Often, one gets into a vicious cycle of supporting those who do not need much of it, ignoring the more deserving ones; Pakistans allocation of subsidies is a stark testament to this.
In an attempt to resolve this anomaly, the SBP has suggested the initiation of argeted subsidies, whereby the most disadvantaged groups will stand to benefit. The central banks stance seems quite logical given that the benefits of the existing subsidies barely accrue to the needy.
So far, the sugar import exercise has been largely futile in arresting the price hike of the commodity, and wheat, which has the highest weight of 5 percent in the CPI food basket, continues to weigh on the citizens pockets, rendering the subsidy rather uncalled for.
The government is at work in eliminating the power sector subsidies, and its not that these offer no respite to the poor at all; their elimination, especially those of the power sector, will have a negative impact on poor households. However, replacing these with better targeted transfers will help skew the situation more in favour of the poverty-stricken.
Besides the Benazir Income Support Programme (BISP), and the Watan Cards as of late, targeted subsidies are missing from the governments agenda at large. Increasing the allocation for utility stores, and particularly increasing the component of staple foods in subsidies will help yield some benefits.
While voucher schemes such as the Smart Card of the BISP, which is currently being tested by the government, or the Watan Card, which was designed for the flood-affected people, seem useful on the surface, there are many caveats attached.
The most important of these is data collection, monitoring and disbursement of funds. The distribution of Watan Cards met a lot of ado in September, with many people complaining of not being able to get registered for the same.
In addition, the largely unaware and uneducated poorer population of the country finds the mechanism of such a scheme hard to comprehend, and remain susceptible to become victims of bluff masters.
The risk also remains that the poverty-stricken will resort to selling their cards for a small gain, thus nullifying the argeted impact of the subsidy. Such a move sounds ideal and also imperative. But will it be as effective as one would like to believe?