State Role in Welfare in Bangladesh:Attacking Extreme Poverty

Mozammel HuqDepartment of EconomicsUniversity of Strathclyde, Glasgow

12 November, 2013.

Structure of the paper

• Introduction• State role in Income Distribution: Theoretical

Perspectives• SSN Programmes in Bangladesh: An Overview• A Brief Assessment: Findings of the Various

Studies• Impact of SSNs on Poverty Decline• Concluding Remarks

Fig 1: Bangladesh - Dramatic Fall in Poverty

Proverty trends in Bangladesh

01020304050607080

*1981-82

*1983-84

*1985-86

1988-89

1991-92

1995-96200020052010

Years

Pove

rty

Hea

d C

ount

R

atio

by

the

DC

I M

etho

d 19

81- 8

2 to

20

00 (%

of p

opul

atio

n)

NationalRuralUrban

Source: Bangladesh Bureau of Statistics, Household Income and Expenditure Survey (various years).

Main Objective

• To review the SSN programmes in Bangladesh, in particular its role in attacking extreme poverty.

• Thus, we are taking a narrow focus, confining the discussion to the attack on poverty via the SSN programmes.

• Related to the above, gain awareness of the issues and concerns regarding the effectiveness of the SSN programme for attacking extreme poverty in a low-income country such as Bangladesh.

Fig 2: Social Safety Nets viewed in the context of a wider framework of Development Policy

Source: Grosh et al. (2008).

Theoretical Perspectives (only some key points)

• As with the efficient allocation of resources, the economists have remained concerned with the distribution of income.

• Society's view of just distribution may conflict with the existing distribution. In particular, there is concern with the injustice in the original distribution of endowments.

• Also factor market imperfections, especially monopoly pricing of the factors of production, can be an important cause of income inequality.

Theoretical Perspectives (cont’d)

• Private redistributions made voluntarily, say through charities, are riddled with problems, a major concern is that the task may be too big for the private redistribution to execute. • Musgrave (1959), among others, would like to justify state intervention to

maximise social welfare.

• Moreover, various charities may compete with each other as a coordinating role will be missing. Indeed, the state can perform a redistribution policy in a coordinated and comprehensive way. (See, e.g. Brown & Jackson 1990.)

• However, Hayek (1960)and other libertarians are rather concerned that state intervention in income distribution will cause curtailment of personal freedom and, in the process, hamper growth. • Hence the emphasis on voluntary contributions made by individuals personally

and/or help channelled through NGOs.

SSN Programmes in Bangladesh

• In Bangladesh, the SSN programmes got a serious start in the early 1990s with the democratic government taking over in 1991.

• There now exists an extensive range of SSN programmes, as many as 90 or so (World Bank 2006; Khuda 2012; GOB 2011 Part 2).

• “The bulk of the programmes are implemented through government channels. However, non-government channels play an important supportive role particularly in those programmes focused on sustainable graduation. 97% of annual allocations are spent through 30 major programmes.” (Rahman and Chowdhury, 2012, p. 3).

• The programmes are mainly rural based, those with “an urban focus as yet remain minuscule , as only 0.7% of the total allocation” (ibid, p. 3).

Table 1: Major Types of SSN Programmes

TYPE PROGRAM EXAMPLES

• Cash Transfers • Old Age Allowance• Widowed and Distressed Women Allowance• Disabled Allowance

• Conditional Cash Transfers• Primary Education Stipend Program (PESP)• Stipends for Female Secondary Education

• Public Works or Training-based or in-kind Transfer• Rural Maintenance Program, Food for Work• Vulnerable Group Development (VGD)• Employment Generation Program (EGP)

• Emergency or Seasonal Relief• Vulnerable Group Feeding• Gratuitous Relief (GR); Test Relief (TR)• Open Market Sale (OMS)

Source: GOB (2011), 6th Five Year Plan, Part 1, o.166.

Major SSN Programmes: Govt Expenditure Allocations

• Govt expenditures (as % of GDP) on SSNs from 1999-00 to 2011-12 are shown in the next slide (Fig 3).

