View of downtown Nur-Sultan, the capital of Kazakhstan. Credit: World Bank/Shynar Jetpissova
Amid alarming reports of deadly violence in Kazakhstan, the UN High Commissioner for Human Rights and the Special Representative of the Secretary-General for Central Asia called for restraint and dialogue. 6 January 2022

By Anit Mukherjee and Alan Gelb
WASHINGTON DC, Jan 28 2022 (IPS)

Consider the situation. Faced with growing fiscal stress, the government of an energy exporting country decides to cut generous subsidies, doubling the fuel price overnight.

Protestors are out on the streets, clashing violently with security forces called in to maintain law and order. They vent their frustration not only with rising fuel prices but also with living costs, lack of social services, crumbling infrastructure, corruption and political repression.

Faced with the prospect of a popular uprising, the government backtracks on reforms and re-institutes subsidies, postponing the hard decisions for a later date.

This is Kazakhstan in 2022. It is also Ecuador in 2019, Nigeria in 2012, Bolivia in 2010, Indonesia in 2005 and several other energy exporters which have tried to end, or at least reduce, fuel subsidies over the last two decades.

The list will grow significantly if we include importers who are more exposed to the vagaries of international energy prices. What is interesting is that the story plays out in almost exactly the same way, and the consequences of both action – and inaction – are very similar as well.

For resource rich countries like Kazakhstan, Ecuador, Bolivia and Nigeria, subsidized energy, especially from fossil fuels, is one of the few tangible ways by which citizens can feel that they have a claim to a national resource.

While the level of subsidies varies, at some $228 dollars per head or 2.6% of GDP in 2020, those of Kazakhstan are high but not the highest among exporters. In a situation where the government is generally perceived to be repressive, incompetent and corrupt, food and fuel subsidies keep a lid on deeper grievances. It is economically damaging but politically expedient, a delicate equilibrium that many countries have sought to manage over the last several decades – with little success.

Our research has shown that there is a better way to do energy subsidy reform. Providing direct cash transfers to compensate for the rise in energy prices can be a “win-win” solution. To put it simply, energy compensatory transfers (ECT) enable households, especially the poor and the vulnerable, to absorb the shock and reallocate resources as per their needs.

By removing the arbitrage between subsidized and market prices, ECTs can also reduce corruption, improve distribution and incentivize efficient use of energy. Countries like Iran, India, Jordan and the Dominican Republic have been relatively successful in this type of reform, and their experience holds lessons for other countries that choose to embark on this path.

Digital technology can help significantly to identify beneficiaries, provide them necessary guidance and information, and transfer payments directly to individuals and households. Three key enablers of ECTs are an identification system with universal coverage of the population, strong communications and wide access to financial accounts.

Multiple databases can be cross-checked to verify eligibility norms and grievance redressal systems can help reduce exclusion of genuine beneficiaries. As shown, for example, by India’s LPG subsidy reform, countries can progressively tighten the eligibility criteria over time to target the poorest sections of the population.

Finally, ECTs can provide the impetus for a more transparent and accountable system of subsidy management, helping improve public confidence and support to the government’s reform agenda over the long run.

So, why don’t more countries follow this approach? For one, most energy subsidy reforms are pushed forward in times of economic crisis. ECTs require political commitment, openness to engage in public dialogue, building consensus among stakeholders and powerful vested interests, setting up implementation systems and working across different government ministries, departments and agencies.

Direct compensation is also more transparent than the frequently opaque systems of price subsidization that favor the rich, with their higher energy consumption, even if justified by the need to protect the poor.

ECTs are not simple solutions and often require time to be put in place. On the surface, it may seem simpler to just raise energy prices overnight through an administrative order. But the payoffs are significant in terms of sustainability, economic outcomes, social cohesion and political stability.

The sooner countries can take a longer term approach, the better will they be able to manage the transition to a more sustainable system that supports those who need it most.

Kazakhstan is the first country in 2022 to see popular unrest due to fuel price hike. It almost certainly would not be the last.

Anit Mukherjee is a policy fellow at the Center for Global Development. Alan Gelb is a senior fellow at the Center for Global Development.

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New communications technologies essential to empower poor rural women – UN. Credit: FAO/Hoang Dinh Nam

By Alan Gelb and Anit Mukherjee
WASHINGTON DC, Apr 2 2020 (IPS)

As the world grapples with COVID-19, governments face a daunting challenge: limiting the adverse impact of a pandemic that has ground economic activity to a halt, affecting people at a scale rarely seen before.

More than 50 countries, including the United States, have announced some form of cash transfer or social assistance to help tide over the immediate challenges faced by their citizens.

While many of these efforts are one-off measures to mitigate the immediate impact, some may turn out to be more long-term depending on how widespread the economic and human cost of the pandemic turns out to be.

Delivering on these promises will require an enormous increase in the capacity of states to make payments to their citizens, or government-to-people (G2P) transfers, as they are widely known.

