4 years ago

How much is needed for the cash transfer programme?

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One critical element in determining the support programme to the needy is the amount of transfer. At the outset, we would like to highlight that a standard suggestion could involve considering the poverty line income as worked out in Bangladesh and make the equivalent amount of transfer. However, we take the view that it may not constitute a practical approach. While the budgetary capacity is an issue, it is also important to remember that we are confronting an unprecedented crisis in which the principal objective is to help people with their bare minimum necessities.  As already mentioned (previous article published in FE on May 19, 2020), there could be the need for such support measures for several months and thus budgetary implications should be given a careful consideration. Also, the provided state support should not result in perverse incentives with the recipients expecting a relatively large support. In the following, we first summarise the current suggestions and then offer our recommendation of a specific amount.

  • The transfer size as suggested in the PPRC/BIGD assessment is Tk 6,600 per month for every beneficiary rural household and Tk 8,100 for such urban households. For a typical four-member household, the above translates to Tk 1,650 per person for rural residents and Tk 2,025 per person for urban beneficiaries.
  • Many economists would tend to suggest a transfer amount close to the poverty line income. Bangladesh uses 16 different poverty lines for different regions. For poverty assessments in the 2016 Household Income and Expenditure Survey (HIES), these amounts varied from Tk 1,865 (rural Sylhet) to Tk 2,929 (Dhaka metropolitan area). The average national upper poverty line was set at Tk 2,268 per person per month and the average lower poverty line was Tk 1,862 per person per month. Thus, for a four member-household, the transfer size should be Tk 9,072 per month under the upper poverty line and Tk 7,748 per month under the lower poverty line. Since these are at 2016 prices, using an average yearly inflation rate of 5.0 per cent, the inflation-indexed values of the 2020 household poverty lines could be determined respectively at Tk 10,886 per month under the upper poverty line and Tk 8,938 per month under the lower poverty.
  • BRAC is currently offering assistance to their identified poor and vulnerable households needing support. Based on the expenses related to the basic minimum needs, they are offering Tk 3,000 per household. Strikingly, this is much lower than the poverty line incomes as suggested above.
  • As pointed out above, we believe that benchmarking transfer size around the poverty line during this crisis period is not realistic. Given the current stage of the spread of Covid-19 in Bangladesh (which has not reached the peak yet) and slow progress to reopen economy elsewhere in the world, it is more likely that direct government cash support programme would be required for a much longer period - at least for the next three to eight months.
  • We believe a transfer amount of Tk 3,000 per household or family is a reasonable one for the reasons mentioned above. We do acknowledge that this amount is small and would just allow the households to survive the crisis. This amount is unlikely to encourage perverse incentives for non-vulnerable households to seek for the assistance. We do think that it is not appropriate to get into the debate about why not a slightly lower amount of Tk 2,500 or not a slightly higher amount of Tk 3,500. There is some field-level evidence of Tk 3,000 being reasonable. At the end, it is a budgetary cost issue and should the government wish, it can simulate the cost implications over the range of transfer amount.
  • Our estimates show that if a total of 12.0 million households are to be supported with direct cash assistance of Tk 3,000 (per household), the total programme cost for a three month period will be Tk 108 billion, which is calculated as just about 0.36 per cent of Bangladesh's estimated Gross Domestic Product (GDP) for FY20. For a longer duration (six months) of assistance programme, using the same allowances for the same number of households, the computed cost would be Tk 216 billion (0.72 per cent of GDP). These estimates thus show that the total cost of this massive transfer programme will be something that the government can afford.

WHY CASH ASSISTANCE: One question is why we are advocating for cash assistance. We do not undermine the need for in-kind assistance in various special circumstances. Otherwise, there exists a huge body of evidence to suggest great advantages of cash transfer programmes over in-kind distribution. Cash programmes are more efficient as they do not distort consumption and production choices. Cross-country studies show that such transfers are 25-30 per cent cheaper than in-kind transfers. Because of its known advantages, the National Social Security Strategy (NSSS), adopted in 2015 by the government of Bangladesh, proposes to transform all food transfer interventions into cash assistance schemes.

There is also one more reason for suggesting cash assistance. Given the availability and rapid expansion of mobile financial services (MFS), money can now be sent to even remote places in Bangladesh. Yearly transactions through MFS reached more than $50 billion in 2019. There are currently about 1.0 million MFS agents operating all over Bangladesh dealing with close to 80 million registered accounts, of which about 35.0 million are considered to be active. The MFS mechanism thus stands ready to inject the cash in a cost- effective manner without being much less susceptible to corrupt practices. The current government rightly gets a lot of credit for helping the expansion of mobile financial system and it would only be most timely and appropriate to use the same means to provide prompt livelihood support to millions of households.  Under the current social distancing guidelines, it is also very difficult to conduct in-kind distribution, let alone the proliferation of thefts and misappropriation of relief materials, as reported frequently in the media. 

Cash assistance is also important to help people keep their consumption as diversified as possible. This can sustain local-level demand for diversified goods and services. Otherwise, many small growers of such items as vegetables, eggs, fish and dairy products will have to discontinue their production. It can delay a post-crisis recovery process, because small producers might then find it difficult to build up their supply response.         

