This report provides an analysis and evaluation of Benazir Income Support Programme (BISP), a major social safety net programme initiated in 2008 in Pakistan. The worldwide public opinion has assumed that such programmes are successful at reducing inequality and poverty.

However, the effects of social safety nets tend to differ across country to country and region to region therefore a detailed study is in order to discern the success of the programme.

Safety net interventions in Pakistan have suffered from a conspicuous lack of evidence based policy making. Numerous evaluations of the targeting process of programmes have identified design and implementation weaknesses. According to World Development Indicators (WDI) 2013, 60 per cent of the population in Pakistan lives below poverty line corresponding to $2 or Rs. 210/-1 per day so social protection as an area of government intervention has achieved enhanced budgetary priority in Pakistan recently with the advent of programme like BISP.

The aim of this report was to review the design of BISP, its effect on the private charity, attitudes of programme beneficiaries, focusing on collecting information regarding disbursements, procedural problems, and needs fulfillment and it examined the impact on the household standard of living. A survey was conducted among 1,000 beneficiaries of BISP from Malakand and Azad Jammu & Kashmir.

The results indicate that there are inefficiencies and irregularities in disbursement procedures. The amount of cash grant is in-sufficient to fulfill expenditure needs of the beneficiary families at large and has no impact on their living standards rather it has created a very high dependency of the beneficiary families on the cash grants. People do not conceive cash grants as their right instead they regard it as a help from government. Even if they consider it as a help it is a discouraging fact that the cash grant are unable to motivate people for work. While private charity continued to prevail along with BISP cash grants.

It is recommended that to achieve poverty alleviation, the programme requires restructuring towards long-term and permanent solutions such as replacing cash grants with programmes through which human capital is enhanced like vocational training and educational programmes.

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Is foreign aid effective?. This question becomes all the more important if viewed against the backdrop of calls for doubling foreign aid to developing countries. The answer to this enquiry, however, has spawned a debate among mainstream academia with each side postulating viable arguments in their defense. In case of developing countries, the for-aid camp points toward the foreign-exchange bottleneck as well as insufficient savings as the rationale for foreign aid which makes up for such deficiencies. The theoretical foundations for this argument can be traced to the famous Harrod-Domar model which implicates that low saving rate dents the growth process (Harrod, 1939 and Domar, 1946). As of late the case for foreign aid has assumed a humane face by appealing to the stalled social sectors of developing countries.

This role of foreign aid was duly formalized by the integration of Official Development Assistance in now defunct Millennium Development Goals (MDGs) and the recently promulgated Sustainable Development Goals (SDGs). Contrarily, not-for-aid camp directs their criticism on foreign aid based on the fact that it rather than helping the poor countries, subverts the growth process by distorting market incentives and highly politicizes the development endeavor beyond bounds. Criticism of foreign aid is also leveled from the political spectrum both from “the Left” and “the Right” with the latter hinting the potential pauperism that it can ensue while the former points its neo-imperialist connotations. The empirical evidence also paints a contradictory picture of aid effectiveness. There is wide literature which suggests that “by and large” aid has been effectiveness contending that income per capita would have been lower in the recipient countries had there been no aid (McGillivray, 2004 and Sasaki, 2006). One strand of literature asserts that aid affective is contingent on the domestic policies of the recipient countries like Burnside and Dollar; 1997, 2000, 2004; Collier and Dollar, 2001, 2002; Collier and Hoeffler, 2002.

This paper attempts to add to this debate on aid effectiveness by evaluating it in the light of arguments for and against foreign aid from the perspective of Pakistan with especial focus on its political economy. It must be noted here that this research is limited only to aid flows by bilateral and multilateral sources to Pakistan instead of private flows of funds. Furthermore, to the best of our knowledge the paper also assesses arguably for the first time in Pakistan whether foreign aid has become a resource case. Section 1.2 delineates the major concepts of aid economics; section 1.3 takes stock of Pakistan’s incessant relationship with foreign aid and section 1.4 gives a bird’s eye view of the structure of foreign aid in Pakistan. Furthermore, section 2 and section 3 evaluates the arguments for and against aid respectively in terms of Pakistan while the final section concludes.

