Cash Transfer Programming (Part 2): CTP in Iraq

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In Iraq, interest has been growing in several types of Cash Transfer Programming (CTP) aside from existing humanitarian Unconditional Cash Transfers (UCTs) for IDPs, Conditional Cash Transfers (CCT, in the form of “cash for work”) for IDPs and a CCT trial in Sadr city. On the national scale, the main cash transfer program in Iraq is the Social Safety Net (SSN), which covers over 700,000 households, down from nearly 1 million following revised social worker assessments and proxy means testing.

SSN, which took four years to implement, is currently targeted with reform under Law 11 of 2014 to ensure it is effective means tested and limited to the genuinely needy. One study which highlights some of the pitfalls of CTP described the problems with SSN:

“Due to the categorical targeting criteria, the program was plagued by low coverage of the poor and high leakage to the non-poor. Only 11 percent of the poor received benefits while of those receiving benefits, only 26 percent were poor. The use of demographic characteristics rather than poverty criteria for targeting resulted in a majority of the poor from being left out of the cash transfer program.”

Aside from SSN, two other CTP operations are underway in Iraq. The first of these, initially used in 2010, are humanitarian transfers to stabilise areas known as Cash for Work (CFW) essentially a kind of CCT. CFW was first used in Iraq by the World Food Program in 2010 for displaced people in Diyala, where 11,000 people were temporarily employed for $10 a day to do basic agricultural labour such as clearing irrigation canals. During and after the war on the self-declared Islamic State, CFW programs were being used throughout northern Iraq, paying up to $20 a day for workers to clean streets or help repair infrastructure.

In 2018, this was massively scaled up to cover 150,000 people as part of the Emergency Social Stabilization and Resilience Project (ESSRP), a collaboration between the Ministry of Labour and Social Affairs (MOLSA) and the World Bank, that also involved microloans. This is an extremely ambitious project considering its lofty goals, which according to the World Bank include allowing “households to invest in health and education, to break the intergenerational transfer of poverty.”

Meanwhile, CCTs are being trialled in the impoverished Sadr city in Baghdad, part of a national effort to make welfare more efficient in Iraq. But the debate over whether CCTs or UCTs are more effective is ongoing, while a growing number of critics contend there can be no substitute for policies that promote investment and jobs. At a minimum, it is likely CTP is here to stay in Iraq in some form or other. The question, therefore, becomes, what is the best direction for CTP to take, given Iraq’s complex problems and the mixed evidence on different types of CTP?

At the extreme end, one type of CTP proposed is the direct distribution mechanism (DDM) also known as Oil Revenue Distribution Funds (ORDFs). According to an IMF study, “DDMs are mechanisms that transfer a portion of resource income to the citizens to reduce the discretion of the state over such resources and to foster accountability.”

Another main reason for such a mechanism is to help protect the budget from reckless government spending and corruption, ensuring at least a portion of oil wealth always reaches the poorest people, stimulating private sector activity based on proponents’ belief that the private sector will create new efficiencies where the state fails. Economist Thomas Palley argued in December 2003 that this would be a major rationale for taking a portion of resource revenue from government hands and giving it directly to citizens. His argument could be directly relevant today, as the Iraqi government raise spending based on projected oil prices in 2019, despite concerns about global economic growth:

“Oil booms tend to raise expectations and contribute to unrealistic projections of future income. This, in turn, leads to loss of control over public spending, including taking on high-cost public infrastructure projects, often financed with foreign borrowing. These projects can also become the vehicle for corruption and influence peddling. The net result is the loss of fiscal discipline that contributes to inflation, the build-up of external indebtedness, and the development of cultures of corruption.”

Palley concludes that “Directly paying revenues to citizens would help rectify this structural imbalance.”

A huge challenge here is whether there is a strong enough private sector in Iraq for such a risky endeavour to pay off. A similar, but less extreme version of the DDM is the famous Alaska Permanent Fund Dividend, which distributes an annual sum of money based on the fund’s five-year average investment dividends, peaking at over $2000 in 2015. Given that Alaska’s population is less than 1 million, it is difficult to see how such a fund could be used in Iraq, even if Iraq were to amass a similarly sized fund.

Perhaps for this reason, a more common suggestion has been to directly distribute revenues rather than dividends. At a Committee on Foreign Relations hearing in 2005, in the chapter of the report “Putting the Iraqi People First,” Frederick D. Barton advocated the idea:

“Give the Iraqis a stake in maximised production by instituting a wealth-sharing plan where each Iraqi family receives a certain amount of money in a personal account every year to spend on health, education or livelihood. By depositing $500 per person into bank accounts, we will also capitalise a fledgeling banking industry. The initial cost of such a program would be around $5 billion.”

In August 2005 the Iraqi parliament established a commission to look into replacing the PDS with a cash transfer. The idea of direct distribution was again discussed in 2013, with sums mentioned in the $30-50 per month range, or exceeding $50 if the distribution was limited to the poorest Iraqis, but plans did not come into fruition until much later.

Programs have subsequently begun in Iraq as part of the Social Protection Strategic Roadmap 2015–2019, with a key aim of replacing some of the PDS allocations with cash transfers. The PDS in 2018 was 2% of Iraq’s budget, and by another estimate was as high as 2% of GDP in 2011. According to the World Bank, PDS “remains untargeted, covering also 98.6 percent of the non-poor with significant inefficiencies in procurement, distribution, and management. Other safety net programs are not poverty targeted and cover a small share of the poor.”

Subsequently, a CCT began trials in the Sadr City 2 area in July 2017, “to preserve and enhance human capital by incentivizing a greater use of education and health services.” 6,700 families are covered by the pilot scheme. In June 2018, the World Bank released a report on the status of these programs, justifying the trials as having,

“long‐term benefits for both the families and the country. In the short‐term, the monthly payments are around US$220 per eligible family. Spread out over a family of six, this would represent 40 percent each of the per capita poverty line and three-quarters of the food poverty line, providing adequate support to poor and vulnerable families and IDPs, especially those without able‐bodied workers who are unable to earn income through the CfW component.”

The report does caution, however, that there are both short and long-term risks:

“In the short‐term, as with the CfW component, the benefit of the CCT expansion to the poor and vulnerable will depend upon the effectiveness of the targeting. In the longer‐term, the improvements in educational enrollment and attainment, and child health and nutrition will  depend on the fiscal and institutional sustainability of the CCT program.”

In part three, some of the problems and opportunities of CTP will be explored, looking at some of the critiques of CTP and potential areas where it could have long-term benefits for private sector development in Iraq, in addition to short-term stabilisation.

This is the second part of a three-article series that seeks to provide an overview of recent literature on the ongoing debate on cash transfer programming (CTP) essentially using cash to combat poverty instead of food aid or subsidised goods, an approach seen as more efficient and possibly more sustainable.

Picture Credit: FAO

Editor, Iraq Energy Institute | + posts

Robert Tollast, is a freelance political risk analyst focused on Iraq who is the editor at the Iraq Energy Institute. His previously worked for the Iraq Advisory Group, CEIS (France) and the Brecon Group.

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