ERD for cash aid until 2026 to cut poverty rate

The Economic Relations Division (ERD) has recommended providing Tk5,000 each in cash aid per month to poor households for three to six months a year till 2026 to bring down the poverty rate to 10%.

For this, the government needs to spend Tk7,700 crore if the assistance is given for three months a year over the six years, while it will cost Tk15,300 crore if it runs six months a year. 

In this way, the number of poor people in Bangladesh is expected to drop to 1.74 crore with a 12.2% poverty reduction per annum by 2026 when the country will move out of the least developed country (LDC) status, according to a position paper formulated by the ERD.  

The report has already been sent to the Prime Minister's Office, ERD officials said.

The ERD recommended providing cash assistance to 11.50 lakh poor households in the first year and gradually reducing the number of such beneficiaries in the following years and bringing down to 6 lakh households in 2026. 

The government provided cash assistance of Tk2,500 each to pandemic-hit poor and jobless families in phases after Covid-19 made inroads into the country in March last year.

The report recommends doubling the amount of cash aid and making it more meaningful, saying that if cash assistance is given for three months a year, it will cost Tk1,725 crore in the first year.  If the assistance is given for six months, the amount will be doubled. In the following years, spending will continue to decline. 

In the final year, Tk903 crore will be spent in three months and Tk1,805 crore in six months.

The ERD proposed assessing the results of providing cash aid to the poor in the first three months before distributing it in the next three months.

The position paper titled "Assessing the effect of Covid-19 on social protection in Bangladesh and graduation trajectory" suggests increasing cash assistance to reduce poverty as well as launching massive job generation programmes, and focusing on education and nutrition to develop human resources. 

It has also recommended launching adequate training and skill development programmes to build human resources in line with the fourth industrial revolution and initiating labour-friendly credit schemes.

The position paper – formed under the ERD's "Support to Sustainable Graduation" project to oversee the overall matters relating to the country's transition from the LDC category – states that the poverty rate has fallen by one-fifth over the past two decades on the back of the social safety net.

The amount allocated for social protection schemes has increased in recent years, but half of the cash assistance is spent on giving pensions to retired government employees and their families and paying interests to savings certificate holders. And, none of them is poor.

In the current fiscal year, Tk107,614 crore has been allocated for the social safety net. But more than half of this allocation does not directly benefit the poor.  Of the amount, about 25% has been set aside for paying pensions and 9% for interests against savings certificates.  Besides, 10% has been earmarked to give subsidies to SME loans. 

According to the ERD report, the poverty rate that was 20.5% in pre-Covid times has risen to 23% owing to Covid-induced job losses. The number of poor people now is 3.79 crore in the country. Of them, about 45 lakh people have become new poor over the last one year under pandemic impacts.

But many agencies, including the Centre for Policy Dialogue and South Asian Network for Economic Modelling (Sanem), have claimed that the number of pandemic-induced job losses is 2-2.5 crore.

Citing data from the Bangladesh Institute of Development Studies, the ERD report also said the pandemic-induced economic shock pushed 1.64 crore people into poverty.

According to the Household Income and Expenditure Survey-2016, per capita expenditure of the ultra-poor is Tk1,862. Adjusting inflation with it, it stands at Tk2,329.

According to the report, the minimum monthly expenditure of a four-member household is Tk9,316, of which, Tk5,123 is spent on food. On the basis of it, the ERD has recommended Tk5,000 a month per household.

Dr Firdousi Naher, an economics professor at the University of Dhaka was engaged as the individual consultant in preparing the ERD report.

"As a poor country, we have a lot of problems. Therefore, the goal to reduce the poverty rate to 4-5% in the next few years will be very ambitious and unrealistic. So, the target to cut poverty rate to 10% by 2026 when Bangladesh will graduate to a developing nation seems quite reasonable," she told The Business Standard.

At first, it is necessary to give cash aid to some families for three months and evaluate results. Such assistance will bring in benefits only if they are vaccinated, their skills developed and employment generated during the time, Dr Firdousi added. 

To run the cash aid programme for three months in the first year, the government has to spend 0.06% of the GDP and 0.12% for six months. In the concluding year, expenses will come down to half. 

The economics professor thinks that this amount of investment is not a big deal in the interest of the country transiting to a developing country.

The rate of poverty is not determined as a criterion for graduating from the LDC category, said Professor Dr Mustafizur Rahman, distinguished fellow of the CPD.

Bangladesh will graduate to a developing country in 2026 meeting the criteria regarding per capita Gross National Income (GNI), Human Assets Index (HAI) and Economic Vulnerability Index (EVI), despite a higher poverty rate.

