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Spreading COVID-19 against growing poverty on the globe

Spreading COVID-19 against growing poverty on the globe

Globally, eradication of poverty has been a burning issue since early fifties when war ravaged economies particularly of European countries were to be rehabilitated. Thereafter, world encountered several natural and manmade disasters pushing almost 1.6 billion people in the clutches of poverty. In this regard various aid giving agencies formulated various plans/strategies like Marshall Plan, Millennium Development Goals (MDGs) and now new initiatives under Sustainable Development Goals (SDGs) and these being top down and bottom up plans to address the issue of growing poverty, particularly in developing countries along with tailor-made multipurpose aid packages for countries in dire need of support for combating escalating poverty.

However despite these initiatives at global level as well as individual countries own poverty eradication programs in place little has been achieved so far and overall reduction in poverty remains insignificant except in some pockets, particularly in South Asian countries like China, India, Korea and some Latin American countries where sustained increase in economic growth rate with emphasis on development of small and medium size industries has generated ample employment opportunities for their economically disadvantaged segment of population.

But the new situation developed due to onslaught of coronavirus (Covid-19) engulfing entire world causing unprecedented human loss and massive loss to economies of both developed and developing countries has wiped of all hopes of eradication of poverty from the globe by 2030 as envisaged under SDGs.

Already, low and middle income developing countries despite receiving aid packages for poverty alleviation program until now and now in present scenario expecting similar financial assistance from economically rich countries and various aid giving agencies will barely be able to recoup the lost pre corona virus position what to speak of eliminating poverty by end of targeted period. In fact until now South Asian and majority of African countries have been experiencing sizable number of their population slipping down poverty line every year. It is because of defective mode of delivery of aid by aid giving agencies and mainly due to poor governance in aid receiving countries.

Pakistan like other low and middle income developing countries is being extended multipurpose aid/financial assistance packages to arrest growing poverty and now in present scenario similar financial assistance is expected as emergency response to fight corona pandemic and cater to its socio economic impact, which according to immediate estimates given by economic managers of the country is likely to bring loss to the economy exceeding $10 billion and if crisis persists it may increase further. The financial assistance of $588 million committed by Asian Development Bank (ADB) and World Bank is too meager to cope with the situation. However things can be remedied if International Monetary Fund (IMF) and other funding agencies come forward to write of 50% of our external debt which hovers around #107 billion according to September 2018 statistics. Further payment of interest on remaining debt be exempted for two years.

Besides that assumption on the part of aid giving agencies that delivering aid at government level is a rational approach has proved wrong. It is now a common phenomenon that top- down delivery of aid generally results in waste of resources due to irrational use plans envisaged by economic managers and above all siphoning off funds by political leaders and corrupt bureaucrats. Poverty alleviation fund already received has not been put to the uses in letter and spirit as envisaged. It apart from providing various social safety nets to poor was meant for disbursing micro loans through formal financial sector including micro finance banks and Benazir Income Support Program (BISP), But unfortunately these funds either did not reached down the line to poorest of the poor or where provided through formal micro financing institutions/banks and lack of government commitment to provide support services like required infrastructure, market outlets and tax exemptions etc at initial stage of business is another factor responsible for keeping small business owners at brink of poverty level consistently.

In order to cope with crisis arising out of corona virus invasion Pakistan government has announced various packages like Rs 100 billion for rehabilitating effected small and medium enterprises and agriculture and Rs 400 billion for direct financial support to working poor and to preserve employment in affected industries. In this regard delivery mechanism is to be determined keeping in view above stated drawbacks of top down delivery of financial assistance. If the government intends to disburse the amount by allocating funds to owners of the industry concerned under the assumption they will pass it on to the workers as compensation then room for misuse of funds is very much there.



M/s Hubbard & Duggan in their co-authored book: The Aid Trap suggest that aid giving agencies need to extend financial assistance to developing countries on the pattern of Marshall Plan launched after World War II for revival of war ravaged businesses of western Europe as Marshall Plan strategy binds aid receiving country to reform their business suppressing policies; so as to boost economic growth rate. This necessitates repayment of loans to local government for reinvestment in infrastructure and support services. The suggested strategy further assumes that growth of business would enhance tax revenues enabling governments to make greater allocations for social services like education and health care.

But as a practice aid to developing countries generally goes under top down program, which again due to bureaucratic hiccups like corrupt practices at different tiers of government and delivery mechanism at end user level deprives deserving poor and small businesses of the financial assistance. Presently bottom up formula is being applied in case of certain low income countries including Pakistan where aid giving agencies focus on market driven businesses ignoring the socio economic environment at grass root level of the aid receiving country.

In countries where foreign funding comes by way of investment in micro finance institutions, there on account of foreign investors being ignorant of socio-economic and cultural environment of the country concerned often fail to adapt to the system effectively, hence desired results are not achieved with regard to eradication of poverty despite their social business approach. On the other hand Micro Finance Institutions (MFIs) /Micro Finance Banks (MFBs) have to compromise with the vision of foreign investing agencies, which is not in conformity to objectives to be achieved by the organization concerned, which primarily is economic empowerment of the masses. Further, micro finance institutions are aware of the fact that their locally based businesses are the only hope for generating employment for the unemployed work force of the country. Hence to compromise with foreign investors regarding choices of areas/sectors to be financed will not help boosting up economic activity and bringing in trickle down effect.

After the demon of coronavirus is totally wiped off from the globe effective strategy for developing economies to eradicate poverty must be self reliance approach. Instead of looking up to above discussed global aid programs countries must rely on their own resources. Micro businesses and SME sector need to be promoted with help of indigenous capital and foreign investments where accepted should be with added clause in agreement regarding exit of foreign stake at certain point of time, particularly when indigenous equity itself has accumulated to a desired level. Further, transfer of earnings back to investor’s country should be allowed with the condition that 50% of the earnings are ploughed back into the business.

Foreign assistance/aid can, however, be sought for strengthening social sector with effective system in place for delivery of funds to institutions ensuring education and health care facilities to the poor.

Wealthy nations instead of providing financial assistance to developing countries for strengthening their market driven businesses both large and small scales need to adopt policies, based on WTO agenda supporting free and fair trade. This necessitates elimination of subsidies, to farmers in developed countries who are producing surplus crop which ultimately are sent to poor countries as food aid. This eliminates chances for developing countries having agrarian economies to export their agriculture products, both as raw material as well as value added/manufactured export item. For countries deeply entangled in poverty net most appropriate approach is to enter inter-regional trade agreements so that benefits of rapidly growing economies in the region may pass on to countries with weaker economies.

For developing countries like Pakistan, which incidentally among South Asian economies has the weakest and most vulnerable economy, apart from getting international market access need to have good governance environment giving pro business policies at all levels, universal access to education and health care, provision for all social safety nets for poorest of the poor in order to achieve sustained economic growth rate being a pre-requisite for poverty eradication.

Besides above private sector must come forward and take it as their social responsibility to empower unemployed work force by providing employment and self employment opportunities. This should be done with a holistic approach. Well established entrepreneur both in urban and rural sector must feel their moral obligation to give back part of their wealth so built for benefit of economically disadvantaged population by way of investment of their funds on development of infrastructure facilitating establishment of small and micro businesses and farms. Building of small dams, solar based power projects, ware houses and providing storage facilities and market outlets etc are some of the services they can render as their social responsibility for eradication of extreme poverty.

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