Every government transfers money to people in some form—public sector salaries, pensions, scholarships, grants and vouchers to the poor, and so on—so there is existing capacity, including delivery mechanisms, to draw upon.

But in most countries existing systems will not be adequate, either in volume or coverage, to help those affected make it through the economic disruption.

The immediate challenge is how to make G2P transfers efficiently, equitably, and at scale—and how best to use technology to do so. And once the crisis is passed, the development challenge remains: How can digital technologies help accelerate global efforts to achieve the Sustainable Development Goals (SDGs) and eliminate poverty?

Even before the onset of the COVID-19 pandemic, we have attempted to answer some of these questions in a three-year project at CGD, culminating in our newly launched Citizens and States report. It has taken us on a journey through three continents—Asia, Africa, and Latin America—to understand how digital technologies are shaping the future of governance.

We travelled through villages in India to see how people receive food subsidies and pensions using the country’s biometric ID, Aadhaar, and how they perceive the new system compared to the old one.

We have accompanied community health workers in Bangladesh as they deliver maternal health services using their mobile phones. We talked to agents in rural Kenya who are at the frontlines of the mobile money revolution that is now a global phenomenon.

Through our collaborators, we have tried to understand the challenges of delivering cash transfers to rural women in Pakistan, providing fertilizer e-vouchers to farmers in Nigeria, and opening bank accounts in remote areas in Mexico.

We also documented how governments can replace wasteful fuel subsidies by converting them into individualized cash transfers delivered through bank or mobile money accounts and use the savings to expand access to clean energy, for example, providing LPG cooking gas for poor women in rural India.

Finally, we saw how governments are creating the infrastructure to harness the power of data to monitor the delivery of services and subsidies in real time, improving accountability of providers and voice of the citizens.

Our experience makes us hopeful for the future, especially when we see how developing countries are transforming their ability to deliver public services, subsidies, and transfers.

Leveraging the almost-universal coverage of Aadhaar, bank accounts, and mobile phones, India now electronically transfers nearly $350 billion to over 800 million people every year.

The just-passed US plan to give $1,200 to every citizen—including in some cases by check—will be far more logistically challenging for the US government than transferring the payment digitally, as India has been doing for government payments for the last seven years, and far more subject to errors and fraud.

Many developing countries will similarly struggle to distribute payments, but others have built up robust systems that they can now leverage in a crisis.

In Bangladesh, a mother can now receive her child’s education scholarship through her mobile phone account instead of having to stand in long lines at the school on a pre-arranged day for a cash handout.

Not only does this save her time and effort and provide accurate and documented payment, it also relieves school officials of a burdensome administrative process and of the risk that—rightly or wrongly—they can be accused of corrupt handling of funds.

In Kenya, a farmer can invest his or her savings directly in a small slice of a government bond through a mobile phone. He can become eligible for a small loan on the basis of a stable record of receipts and payments on his mobile account without posting collateral.

In Andhra Pradesh, a state in India with 50 million people, the authorities can drill down through state-wide reporting data on government programs in real time and across thousands of delivery points, to monitor the state’s provision of rations to poor beneficiaries. They can detect transaction failures almost immediately and instruct local officials to rapidly follow up and remediate the error.

These are just a few examples of how digital technologies are changing the lives of people in the developing world. With the spread of digital identification, access to financial accounts, and mobile phones, citizens increasingly demand the same convenience and responsiveness in dealing with their governments that they experience in their personal lives.

In turn, governments around the world are moving rapidly to harness the power of technology to improve their ability to serve people—in other words, increasing state capacity in an increasingly interconnected, digital world.

In the current dynamic and evolving context, how can digital technologies play a positive role to achieve the ambitious objectives and targets embodied in the Sustainable Development Goals?

What can we learn from the experiences of digital reform in developing countries? What can we say about the future trajectory of digital governance—the guiding principles, the harmonization of policy design and technology, and the challenges going forward?

Finally, how can technology both empower citizens and improve state capacity? We offer some answers to these questions but recognize that there is still much more research ahead.

We also see that technology is only a tool. It opens up new opportunities to make the state more capable and efficient. But technology amplifies the power of data, and its impact on development depends on how this power is used. States can use data to improve service delivery, but they may not be benign users of data.

The rapidly evolving tools available to governments also have the potential to further isolate marginalized groups and to track citizens. New checks and balances will be needed to ensure that digital technology serves the needs of all citizens—to make the capable state a good state.

It has been both exciting and challenging to bring the lessons together in a single report. Our experience leads us to believe that we are only just beginning to understand how digital tools can be used to achieve the SDGs, which we use as our guiding framework in the report.

The SDGs recognize that development policies and programs are increasingly embedded in the digital world, and that digital applications cannot be leveraged to reform the citizen-state relationship unless all are able to use them.

We agree: some of the leading cases that we examine offer a picture of the potential to implement digital governance at scale, but these are still isolated examples on the global stage.

There is still much to learn about the application of digital technologies to development—and much to reflect on the possibilities as the world recovers from the COVID-19 pandemic.

Read the report here.

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