Household risk management and social safety nets in Pakistan or how we engaged the Pakistanis on social protection

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Household risk management and social safety nets in Pakistan or how we engaged the Pakistanis on social protection Rasmus Heltberg (SASHD) and Carlo del Ninno (HDNSP) Nov 9, 2006 Washington DC 1

This presentation.....is about findings and highlight of our (draft final) report on social protection in Pakistan..and about the process used to engage counterparts and put SP on the map 2

Risk, vulnerability and social protection in Pakistan in a nutshell High poverty (29% in 2004/05, down from 34% in 2001/02) and even higher vulnerability to poverty Compounded with underinvestment in health and education, especially of children Low income levels of the poor and near-poor face very high risks (particular health and economic/ employment risks) Existing risk management structures are insufficient.. Informal safety nets exist, but are insufficient, don t always benefit the people most in need, at the time of need Formal safety nets declining funding and problems of targeting and implementation..resulting in child & bonded labor, food insecurity, indebtedness, distress asset sales, human capital depletion, etc. 3

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Background Social Protection is the Fourth Pillar of Pakistan s PRSP To follow through on PRSP, GOP requested Bank support for strengthening social protection programs Increase knowledge on program effectiveness, Improve program delivery, and reduce coverage gaps Economic growth in Pakistan makes it important and possible to address poverty, as many vulnerabilities persist.. Growth is not benefiting everyone, and signs of increasing inequality=> political pressure for redistribution. Growth provides opportunity and fiscal space=> assist poor and marginalized. 5

The process getting started Institutional process: collaboration with government, civil society, and donors Steering committee with representatives of many government agencies and donors (ADB and DFID) (June 2004), led by chief economist, Planning Working group Smaller with support of a poverty research center within Planning Financial support from DFID promised, and later materialized 6

Filling the knowledge gap: What is SP? International and national experience Arranged workshops and policy seminars (with support of WBI) Interaction between key technical people and policymakers (often as chairs) Training of Pakistanis in SP DC and local Commissioned administrative review of programs Started vulnerability analysis Commissioned Safety Net survey 7

Key findings from administrative review: existing programs Mix of programs is fragmented (many small programs), duplicative, and sometimes ceremonial. Spending: low and fluctuating.. 0.9 0.8 Total of these three programs 0.7 % of GDP 0.6 0.5 0.4 0.3 0.2 Zakat Wheat subsidy 0.1 Bait-ul-Mal 0.0 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 8

Table 1: Spending and beneficiaries of main social protection programs (2003/04) Expenditures Share of GDP D Source of funding SAFETY NETS Income support and basic services (Rs. billion) Share of total SP budget (%) (%) Number of beneficiaries Zakat (guzara and other) 5.9 0.10 11.3 Private 1.6 mn A (Zakat levy) (guzara: 0.8 mn) Bait-ul-Mal C 2.5 0.05 4.9 Federal budget 1.25 mn A Social welfare services 0.5 0.009 1.0 Federal budget N.A. Exit Policies Human capital 0.7 0.012 1.3 Federal budget 530,000 A accumulation--tawana Coping with Aggregate Risks Wheat subsidy 8 0.14 15.4 Federal and provincial budgets N.A. TOTAL safety nets 17.6 0.31 33.9 SOCIAL SECURITY Public sector Civil service pension schemes (excl. military pensions) E 28.0 0.50 53.8 Federal and provincial budgets 0.8 mn retirees / 1.96 mn active workers Private sector Workers Welfare Fund (WWF) Employees Social Security Institutions (ESSI) 2.6 0.046 5.0 Private sector employers 2.1 0.037 4.0 Private sector employers N.A. 850,000 B TOTAL social security 34.4 0.61 66.1 TOTAL 52.0 0.92 100.0 Sources: Issues and Policies Consultants (2004); World Bank (2006a); and information from program managers. N.A. Not available 9

SP (esp. social assistance) spending low compared to elsewhere Figure 1: Spending on social protection in South Asia (% of GDP) 3 2.5 2.2 2.5 Social Security (including public pensions) Social Assistance 2 1.8 % of GDP 1.5 1.11 1.3 1 0.8 0.5 0.31 0.3 0 Pakistan India Sri Lanka Bangladesh Source: Staff estimates Data refer to 2003 or latest available and are not fully comparable across countries, for example due to differences in the way that military and private pensions are included. The figures for Pakistan include spending on military pensions for comparative purposes, whereas the discussion in the remainder of this report does not include military pensions. 10