HOW TO REACH OUT TO BENEFICIARIES: Providing estimates of potential beneficiaries and resource requirements is perhaps the easier part of the whole exercise. The most difficult task is to reach out to the poor and vulnerable groups. The National Social Security Strategy (adopted in 2015) called for a national household database to identify the poorest and vulnerable populations groups. However, even after several years, the proposed mechanism could not be established. Distribution of assistance under many social security programmes is yet to be digitised. Therefore, using a nationwide database to track and reach the needy households at this time would remain a missed opportunity. Largely because of this, most suggestions and commentaries on direct transfers are silent on the issue of the so-called last mile delivery challenge. International experiences seem to suggest some innovative solutions based mainly on digital financial services. Bangladesh can emulate some of these with necessary adjustments.

WHAT OTHER COUNTRIES ARE DOING: Chile has used its existing programme to extend assistance to new beneficiaries (new poor). The country already had a digital infrastructure in place, linking government to the poor (G2P) through various programmes. One such programme uses the national ID of the citizens through which emergency payments can be made. This national ID-linked basic account for most poor people, will be used by the government to pay more than 2 million low-income individuals a one-off grant during this crisis.

Peru is one of the countries that used its detailed censuses to identify the poorest citizens for social assistance which can now be employed to extend assistance to people who were initially deemed too well-off for assistance (non-poor in pre-Covid19 period). The Peruvian programme Bono Yo Me Quedoen Casa, for instance, offers an additional transfer equivalent to 50 per cent of the minimum wage to 2.70 million poor households identified in a dataset created to target the Peruvian Juntos Conditional Cash Transfers (CCT). Beneficiaries can check their availability online, and payments are routed via a national bank.

Pakistan is a country with no pre-existing database, making it difficult for the government to automatically enrol large segments of the population in emergency assistance programmes. Given the situation, Pakistan has announced a relief package with cash transfers to the poor. The emergency programme requires people to self-identify themselves as vulnerable and to text/SMS to the existing social programme Ehsass with their national identification number. An one-off instalment covering three months' allowances (PR. 12,000) have been transferred to the self-selected beneficiaries.

India also has sent money to Jan Dhan accounts linked to the Adhaar ID system, which was created to promote financial inclusion among the poor. The state of Bihar has announced a transfer to all migrant workers stranded in other states and plans to perform identity checks through a phone app. The state of Uttar Pradesh announced that it will make direct online payments to poor and daily wage workers who lose work due to the impact of Covid-19 (includes vegetable vendors, construction workers, rickshaw pullers, auto rickshaw drivers, and temporary staff at shops) (Aljazeera, 2020).

Brazil's Households recorded in the Cadastro Unico - i.e., the census of the poor - will be eligible for the AuxilioEmergencial as formal self-employed workers. The AuxilioEmergencial will provide self-employed workers with a monthly payment of 60.0 per cent of the minimum wage for the next three months. The government also created a new website to extend coverage of this emergency assistance programme to informal workers at large. But it also acknowledged that the use of web-based system may prevent individuals without a computer or smart-phone from enrolling unless complementary systems are set up. Even if they successfully enrol, transferring money to these new beneficiaries can be difficult.

Thailand's informal workers (temporary workers, contractors and the self-employed) will be eligible for a monthly allowance of THB 5,000 for three months from April to June 2020. The scheme will cover nine million workers (ILO 2020).

Philippines offers a monthly transfer of between P5,000 ($100) and P8,000 ($160) for two months to 18.0 million people (mainly low-income families and households working in the informal sector).

Malaysia's short term "Bantuan Prihatin Nasional" cash transfer will provide a payment of between RM1,000 ($230) and RM1,600 ($370) to over 5.0 million households and between RM500 ($115) and RM800 ($185) to single individuals. The level of payments depends on income, and will be paid between April and May. A one-off payment of RM600 ($140) will also be paid to e-hailing drivers.

Singapore has undertaken various measures including (i) all Singaporeans aged 21 and above to receive a one-off cash transfer of between SG$600 ($420) or SG$1,200 ($840), depending on their income; (ii) cash payouts to be given to families with children and elderly parents. Additionally, it will include a SG$300 (US$210) supermarket voucher to lower-income households; (iii) eligible self-employed persons to receive SG$1,000 (US$695) every month for nine months; (iv) A Covid-19 support grant will provide lower- and middle-income workers who lost their jobs with $800 per month for three months.

Dr Ahsan H Mansur, executive director, Policy Research Institute of Bangladesh (PRI);  [email protected];

Dr Abdur Razzaque, research director, PRI; and Dr Bazlul H Khondker, director, PRI.

The article is based on PRI's policy brief titled 'Reaching Out to the Poor and Needy with Direct Cash Support: Dealing with the Last-Mile Delivery Challenge', prepared under PRI's Policy Advocacy Initiative on digital financial services in Bangladesh. 

Research assistance was provided by Azmina Azad and Promito Musharraf Bhuiyan.

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