The government’s efforts to provide relief to the masses received a jolt when the International Monetary Fund (IMF) rejected the proposal to jack up the number of beneficiaries of the Benazir Income Support Programme (BISP).
The News reported on Saturday that the authorities had suggested expanding the social assistance program’s coverage to provide quarterly stipends to up to 20 to 30% of the people who live in poverty.
Although the IMF had approved and supported raising the BISP allocation for the current fiscal year for 8.9 million beneficiaries from Rs360 billion to Rs400 billion by Rs40 billion, the proposal to increase coverage up to the desired level could not be implemented due to the lack of necessary budgetary resources.
The IMF refused to comply with the government’s request to increase the Proxy Mean Test (PMT) in order to improve coverage for giving monthly stipends to about 30% of the population that lives below the poverty line, arguing that the government lacked the necessary budgetary resources.
When contacted, a top official from the Finance Ministry stated that there was no disagreement over this matter because, in the case of the BISP, there was a clear agreement that the government will pay Rs 7,000 in salaries and benefits to 8.9 million beneficiaries on a quarterly basis.
According to the sources, government officials had discussed raising the PMT ceiling before the IMF review mission in order to maximize coverage. They expected that after the implementation of the strict recommendations made by the IMF by raising taxes and utility costs, CPI-based inflation would soar.
The Fund staff initially did not object to it but instead called for more tax collections and the elimination of untargeted subsidies.
The IMF high-ups argued the government possessed a rich database under the National Socio-Economic Registry (NSER) of the BISP, and there was a need to utilize it for providing all kinds of targeted subsidies on electricity, gas, and provision of POL for motorcycles and small vehicles.
This proposal could not yet be put into action. However, given the prospect of a new IMF programme once the current one under the Extended Financial Facility expires in June 2023, Pakistan and the IMF will need to set up a target subsidy mechanism to shield the masses suffering from inflation from rising prices.
Many ideas for launching a targeted subsidy mechanism were proposed but eventually abandoned for a variety of reasons.
Now, the weekly Sensitive Price Index (SPI) has touched 45.64% on weekly basis and Consumer Price Index (CPI) crossed 31.5% on monthly basis in February 2023. Both the CPI and SPI are bound to further escalate in weeks and months ahead of the current fiscal year.
There is no other choice but to place a targeted subsidy mechanism to protect the vulnerable segments from falling below the poverty line over the short and medium-term period.
