Mohsin Siddiqui (Chief Reporter)
The government of Pakistan is poised to allocate an unprecedented Rs593 billion for the Benazir Income Support Programme (BISP) in the forthcoming budget, responding to the International Monetary Fund’s (IMF) directive to expand the number of beneficiaries and enhance their compensation in anticipation of rising inflation.
Government sources revealed that the proposed allocation has been finalized following extensive discussions with the IMF. Initially, the government had considered an indicative allocation of approximately Rs518 billion for the next fiscal year. However, this figure was deemed insufficient by the IMF, prompting an increase to Rs593 billion – a 26% rise compared to the Rs472 billion allocated in the outgoing fiscal year.
BISP stands as Pakistan’s primary social safety net, designed to mitigate the adverse effects of inflation on the country’s poorest segments. These vulnerable groups are often the most impacted by the policies implemented by both the government and the IMF. While BISP provides crucial support to the poorest, there is criticism that it overlooks the struggles of the lower middle-income groups, who also suffer significantly from inflation and lack direct relief.
The IMF has been criticized for using BISP as a means to deflect attention from the rising costs of utilities and taxes that affect the majority of the population. Pakistan is currently in the process of finalizing a new programme with the IMF, which includes conditions that are expected to further strain the lives of ordinary citizens. Among these conditions are the withdrawal of reduced sales tax rates and the elimination of sales tax exemptions, with exceptions only for exporters or where the country has binding foreign agreements. This policy shift is likely to increase the prices of essential commodities and household durables.
The government plans to use the proposed Rs593 billion allocation to both increase cash compensation and expand the number of beneficiaries. In the current fiscal year, an additional 300,000 families were included in the Kafaalat unconditional cash transfer programme, bringing the total enrollment to 9.3 million. With the new budget, there is a proposal to further increase the number of beneficiaries to between 9.6 million and 9.7 million.
There is a proposal to raise the quarterly compensation from Rs10,500 to approximately Rs13,000 per family, an increase of at least one-fifth. Presently, the compensation covers only 12% of the expenditures of the poorest families, and the IMF has urged that this coverage be increased to at least 15% in the upcoming budget.
The IMF has also recommended that Pakistan limit electricity subsidies to BISP beneficiaries. Instead of providing subsidized electricity through bills, the IMF suggests that Pakistan should directly transfer cash amounts to needy families and eliminate general electricity subsidies. The IMF has consistently pushed Pakistan to implement annual adjustments to BISP compensations to offset the impact of inflation on the poorest segments, recommending these adjustments be made each January based on the average inflation rate of the previous fiscal year. However, the last adjustment was below the average inflation rate.
The IMF has also advocated for improvements in health and education outcomes, and enhancements in the quality of BISP’s conditional cash transfer programmes. In the current fiscal year, around one million families and 1.9 million children were enrolled in these health and education programmes. Despite this, approximately 25% of children from BISP beneficiary families remain out of school.
Pakistan aims to increase the number of BISP beneficiaries to 20 million households. To support this goal, the country is negotiating two new loans with the World Bank, totaling $400 million. These loans are intended to bolster the conditional cash grant programmes, increasing the number of school-going children and ensuring their health benefits.
With the proposed allocation, BISP will become the sixth largest single budget allocation, following debt servicing, defense, development, pensions, and the civil government’s operating costs. However, the IMF has recommended that BISP spending be transferred to provincial governments under the new National Finance Pact.
