly rounding up for inflation gives us the Rs15,000 number. Each month. Each household. The total bill per month for this comes to Rs41.25 billion, or just under $300 million. It is not spare change. But it will not bankrupt Pakistan, nor any donor (bilateral or multilateral).

Rs15,000 is also important because it is substantial and not cosmetic. In a crisis or emergency, among poor households, it is the fear of being cash-starved that alters consumption behavior. That knock on change in consumption affects retail sales of basic items, even food. The knock-on effect of this drop in demand is manifest in smaller wholesale orders, less business for trucking and logistics firms, less traffic. Less traffic reduces footfall transactions supporting the supply chains.

If 2.75 million households with an average of nearly eight people per household decide to eat less (which they will) because of the impact of Covid-19 on their incomes, it is Rs15,000 that will pull them back from that choice – because that constitutes their full food consumption budget. Remember, this isn’t for lazy people who are slacking. This is for the poorest two quintiles of Pakistanis. Rs15,000 is the minimum amount that causes enough of a disruption in the budget to re-instigate consumption habits.

Why is the consumption part of this vital? Because collectively, over 2.75 million households, such a change constitutes a stimulus package for the small retailer in small neighborhoods across the country. Those retailers do not have big brokerage firms, or members of the Pakistan Business Council lobbying for them. Their only hope for survival through Covid-19 is the ability of the poor to keep buying basic food items through the next month. Which brings us to the fifth question.

How will the government pay for this? In the short run, as in this month, we have already proposed that just under half of the already approved WB and ADB injections of roughly $600 million go to financing this grant. In the months to come, the extra Rs41.25 billion required for this intervention can easily be parked within any of the large multilateral programmes that are going to be negotiated in the months to come. An annual extra Rs500 billion is not a small matter, but it is also not an extraordinarily obstructive number. Over time, luxury taxes dedicated to targeting high end consumption (such as business class tickets, cars above 1200 cc, or Rolex and Omega watches, or Louis Vuitton bags) could be dedicated to a rolling endowment for this intervention.

Finally, why not food rations, or other forms of support, why just cash? Because cash is empowering, and it affords families living in poverty the dignity to make their own choices. Covid-19 is a catastrophic virus that is unsettling and destructive. But it may afford Pakistan’s leaders a chance to revisit the fundamentals of how we organize our society, our economy and our government.

May Allah protect us all from the virus, but may He also empower and enable us to use the conversations this virus has initiated, to do better. We must do better. Better than we have before. Better than the bare minimum. Better than Rs3,000 per month.

Concluded

The writer is an analyst and commentator.