It is an established fact that investment and economic growth have a positive relationship but no consensus has been developed on the type of investment. The study investigated the relationship of PSDP, FDI and Private investment for Pakistan’s economy, and the results reveal that all the three forms have a long-run positive relation with growth where private investment has a strongest impact and FDI has a least impact. Moreover, it is the private investment and growth of Pakistan’s economy which leads to increased public development projects which means increasing private investment in the economy has two folds impact on PSDP; increase in economic growth increases development projects, increased revenue generation through taxes create more resources for PSDPs.

Economic Growth is a course of action in which production capacity of an economy is flourished bringing out increased national output and income. Economic growth is also related to bring out full employment level of the economy through investment as its key determinant, where literacy level, capital stocks and technology is enhanced.

Investment and production of goods and services ultimately help generating wealth and add in to growth of an economy. Positive relationship between economic growth and investment is an established fact but there is no consensus on whether it is the public investment or private investment which plays the stronger or no role in growth of an economy.

Shortfalls in revenue generation and inefficient or non-development government projects have caused large fiscal deficits and low economic growth in Pakistan, to fasten the pace of growth, government invests in some development projects for the public under the head of Public Sector Development Programs (PSDP) which utilises a significant portion of the budget every year funded by borrowing or tax collected.

The rationale behind spending on public sector development projects is that it not only generates positive spill-overs in the economy through the provision of education, health, basic scientific research and physical infrastructure, and it may also crowd in private investment thereby enhancing economic growth but there also exists the argument that these government funded projects increase government outlays and crowds out private sector, thus stifling economic growth.

Fiscal decentralization represents devolution of spending responsibilities from higher level to lower level of government accompanied by transfer of fiscal resources and administrative authority. The rising demand for decentralization in developing countries in recent years is a consequence of broader process of liberalization, deregulation, and urge for democratization with a need to bring the government closer to people for articulation of their needs and preferences. There is an increasing demand from regional and local leaders for more autonomy and taxation powers to support their expenditures.

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This paper argues for a paradigm shift in assignment of tax bases. The decentralization of tax bases currently assigned to the federal government will increase the net revenue collected at the national level. The decentralization of tax bases will reduce the magnitude of transfers from the federal government to the provinces however transfers cannot be done away with altogether. Transfers from the federal government to the provinces are undertaken through the National Finance Commission which is constituted every five years decide upon the distribution of national financial resources among the center and the provinces and among the provinces. The NFC has faced deadlock several times during the past 65 years. To take care of the deadlock over distribution of national financial resources, this paper first offers an alternate institutional mechanism to make a decision on a resource distribution.

Macroeconomic framework2 and how an optimal level of receipts and expenditures can be achieved at federal and across provinces is one of the fundamental issues the prevailing National Finance Commission (NFC) negotiation is figuring it out. The optimal level of receipts and expenditures can help the provinces to maintain fiscal balance. Similarly, the optimal level of receipts and expenditures will also help to develop the homegrown macroeconomic framework. To avoid the complexities involved in the macroeconomic framework, and remain in line with NFC discourse we focused our discussion on the fiscal side of the macroeconomic framework. Over the years, narrow tax base, heavy concessions and exemptions, challenges in tax administration and inadequate tax compliance have resulted in a low tax-to-GDP ratio. To address these challenges and weaknesses, there is a dire need to introduce necessary fiscal measures. Fiscal reforms are needed to ensure a fair and efficient tax system to generate sufficient revenues, which however seems a big challenge in the presence of substantially low tax-to-GDP ratio.

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This paper proposes a formula for resource distribution between provinces-horizontal distribution- under the upcoming National Finance Commission (NFC). We maintain that the formula offered in 7th NFC is predominantly need-based and the (equity) indicators, whatsoever it has, by very construct, fall short of capturing full essence of equity. Further, we argue that existing indicators of efficiency, the size of provincial tax revenue, is not adjusted for size of the provincial economy thus fails to capture the efficiency part of resource collection, the tax effort.

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