Cash transfers Zakat financed from (voluntary?) contributions Bait-ul-Mal (PBM) general revenue Coverage 2 million HHs Benefits are small, infrequent, irregular Weak delivery systems 11

Zakat collections declining Figure 1: Zakat revenue, in real and relative terms, 1980-2003 8000 0.4 7000 0.35 6000 5000 4000 3000 2000 1000 0 12 Zakat collection (% of GDP) Real Zakat collections (in 2000 Rs., left axis) Zakat (million Rs.) Zakat revenue/gdp (in %, right axis) 0.3 0.25 0.2 0.15 0.1 0.05 0 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 Source: Derived from information provided by Issues and Policies Consultants (2004) and by program administrators.

PBM: growing spending and coverage 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 13 Rs. million (in 2000 prices % of GDP Real PBM receipts (in 2000 Rs, left axis) Real PBM expenditures (in 2000 Rs, left axis) PBM/GDP (in %, right axis) 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Number of Bait-ul-Mal beneficiaries, 1997/98-2006/07 1,600,000 1,400,000 1,200,000 FSP launched 1,000,000 800,000 600,000 400,000 200,000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 (proj.)

Wheat subsidy Government procures wheat at harvest and sells it later to the millers at a cost that does not cover its cost of buying and storing the wheat Seems that subsidy does not influence consumer prices most likely benefits millers and government staff But hard to get traction on pro-poor reform of wheat subsidy 14

Gaps in existing programs No safety net provision for natural disaster No safety net for rural transitory poor/underemployed No exit or graduation mechanism from safety nets Underdeveloped and under funded social care services Fragmented and overlapping social security / labor welfare services No nutrition program Very limited school meals 15

Social security Civil service pensions deferred payments; unfunded liability perhaps 25% of GDP Pension and other social security to formal private sector workers 16

Key findings: existing programs Result in a mix of safety net programs that falls far short: Short of needs Short of people s and policymakers expectations to it Short of its own potential. 17

Vulnerability Analysis Expand the debate past the observed poverty Combine the local knowledge of perceived vulnerable groups with statistical analysis using the national household survey 18

Low incomes and high exposure to shocks translate into high vulnerability Vulnerability analysis based on PIHS data show that 56-67% vulnerable Of which half is vulnerability to chronic poverty, and other half vulnerability to transitory poverty Other demographics Household size Gender of HH head Location HH with children but no elderly HH with children and elderly High dependency ratio/h Large mean Small Male Female Rural Urban 0 10 20 30 40 50 60 70 80 90 100 Percentage Vulnerable to chronic poverty Vulnerable to transient poverty Share of all vulnerable 19

Land correlates with vulnerability 90 80 70 60 50 40 30 20 10 0 No land 0 1 1 2 2 4 4 8 > 8 Land Ownership (ha) LM Vulnerability HV Vulnerability Population share 20

Demographics and vulnerability Other demographics Household size Gender of HH head Location HH with children but no elderly HH with children and elderly High dependency ratio/h Large mean Small Male Female Rural Urban 0 10 20 30 40 50 60 70 80 90 100 Percentage Vulnerable to chronic poverty Vulnerable to transient poverty Share of all vulnerable 21

Lifecycle risks 0-4 5-9 10-14 Over 60 no pension coverage F no pension coverage M Child labor F Child labor M Not enrolled in any school F Not enrolled in any school M not enrolled in primary school F not enrolled in primary school M partially immunized - F partially immunized - M 0 10 20 30 40 50 60 70 80 90 100 Percentage Vulnerable to chronic poverty Vulnerable to transient poverty Not vulnerable 22

Safety net survey Limited information on safety nets in general and in the national household surveys When programs have low coverage, random surveys don t pick up enough beneficiaries Team designed and commissioned a special-purpose safety net survey to learn more about cash transfers: Phase I short instrument, nationally representative covering 30,005 randomly selected HHs in 300 communities Phase II in depth instrument covering 2,500 households (from the 30,000): All the beneficiaries (N=XXX) Comparison groups of similar and random households (N=XXX) Phase III tracing/tracking 527 beneficiaries reported in the admin records. 23