• Except the Food for Work programme (in which financial allocation by the Government of Bangladesh decreased from Taka 8,060 million in 1999-00 to Taka 6,224 million in 2011-12), all the other major SSN programmes have witnessed an increase in allocations (some shown in Fig 4).

• Such increases are particularly marked in Honorarium for Freedom Fighters, Primary Education Stipend Project, Old Age Allowance, and the Allowance for Destitute Widows.

•

Fig 3: Government Expenditures on SSNs: 1996-7 to 2004-5 (as % of GDP)

• Note: The Govt allocation on SSN has recently been increasing, from less than 1% of GDP in 2004-05 to just over 1.5% in 2010-11,

1996-971997-98

1998-991999-00

2000-012001-02

2002-032004-05

0

0.2

0.4

0.6

0.8

1

1.2

% G

DP

Source: Based on data from World Bank (2006).

Fig 4: Growth in Expenditures: Major SSN Programmes1999-00 to 2011-12 (In Mil. Taka: At 1999-2000 prices)

1999-00 2001-02 2003-04 2005-06 2007-08 2009-10 2011-120

1000

2000

3000

4000

5000

6000

7000

8000

9000Gratuities Relief & Test Relief

Vulnerable Group Feeding

Primary Education Stipend Project

Old Age Allowance

Pric

e (M

il Ta

ka)

Source: Based on data from Khandker et al. (2011).

Review and Assessments

• The emergence and the growth of the SSN programmes in Bangladesh have attracted attention from a large number of researchers.

• Various international organisations including the World Bank, UNDP and FAO have also shown a keen interest in it.

• Findings from selected studies (shown below).

Mannan & Paul-Majumder (2003), based on Field Surveys

• Coverage: Country-wide, seven major SSN Programmes Investigated

• Main Findings: The targeted programs have positive impact on income, food consumption and access to safe housing.

• However, there is an urgency to extend the coverage with additional funding allocation.

• Also the distribution mechanism needs to be improved to get rid of political patronage.

World Bank (2006), Analysis of key primary data.

• Coverage: Country-wide, based on HIES 1991 & 2000, and 2000 Labour Survey, & a 2003 survey of selected SSNs

• Main Findings: SSN expenditures are extremely low, less than 1% of GDP during the late 1990s and the early part of the last decade (the highest was 0.91% of GDP in 1998-99).

• Also, numerous agencies are involved in administering these programs – with “frequent overlapping between programmes and inadequate co-ordination across ministries.”

Khaleque et al (2008), Overview of SSNs in Greater Rangpur, a highly poverty-stricken area

• Coverage: Assessment of SSNs in the monga-affected Greater Rangpur.

• Main Findings: “VGD/VGF has strong positive effect in reducing poverty while old age pension has no such contribution.”

• Highly vulnerable groups such as day labourers and beggars are found to be “left out from the benefit of SSN programs due to their limited coverage and size.

• Also, inter-ministerial coordination is found to be lacking, resulting high administrative expenses.”

Begum & Paul-Majumder (2008),

based on Field Surveys, Dec 2000-Jan 2001

• Coverage: Country-wide, Destitute Women’s Allowance.

• Main Findings: 86% of the recipients spend their allowance to satisfy their food and basic needs.

• However, there is an urgency to extend the coverage as only around one-fifth of the deserving destitute women are getting the allowance. Also need to increase the amount.

Paul-Majumder & Begum (2008), based on Field Surveys, 2000

• Coverage: Country-wide, Pension for the Elderly Poor

• Main Findings: Programme largely successful, 96% of the poor elderly recipients are able to meet part of their basic needs.

• However, the coverage of the programme has remained yet very limited or far below the appropriate level.

Morshed (2009), General Overview

• Coverage: Country-wide

• Main Findings: Both Govt and non-Govt agencies are actively implementing SSN programmes.

• However, most implementing ministries lack sufficient capacity to monitor programmes.

Maniruzzaman (2009), based on Field surveys, 2007-08

• Coverage: Assessing Food insecurity in Char (flood-prone) areas

• Main Findings: High level of food insecurity (90% in Kurigram), while 34% in Narsingdi.

