Supporting the Policy Environment for Economic Development

Government measures to mitigate urban poverty

This Note makes a brief analysis of the “Medidas” (Measures) proposed by government. The “Medidas” aim at offsetting price increases that will result from elimination of domestic subsidies to diesel and wheat/bread in parallel with expected increases of world prices for basic foodstuff. The Note commends government action to mitigate the impacts of price increases on the most poor. The “Medidas” include two instruments: (i) the “Cesta Básica”, a safety net instrument envisaging to fix the cost of a basic food-basket at 840 MT (estimated cost of 6 basic food products in June 2011); and (ii) a subsidy on transport costing for workers, students and elderly.

The “Cesta Básica” entails:

• A payment to cover the price differential when cost of the food basket rises above the 840 MT benchmark. Beneficiaries would be able to buy the basket at the fixed cost of 840 MT for the duration of the program.

• Beneficiaries will be those workers with salaries equal or less than 2,500 MT per month.

• A main issue is the identification and registration of beneficiaries. It is easy to identify eligible beneficiaries in the formal sector but very difficult and administratively demanding for those in the informal sector, which comprise around 90 percent of the active population.

• Payments would be made through selected retailers and every beneficiary would be allocated to a particular retailer located nearby the beneficiary’s residence.

• Implementation demands will imply a lengthy registration process before the scheme can start.

The transport subsidy intends to reduce transport costs to all workers in both formal and informal sectors. The subsidy is not clearly defined in the proposal as well as it is not determined if its target-group is the same as in the “Cesta Básica”. Having different target-groups will increase administration, costs, and time needed for implementation.

The Note stresses that safety net instruments are the best option to achieve the intended objective. However, due to complications foreseen with the implementation of the two decided instruments, the Note proposes recommendations to improve administration of the “Cesta Básica”, and even venture a new instrument replacing the Cesta.

Related Documents: