To Spend or Not to Spend
The challenges that Pakistan faces today are colossal; however, what lies ahead is much worse. Reform is needed desperately, but it seems like a lot of the people who had been trying to implement reforms have fallen victim to the callous politics of our country. Reports of several top officials at different institutions in Pakistan resigning as a result of politicians prying into their daily affairs have stripped our country of many sincere leaders. Moreover, inefficient spending is on a rise and certain issues that need to be tackled on a crisis basis have been ignored by our leadership time and again. Their solutions have been sought in policies that have caused Pakistan more harm than good.
One such policy measure has been the Benazir Income Support Program (BISP). It accounts for 1.5% of the total budget and although this might seem small, it is equivalent to Rs. 50 billion (compared to Rs. 34.5 billion for education). The project entails giving away Rs. 2000 cash grants every alternate month to poor families until their livelihoods bounce back. At a time when the economy is being trampled under the debt burden, I feel concerned about such a prolific spending that only adds to the fiscal deficit and fails to achieve its indented goals. Although the ‘intended’ goals of the project are definitely noble, one also has to analyze the effectiveness of such a project in achieving those goals and its impact on the economic growth. While some might be more concerned about the short-run, one also has to consider the medium and long-run.
Two of BISP’s stated goals are to provide short term food security, by increasing the recipients’ purchasing power, and to alleviate long term poverty. Whereas the purchasing power of the recipients does increase, to the extent that inflationary pressures as a result of the stimulus do not counter it, one must ask themselves whether such a mechanism is a solution to the problem; more importantly, whether it is the lack of liquidity or the lack of infrastructure that has resulted in the poor’s plight.
I believe that for a country like Pakistan, which is on the bottom rungs of development, the issue is that of infrastructure rather than liquidity. With a huge population living under the poverty level and inflation rampant, the impact of a project like BISP gets diluted. Nations are not taken out of poverty by giving away money. What reduces poverty is economic growth that results in urbanization, capital growth and empowerment of the poor by integrating them into the economic system. This phenomenon is most clearly observable, in China and India, two of our next-door neighbors. Gross capital formation in Pakistan, as shown in Fig. 11, has been the lowest in the region and has trended downward in recent years.
Investment in infrastructure provides the necessary tools to be productive and efficient enough for a sustained growth that allows rural areas to be urbanized and also integrates more of the poorer population into the labor force of the economy. In countries with high population, this can add to the growth inertia. Availability of adequate infrastructure is also necessary to avail the demographic gift – positive effects of falling fertility rates, resulting in an increase in the labor to total population ratio of countries that previously had a high population growth rate. Lack of infrastructure investment results in lack of employment opportunities for a growing labor force, which can have enduring negative effects on the future productivity and growth of an economy.
