The Social Bank of Pakistan

The just released Annual Report of the State Bank of Pakistan (SBP) for 2015-16 is interesting not because of its review of the state of the economy — which is a repeat of the story given in the Pakistan Economic Survey in May, despite the availability of the full year data of large scale manufacturing sector — but for its social comment. It will not be incorrect to say that the “S” in the SBP, at least this year, stands for “Social ”. It is recognised that growth and stabilisation policies fail to improve living conditions unless supplemented by effective social welfare policies. War on terror, global financial crisis (2007-09), the 2005 earthquake and the 2010 floods affected growth and required frequent stabilisation programmes. The “country has spent more time struggling with these challenges rather than improving public service delivery.” The report finds the country now better placed to address this agenda. Improved security, greater inflows of foreign investment and opportunities created by CPEC, especially for remote areas, form a climate conducive to exploit the demographic dividend.

There have been improvements in poverty alleviation, infant and maternal mortality rates, immunisation coverage, HIV prevalence and environmental sustainability, but the level of achievement is unsatisfactory to make a material difference. It shames the policy makers by showing that Pakistan in 2000 had a slight edge on India in regard to life expectancy. By 2014, India had moved from 62.63 to 68.01 years against Pakistan’s movement from 62.77 years to 66.18 years. In the same period, the Human Development Index for Pakistan deteriorated by 9 positions and that of India by 6 positions. Private sector is filling the gap and improving quality, but it is not affordable and neglects rural areas. It disables the graduates of public education to catch up in the job market. 87 per cent of primary schools are in the public sector and 62 per cent of the middle schools are in the private sector. There is a shortage of middle schools and the dominance of private sector means that the poor are priced out. In the Consumer Price Index, the education component between 2009 and 2016 recorded an increase higher than the overall increase. Female enrolment at all levels of education is lower than the male enrolment. Female labour force participation rate of 25 per cent is lower than the comparable economies. Women’s access to health facilities is disproportionately low. Maternal mortality rate is therefore the highest in the region. Poor access to safe drinking water and sanitation, lack of hygiene and solid waste disposal system add to the burden of already inadequate health facilities. For instance, 21 per cent of households are without any toilet facility and 50 per cent of the urban garbage is lifted and dumped improperly.

Pakistan is likely to be the third largest contributor to the additional world population during 2015-2050. Total fertility rate (TFR) has declined but remains dangerously high, whether you take the low estimate given in the Economic Survey of 3.1 or the higher estimate of the Population Council. In 1960-65, East Pakistan had a higher TFR than West Pakistan. Today’s Bangladesh has had a three times reduction compared to Pakistan’s reduction of one time. Rural areas have a higher rate than the urban areas and the illiterate women are likely to bear two more children than women with post-secondary education. However high it is, the decline in fertility has reduced the proportion of dependent population and increased the proportion of working age population. This demographic dividend that can spur growth, is likely to end in 2040. The dividend can be reaped only if the working age population is gainfully employed to generate greater income and saving and the resources that would have been spent on children are diverted to education and health.

The demographic dividend might turn into a threat rather than opportunity if poverty and income inequality profiles remain as these are. Even if the official story of declining poverty is to be believed, the scary picture of income inequality can upstage the applecart. Incomes of the bottom 20 per cent of the ladder are not experiencing any mentionable increase. Even overall poverty reduction hides more than it reveals. Many cities and whole divisions have actually witnessed increase in poverty. Again, the headcount of the poor based on food energy intake, reflects poorly on the true extent of deprivation, as it does not account for costs borne by individuals while spending on health and education. An improved measure is the cost of basic needs approach that covers nonfood expenses, while multidimensional poverty index is even better. The three measures successively increase the poverty ratio. But the overall trend in all three shows reduction of poverty since 2001, even in years of poor economic growth, natural disasters and global financial crisis. Between 2001 and 2014, food energy intake poverty declined from 39 percent to 9.3 per cent and the cost of basic needs poverty declined from 62 per cent to 29.5. Similarly, multidimensional poverty declined from 55.2 per cent in 2005 to 38.8 per cent in 2015. After noting that income inequality has risen, as the top 20 percent households earn 3.2 times the earnings of the bottom 20 per 2014 against 2.9 times in 2005, it is claimed that the absolute increase in the incomes of the bottom 40 per cent reinforces the declining trend in poverty.

The report diagnoses low budgets and poor and inconsistent policy formulation for effective social service delivery as the problems to be addressed. With social sector devolved to the provinces, its resourcing is their responsibility. The 7^th NFC Award provided the means. However, the significant jump in resources has not been channelized in this direction. There is a disproportionate focus on infrastructure. These projects provide jobs, but also “ample opportunities for unwanted rent-seeking behaviour.” Fewer rent-seeking opportunities dwarf the social sector in the determination of priorities. Moreover, the resource envelope was reduced by the provincial obligation to show budgetary surpluses to attain a lower consolidated fiscal deficit. Expenditure on education thus increased marginally from 1.8 to 2.2 per cent of GDP. Health did even worse at 0.7 per cent. Inadequate allocations and poor utilisation result from the lack of capacity to formulate a comprehensive, equitable and sound social sector policy and resource needs disaggregated to local level. Effective monitoring and auditing is also lacking.

Looking towards the future, the report observes that high population growth requires higher social sector allocations just to maintain present performance, what to speak of improvement. These resources were too little to achieve MDGs. The SDGs have a much larger agenda. This will happen only if serious reform of public service delivery is undertaken, private sector is encouraged to have checks and balances to ensure quality and its services are made affordable through targeted subsidies to the less privileged. A wide-ranging social security strategy and a national public service delivery strategy with quantifiable targets are proposed, with a deepening financial inclusion as a key element in a country where access to formal credit channels is just 2.4 per cent of all adults. This will make growth inclusive. The need is for common and shared vision at all levels of government. The report concludes: “the road from envisioning to implementation is a long one. Indeed, whether it is education and health or the monitoring of large projects, the capability of the state to implement policies for social and economic change is an important challenge.”

Published in The Express Tribune, December 3^rd, 2016.

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