• 34% of the 321 male-headed households and 61% of the female-headed households received some SSN benefits, so greatly helping them with food security.

Khuda (2011), General assessment

• Coverage: A general review of the SSNs in operation.

• Main Findings: High success of the SSNs, the lessons learned should even be of great help for other low-income countries.

• However, need to improve co-ordination significantly.

Khandker et al (2011), based on Household surveys, 2006-07

• Coverage: Review of SSNs in the ‘monga-affected Greater Rangpur.

• Main Findings: SSSNs are found to have a positive effect on mitigating both seasonal and non-seasonal food deprivation.

• However, the study recommends investment in physical infrastructure and human capital, and argues for diversification of income and increase in productivity.

Huq and Salimullah (2012), based on Field Surveys, 2010

• Coverage: Assessment of the SSN programmes in rural and urban areas.

• Main Findings: Only one-fifth of the rural households received Govt-provided SSN benefits, while in urban areas it was almost negligible.

• NGOs were providing SSN-type benefits in both rural and urban areas, helping about 13% households in the former and just over 4% of the urban poor households.

Rahman & Chowdhury (2012), based on Field Surveys, 2010-11?

• Coverage: Country-wide, comprehensive review.

• Main Findings: Improvement in income and food intake, also halving of hunger in the chronic deficit areas.

• However, serious concerns because of disaggregated nature of the coverage gaps, multiple types of leakages, presence of some low value-for-money programme components.

Impact of SSNs on Poverty Decline,Findings by Inchauste et al (2012)

• Negligible role of public transfers in poverty reduction in Bangladesh; “leakages and small size of individual transfers made their impact on poverty negligible, despite an expansion of transfer programs during the last decade”. (Inchauste et al, 2012, p19).

• In contrast, labour-market related factors contributed to 61% of poverty decline in Bangladesh, “pointing to an increase in real wages and higher productivity as the main contributors to poverty reduction.” (p. 4)

• International remittances, and also decline in population growth and fall in the dependency ratios also contributed significantly to poverty reduction in Bangladesh.

Key Issues & Concerns

• Although the SSN-support has been of particular help to some needy groups and areas, e.g. poor elderly, destitute women and the poverty-stricken parts, the programme is still low in coverage and size. Also, day labourers and beggars, among others, are also found to be left out.

• As strongly argued by the World Bank (2006), Bangladesh seems to spend somewhat below the norm (less than 2% of GDP) – as compared to 2% for Africa and close to 5% for South Asia. (The serious resource constraint faced by the Govt in Bangladesh is, understandably, a major hindrance.)

• There are also a number of other concerns (see below).

Key Issues & Concerns (cont’d)• A major concern relates to the deficiency in administration of

the SSN programmes. Some 30 or so Government Ministries are reported to be involved, and without any inter-Ministerial collaboration.

• Also, at times various Government and non-Government agencies are found to be working without any coordination.

• “Leakages” are frequently reported, and in some programmes as high as 26% (GOB, 6th Five Year Plan, Part 1, p.168).

• Hence the need for improving the administrative capacity and, in particular, involving central co-ordination, thus institution building demanding a serious attention (World Bank, 2010).

Concluding Remarks• The role of public transfers via SSN programmes in attacking extreme

poverty, though found negligible, needs to be viewed in a special context because of the critical benefit they often provide, and also that SSNs “are important components of any comprehensive poverty alleviation strategy.” (Mukherjee and Kundu 2012, p.81).

• Related to the above, the removal of poverty especially of those with handicaps and also in deprived areas is likely to remain a challenging issue. Hence the need for a highly co-ordinated approach by strengthening the SSN programmes carried out by the Government.

• The concern for poverty alleviation is mainly an issue of income redistribution and the government will be able to perform this in a comprehensive way only when a country has succeeded in raising the capacity of its state, with (a) enough allocation as a percentage of GDP and (b) an organisational set up to administer the programme efficiently.

Thanks!