Corona stimulus financing: Plan to divert current expenditure savings discussed

The government's economic team discussed its plan to divert current expenditure savings to corona stimulus financing during the meeting on budgetary outlook for the next financial year.

Advisor to the Prime Minister on Finance Dr Abdul Hafeez Shaikh, who chaired the meeting, reportedly said that corona-led impacts are expected to deeply distort economic fabric and called on all the federal ministries and divisions to have out-of-the-box brainstorming to achieve further cost cutting along with efficient utilization of meagre budgetary resources, and emphasized on demonstration of fiscally responsible attitude. A statement by the Finance Ministry stated that public finance experts stressed the need to prioritize financing arrangements for the Covid-related expenditures as adjustor from the IMF is available during this window of short duration.

Sources said the sectoral spending priorities for the next fiscal year budget are food security, agriculture (locust control), health security (the coronavirus), Ehsaas and social safety net as well as public-sector development programme, etc.

The finance secretary apprised that core areas of reform pertain to general austerity and discouraging supplementary grants as principle.

He also shared the proposal of disbursement of electricity subsidy to subsistence consumers through Ehsaas, damage control in the PSEs including their selective turnaround, and scope of their management outsourcing through PPP modalities. The meeting noted that debt-to-GDP ratio has been distorted due to economic compression and advisor instructed that the option of tapping Sharia-compliant bonds may also be exercised to diversify the portfolio.

The advisor on commerce advised that debt managers must keep an eye on the yield curve inversion and its implications on borrowing choices in a macroeconomic climate dominated by recessionary headwinds after the meeting was informed about re-pricing options for existing domestic debt portfolio, in case of interest rate cuts.

The strategy of raising major chunk of financing needs through floating rate bonds, during high interest rate environment was appreciated by DG debt.

Dr Ishrat Husain highlighted the significance of broadening the investors' base in the pursuit of better price discovery. The finance secretary shared that with every one percent decrease in policy rate, saving of Rs50 billion in debt servicing is expected. The team deliberated on the transfer of four tertiary care hospitals from provinces to the Federation in the backdrop of new NFC talks, as the act would place additional recurring liabilities worth Rs27 billion per year on the platter of the federal government.

The Minister for Industries and Production and Advisor to Prime Minister on Commerce also participated in the meeting apart from core team of the Finance Division.

The focus of the meeting was on spending priorities of the federal government amid corona-led economic downturn and in the wake of the IMF review.

The Debt Wing of the Ministry of Finance shared the perspective on budget deficit projections as well as borrowing plans for foreign and domestic components of debt.

T-bills and bonds dominated domestic debt borrowing has witnessed a decline in cost of debt financing due to a robust debt management strategy.

The finance secretary shared plans on further expenditure squeeze, rationalizing all domains of current expenditure including running of civil government, interest payments, subsidies, and other related expenditures. The ongoing work on right-sizing of federal government by the Prime Minister's Task Force under Dr Ishrat Husain was appreciated as it is expected to "bring long-awaited fresh breeze in the corridors of status quo-driven bureaucracy".