Cash Transfer Programming (Part 3): Problems and Opportunities

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This is the final 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.

As noted in parts 1 and 2, both CCTs and UCTs have come under more scrutiny in recent years. For CCTs, an important question is whether the services, either health or schooling, would be available for beneficiaries, and what quality would be provided. According to Gerardo Arriaga, Progresa only operates, “in areas where the conditions of access and provision of health and education are sufficient. Thus, households from some of the most remote and deprived areas of the country are not included. Indeed, of the major security deteriorations in Mexico in recent years, violence has been concentrated in the poorest areas. In Iraq, access to schooling and the quality of schools varies immensely.

In Colombia, the education incentivising Familias en Acción program was praised for raising school attendance although one study cautioned that, “there is growing concern regarding the level of skills and quality of education with which program participants seek admission to higher education or enter the labour force after exiting the program.” This raises important questions for Iraq: raising school attendance would be a highly desirable outcome of any CCT, but since Iraq’s education sector has been in a state of acute crisis, further questions have to be addressed.

Likewise, the low coverage of Bolsa Familia in poor urban areas is concerning, as is the program’s struggle to eradicate fraud. But many agree that the advantage of helping the most impoverished families keep children in school is a welcome payoff in fragile states.

Perhaps the most vexing issue with any CTP (excluding post-conflict or disaster relief CTPs) is that even when they show positive results on the small scale, larger scale programs are either too expensive, or amounts distributed at scale are too small, being prone to inflationary changes, which was a problem in Iran. But even with humanitarian CTP intended to alleviate child malnutrition, there has been mixed evidence on effectiveness, according to a multi-country study in the spring of 2018.

Another study in September 2018 by the International Committee of the Red Cross noted how disadvantages of CTPs “are similar, in many ways, to those associated with in-kind assistance, e.g. market interference, unintended use, security, dependency, heightened social tensions from resentment on the part of those not receiving support through CTP.” One of the conclusions of the report is that advocates of CTP must be clear on what the cash-based program is supposed to do, something that applies to development as much as humanitarian intervention.

Other trials of cash transfers have shown that contrary to some promising initial studies, improvements in child health and family incomes have not significantly changed over long periods of time. The problem, according to Berk Ozler, is that initial studies were simply too short in duration to see if effects were durable. This seemed to be the case in September 2018 when the results of a nine year study on a program in Uganda showed little impact, despite initially promising results after four years.

At the largest scale, CTP could simply be too expensive, raising serious questions about Iraq’s Social Security Net (SSN) as the population continues to expand at around 1 million per year, outpacing non-oil economic growth. This would seem to rule out the more ambitious CTP variants that have been suggested, for example, ring-fencing a portion of oil revenues as a Direct Distribution Mechanism (DDM.) The IMF has cautioned, based on a study of budgets in oil-dependent countries that,

“a loss of 10 percent of natural resource revenues would be equivalent to public health spending in more than 40 percent of the countries in our sample. It would also be equivalent to half of the public spending on education. These figures highlight that even a modest loss could have potentially large budgetary implications.”

Linking the People to the State

There are still important things to consider when looking at cash transfers in Iraq’s context and there seems to be little doubt that at the humanitarian level, they can be a vital tool for stabilising communities. For CCTs, school attendance even where schooling is inadequate is obviously better than children entering the workplace, while getting people in work, even for a short period with CFW programs, is commendable. More importantly, cash transfers, either the SSN or the CCT trial in Sadr city, could eventually be adapted to support the vital goal of financial inclusivity. Cyril Fouillet and Solène Morvant-Roux have written in a recent paper that this has real potential in Mexico:

“conditional cash transfers (Progresa, Oportunidades and Prospera) have become increasingly digitised, i.e. transferred to a bank account, in accordance with budget law, since 2010. Thus, both axes of action (financial inclusion and digitization of social aids) soon came to be seen as complementary, via the payment of subsidies into a bank account held with a financial institution and permitting the withdrawal of aid with a debit card.”

A similar effort in Iraq has the potential to create a far more efficient, more inclusive form of welfare than the PDS, a legacy of Iraq’s years under sanctions. Few achievements could be more commendable in Iraq than expanding access to banking, one of the main challenges holding back the crippled private sector. But reforming PDS will be extremely challenging unless it can be supported by major improvements in finance. India recently found this was the case following protests which ended trials for a cash “Direct Benefit Transfer.” The problem was insufficient access to bank accounts, underdeveloped local markets and a complicated system to receive the cash. People demanded their rice rations back.

In the long term, Iraq is right to continue trials for CTP, but critics will continue to wonder whether CTP can only be a short-term fix, while some advocates will continue to argue this is exactly the point: short-term stabilisation. Ultimately, Iraq will have to continue the urgent task of modernising its private sector, even to generate the necessary fiscal space to support CTP, as Chris Blattman, a prominent sceptic of CTP wrote in 2013,

“The real problem is the absence of firms small and large to employ people productively. The root of the problem is political instability, economic uncertainty, and a country’s high-cost structure, among other things. A government’s attention is properly on these bigger issues.”

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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