"But we should have some expectations and aspirations to reduce the rate of poverty significantly in the graduation year at a respectable level," he added.

Major portion of social security programmes goes to non-poor

The report regrets the highest allocation of the social safety net programmes for the non-poor income group. 

Analysing the data of the Finance Division, the report revealed that out of 122 social protection schemes, 11 of the largest ones make up more than 60% of the social protection budget.

Two programmes – pensions for retired government employees and interest payments against savings certificates constitute 50% of all cash transfers. Interestingly, the incomes of the groups to which these two programmes pertain, are above the poverty line.

A stark absence in the direct cash assistance programmes is that of the working-age group, the report said, explaining a huge number of informal sector workers have lost their livelihoods due to the Covid-19 pandemic.

These people face a double-edged sword, in the sense that they are not recognised by social protection agencies, nor do they enjoy the protection offered by employment in the formal sector. But the irony is that they make up a majority of the workforce. There is a clear need for repurposing cash transfer programmes to temporarily support informal sector workers who are not covered by any other programmes.

Enlarge public workfare programmes following India

The report recommended that the government enlarge workfare programmes as a "diffused economic stimulus" to maintain the livelihood of the unskilled people following the example of the Indian government.

The report revealed that the largest workfare programme in the world, MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) in India has expanded its operations significantly and it continues to be a lifeline for many wage workers, especially in districts where migrants have returned in large numbers.

The Indian government almost doubled the MGNREGA scheme budget in 2020-21 and the scheme has already generated 1.25 billion days' wages in the first quarter of 2020.

The report regrets that the overall share of public workfare programmes has declined in Bangladesh in the pandemic-time budget.

Credit without skills would create risk

The ERD suggested that the government enhance the skills and capacities of people along with the transfer of assets and disbursement of credit. Despite a significant increase in the allocation for social protection programmes through the labour market in the pandemic-time budget, the allocation for social empowerment and enhancing skills and capacities reduced by 50%, while it increased by 137% in terms of credit.

"Putting cash or any asset in the hands of the poor without a commensurate effort to develop their skills and capacities and/or connecting them to the chain of forward linkage, is associated with a high risk of pushing the poor into further poverty," read the report.

Programmes with marginal social protection should be staggered

The ERD suggested the government postpone the projects of social safety net programmes, which have a marginal effect on protection, focusing on the fundamental needs and reducing a burden on the exchequer.

Housing for the homeless has seen a tremendous increase from less than 1% in FY20 to 25% in FY21 of the allocations for the urban poor. 

Such programmes, though important, can be relegated to the medium to long term and the immediate focus should be on getting food on poor people's plates.

About 6% of the urban allocations is currently on two programmes, which benefit the poor indirectly – the Urban Public Environmental Health Sector Development Project (UPEHSDP), and the Urban Resilience Project (URP).

"In the current context of unprecedented loss of livelihoods, projects which amount to marginal social protection should be staggered to the medium-term while focusing on the fundamental needs in the short-term," read the report.

Emphasise urban poverty

Emphasising urban poverty to meet the pre-Covid-19 growth path, the report revealed that there is skewness in the distribution of the urban programmes across age groups. 

Direct assistance, of a reasonable amount and for a reasonable period, to the poor working class will be very important for the economy to recover and get back to its pre-pandemic growth path.

The most severely affected group following the disruptions brought about by the pandemic is, perhaps, the urban poor in Bangladesh. Given that many rural families rely for their day to day living, on their wage-earner members living in urban areas, this has important ramifications on the rural economy as well.

The urban informal sector is taking a huge brunt with workers such as rickshaw pullers, street vendors, domestic help, apprentice workers and the like having lost their livelihoods or facing a drastic fall in incomes.

Follow Brazil or Thailand to reduce irregularities

The ERD urged the government to formulate a unique database with the information of each person to reduce the misuse of the allocation of social safety net programmes following the example of Thailand and Brazil.

The report said the one-time cash transfer initiative of the government aimed at supporting the vulnerable groups who would be most-affected by the lockdown could not be implemented properly in the absence of a tried-and-tested delivery mechanism.

There were issues relating to the identification of beneficiaries as well as complications with disbursement. To cite some examples of irregularities in the distribution of benefits to informal sector workers, 200 names in a money distribution list used the same phone number. Many enrolled in emergency aid programmes using multiple mobile phone numbers and fake national identity card numbers.

"We can learn important lessons from countries such as Brazil and Thailand. They are using existing national social registries to deliver emergency cash for three months to workers not covered by social security programmes."

These governments are managing excess demand by giving the poor the option of applying through an online platform. For Bangladesh, this is the time to address these issues and plug the loopholes.