Covid-19: Socio and macroeconomic impact

A report prepared by the sub-committee of the National Coordination Committee for Covid-19 titled "Covid-19: Preliminary macroeconomic and socio-economic assessment" has projected a cumulative loss of 628 billion rupees by June not including the Federal Board of Revenue's (FBR) shortfall projected at 600 billion rupees. The projections are preliminary because there is considerable uncertainty as to how long the pandemic would rage in Pakistan coupled with an obvious disconnect between the nature of the lockdown in Sindh and in Balochistan as opposed to PTI-led provinces (Punjab and Khyber Pakhtunkhwa) whose decisions mirror those announced by the National Command and Control Centre (NCOC). This apparent disconnect is evident in spite of the fact that as per a press release dated 3 April 2020 from the Prime Minister's Office NCOC "is the nerve centre to synergize and articulate unified national effort against Covid-19, and to implement the decisions of National Coordination Committee on Covid-19. The centre is a one-window operation to collate, analyse and process information based on digital input and human intelligence across Pakistan through all provinces, AJ&K, G-B & ICT dedicated representatives and centres. Recommendations based on information/data is then processed including health, finance and all matters related to Covid-19 to NCC for real time projections and timely interventions by NCC headed by PM."

Be that as it may, the preliminary report gives the following disturbing estimates though a glance at the claims clearly indicate that these estimates are likely to have already surpassed considerably in recent weeks: (i) loss estimates by nearly all departments 13.6 billion rupees; (ii) Pakistan Stock Exchange losses 250 billion rupees; (iii) Petroleum Division 87 billion rupees; (iv) Ministry of Energy (Power) 136 billion rupees; (v) Pakistan Railways over 7 billion rupees; (vi) National Food Security 55 billion rupees; (vii) Overseas Pakistanis over 76 billion rupees; (viii) Ministry of Information and Technology one to 5 billion rupees; and (ix) Maritime affairs 30 million rupees.

The report's recommendations include industrial incentive package subject to the undertaking that no one will be fired, suspension of EOBI, zero-rating and 10 percent tax credit on machinery to be restored, CGT to be reduced, extension of export finance scheme requirement to 360 instead of 270 days and government entities to extend support to capital markets by investing in equities through mutual funds, provision of personal protective equipment to healthcare providers, clearing all refunds, and exploring the possibility of incentives to overseas employment promoters. However, the government's financial capacity to extend the required assistance is severely limited due to resource constraints which have been exacerbated due to the virus.

Countries are struggling with the devastating impact of the pandemic on their economies and with aggregate demand depressed many key productive sectors particularly factory units/industries and aviation are in need of emergency bailout packages. Pakistan's situation is a lot worse relative to other low income countries post-Covid-19 as we were already on an International Monetary Fund programme (since the staff-level agreement was reached 12 May 2019) designed to stifle aggregate demand which was shrinking productivity and raising unemployment levels. To then concurrently be subjected to the pandemic with its associated massive negative impact on aggregate demand, macroeconomic and socio-economic indicators coupled with considerable shortfall in revenue the numbers of poor and the vulnerable has been rising at an alarming rate. One can unreservedly appreciate the Prime Minister's decision to disburse cash for three months in a lump sum to not only those eligible under the Benazir Income Support Programme (renamed Ehsaas) but also to the daily wage earners.

The recent statement by the Advisor on Finance Dr Hafeez Sheikh that the budget 2020-21 would be pro-growth and designed to raise aggregate demand must also be appreciated even though in the request to the IMF for Rapid Finance Instrument he pledged that "once the current crisis has abated we will resume the fiscal consolidation effort envisaged in the Extended Fund Facility...," a major case of aggregate demand depression. Projections indicate that the impact of the virus on global economy would go well into next year and one would therefore hope that the Advisor, prior to the launch of renegotiations on the EFF with the Fund, takes an informed decision on whether the "crisis" has indeed abated.