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Results of Phase I data Quintile Guzara Targeting performance of cash transfers in Pakistan and internationally (Cumulative share of benefits, by quintile, in percent) Zakat Bait- ul- PRAF Rehabilitation Mal (Honduras) Other Zakat a/ All Zakat PROGRESA (Mexico) b/ Food for Education (Bangladesh) Lowest 16 16 42 21 29 43 40-2 33 47 55 43 46 80 62 48 3 52 73 77 64 67 94 81-4 71 89 91 82 83 98 93 - Highest 100 100 100 100 100 100 100 100 27

Risk profile (Phase II of survey) Most serious crises and shocks over past three years Natural calamities 7% Agricultural shocks 4% Health shocks 54% Economic shocks 28% Family matters 4% Law and order 3% Source: Safety Net Survey 28

Incidence and Nature of Shocks Incidence of shocks Health Economic Natural and agricultural Family matters % of all reported shocks All 64.8 54.6 29.2 10.0 3.5 2.6 Ultra-poor 62.3 62.3 22.5 10.4 2.8 2.1 Poor 65.3 55.3 29.8 8.6 3.6 2.7 Non-poor 68.1 43.4 37.7 11.1 4.5 3.3 Law and order Urban 71.5 58.9 32.9 3.6 3.2 1.4 Rural 61.3 51.9 27.0 14.0 3.7 3.4 Source: Staff estimates based on data from Phase II of Pakistan Safety Net Survey. Note: ultra-poor households are here defined as those with consumption below the food poverty line, poor households as those with consumption below the poverty line but above the food poverty line, and non-poor households as those who consume above the poverty line. 29

Shocks impose major costs Shock related losses in % of annual consumption (conditional on shock) 54% for ultra poor, 27% for poor, and 18% for nonpoor Ultra-poor and poor households are more likely to use behavior-based strategies, such as increasing labor supply or reducing consumption, while nonpoor households are more likely to use asset-based strategies, such as using existing savings or requesting a new loan or credit. Risk coping not very effective: Poor risk losing assets or undermining human capital Conditional on shock, 10% put a child to work and 8% pulled a child out of school 30

Private assistance quite widespread, often generous often reciprocal who can return favors later, giving to friends, family, community members Concentrated during festivals Can exclude the unconnected and emergency needs arising at nonfestival times 31

Targeting has some pro-poor elements, but could do better.. : Distribution of households by program, income level and share of total program receipts Ultra-poor Poor Non-poor % of beneficiary households % of program funds % of beneficiary households % of program funds % of beneficiary households % of program funds Guzara 39 33 33 35 27 32 100 Rehabilitation 44 23 19 32 37 45 100 Bait-ul-Mal 46 45 30 32 23 23 100 All sample households 38 35 27 100 Total 32

Also large exclusion errors Many of the rejected applicants are very poor, and omitted from programs because of lack of funds Reasons for targeting problems No objective targeting tool used Lack of operational definition of poverty Eligibility decision at discretion of local officials Lack of geographical targeting 33

Program benefit receipts as % of household expenditure..benefits are low.. 45 40 35 30 25 20 15 10 5 0 Ultra poor Poor Non-poor Zakat Guzara Zakat Rehabilitation Bait-ul-Mal (FSP)..and infrequent Bait-ul-Mal Average time between instalments (in months) 8 Zakat (guzara) 9 0 1 2 3 4 5 6 7 8 9 10 34

Tracing study (Phase III of survey) % of beneficiaries traced Bait-ul-Mal 85.9 Zakat rehabilitation 79.8 Guzara 81.9 76 78 80 82 84 86 88 35

October 8, 2005 The earthquake 36

Government response to earthquake: transfers Compensation for lost life or injury (GoP) Housing transfer (if reconstruction is seismic resistant) Livelihoods cash transfers SP: disability projects Figuring out how to deliver services in remote areas, working with NGOs 37

Scope for developing a strategy to cover shocks and risks Continuing discussion for the triggers for the PRC together with PREM SN study and then the development of CT pilots Government decided to develop a national SP strategy Collaborative effort Still, this is GoP s product, not the same as the WB report DFID provided financial support to the strategy and funded consultations Background papers, interim findings and seminars helped 38

Draft of national SP strategy completed The Vision of the National Social Protection Strategy is to develop an integrated and comprehensive social protection system, covering all the population, but especially the poorest and the most vulnerable. The Goals of the Strategy are: (i) to support chronically poor households and protect them against destitution, food insecurity, exploitation, and social exclusion; (ii) to protect poor and vulnerable households from the impacts of adverse shocks to their consumption and wellbeing that, if not mitigated, would push non-poor households into poverty, and poor households into deeper poverty; and (iii) to promote investment in human and physical assets, including health, nutrition, and education, by poor households capable of ensuring their resilience in the medium run and of interrupting the intergenerational cycle of poverty. Priority areas of intervention (i) reaching the poorest; (ii) addressing the needs of vulnerable children; (iii) addressing the needs of vulnerable and poor women; (iv) providing employment and income earning opportunities; (v) protection against environmental and natural disaster; (vi) improving access to social care services and shelter; (vii) protection against health shocks; (viii) protection for workers in the formal and informal labour markets. 39

What should be the directions for Pakistan s social protection (in our view)? Two pillars: 1. Productive safety nets to help cope with poverty, incorporating risk management and exit strategies Scaling up cash transfers and make them more efficient and effective Make them conditional on schooling for those with children (5-12) Workfare (for risk coping) 2. Social security for risk management Stronger systems for formal sector workers Experiment with new ways to reach informal workers 40

Instruments to achieve these goals Target group Chronic poor (with children) Chronic poor (no children) Vulnerable/transitory poor Special vulnerable groups** Urban/formal sector Conditional cash transfers* Cash transfers Social security, micro finance Services (social care, schools) Rural/informal sector Conditional cash transfers* Cash transfers, Public works Workfare, micro finance Services (social care, schools) * With conditions linked to education and possibly health **Special vulnerable groups would need to be defined, and could include persons with disabilities (especially moderate to severe), child laborers (especially in hazardous occupations), orphans, street children, and bonded laborers. 41

For the chronic poor, cash transfers can be used as primary instrument improve the existing Zakat and Bait-ul- Mal, by Better targeting and administration More frequent delivery of benefits Pilots to graduate and exit beneficiaries Scale up to cover more of the poor Make transfers conditional on school enrollment as in the pilot Child Support Program.. [International evidence..]..to enhance education (and possibly health/nutrition) outcomes for the poor 42

For the rural transitory poor, consider workfare Help poor cope with employment shocks...and natural disasters Through low wage self-targeted labor-intensive employment in rural communities Benefits poor with able bodied members 43

For the urban formal sector vulnerable, reform social security/worker welfare schemes Improve governance Unified / simplified social security system Offer services of better quality and relevance Other countries key focus is on pensions for old-age, disability, and survivors What to do about urban informal workers? 44

Other safety net instruments are also needed While (mostly conditional) cash transfers and workfare would be the main pillars for the informal sector s safety nets, other interventions are also required: Social care services for disabled and vulnerable children School meals and free textbooks Infant nutrition Micro finance designed to better reach and serve the poor Wheat subsidy no longer needed 45

What will it cost? Cash transfers: Rs. 18-28 billion expand from 2 to 3.2-5.6 million recipients and add CCTs Workfare: Rs. 21-37 billion 50 days per year to 4-7 million workers Social care services, school meals etc: Rs. 3-12 billion Total: 0.8-1.4 % of GNI per year 46

Child Support Program (CCT) pilot Started with support of PRSC (safety net trigger) with Bait-ul-Mal, based on survey findings Combination of analytical results, financial leverage, and access to M of Finance helpful in launching pilot The design: a conditional cash transfer for education targeted to existing beneficiaries of the Food Support Program (FSP). additional benefit, over and above the regular FSP benefit, provided all children of school-going age regularly attend school. a family with one child aged 5-12 will receive additional Rs. 200 per month, while a family with two or more children between 5 and 12 years will receive additional Rs. 350 for as long as they keep all their children 5-12 enrolled in school and attending at least 85 percent of the time. F Families with no children of school going age or whose children do not attend school will continue to receive the regular FSP benefits and will therefore not lose out as a result of this new program. CSP pilot in five districts during 2006. Impact evaluation, with two control groups, is planned Issue - how to finance TA/supervision in budget support? 47

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How to take engagement forward? Role of WB: SP project under identification, with proposed focus on SP administration and policy coordination CCT expansion and improvement Workfare Social care services Larger funding envelopes, even before project comes on stream to continue TA support for CSP and other Pilots PHRD preparation grant DFID PRSC Trust Fund DFID funding for Mof Social Welfare capacity building Continue with knowledge transfers, through seminars, workshops, and study tours 51