Covid-19: economic fallout

Advisor to the Prime Minister on Finance Dr Hafeez Sheikh has stated that Prime Minister Imran Khan entrusted him with the responsibility of dealing with the economic fallout of the coronavirus. He further added that significant concessions in terms of relaxation of time-bound structural benchmarks to the ongoing International Monetary Fund (IMF) programme have been secured by the government by way of an agreement not to include any expenditure allocation for dealing with the threat of coronavirus in the budget/fiscal deficit. The IMF programme is designed for demand contraction that is fully reflected in our fiscal and monetary policies. The Covid-19 pandemic has drastically curtailed global demand and governments around the world are scrambling to provide fiscal stimulus and monetary easing to arrest the economic downturn what possible measures can our government take within the programme design to mitigate the economic fallout of the pandemic on the economy by way of a further contraction is a question that begs an answer that is yet to emerge in the shape of a policy statement from our government.

The agreed budget deficit during the IMF programme for the current year was 7.2 percent (widely regarded as unsustainable) based on the economic team leaders' claim when the staff-level agreement was reached on 12 May 2019 that the deficit for the outgoing year 2018-19 was 7.2 percent. By August 2019 when actual expenditure and revenue figures were tallied, the budget deficit for the previous year was estimated at a whopping 8.9 percent. Subsequent to the first IMF review report, revenue shortfall led to downgrading the projected revenue collection for the year to 5.23 trillion rupees (against the programme target of 5.5 trillion rupees) and lower than budget expenditure (with releases under the Public Sector Development Programme no more than 8 percent of the total amount budgeted while social sector development disbursement was under one percent of what was budgeted for the entire year). It is unclear in the first review report whether the IMF readjusted the budget deficit target for 2019-20 while the second review report has yet to be uploaded on the IMF website.

The advisor stated that the government would develop strategies with the objective of ensuring that coronavirus will not adversely affect economic activity. Perhaps what he meant was that strategies will be developed to ensure that economic activity which is already severely impacted by the ongoing IMF programme is not further compromised because of this pandemic. For instance; PIA was already under considerable financial stress before this deadly virus struck, with inexplicably the government keeping it rudderless by not appointing a Chief Executive Officer, is likely to experience further stress that may well sound its death knell. Dr Sheikh did not specifically mention any package for PIA.

And finally, there was a pledge that the government will strategize to ensure that there are no shortages or increase in prices of essential food items. This is a praiseworthy goal and the need of the hour because essential food items must be freely available. While in urban centres the government can ensure adequate stocks in the Utility Stores Corporation stores yet areas, especially rural areas, where these stores are scarce a greater effort on the part of the provincial governments would be required to ensure that each district is adequately stocked with essentials. It is indeed unfortunate that these efforts will be hampered by the lack of local governments in Pakistan because they are the best medium to ensure provision of essentials to all.

The Prime Minister has tasked Economic Affairs Minister Hammad Azhar to try to access part of the one trillion dollars earmarked for the pandemic and it is unclear yet how much would be accessible to the country.

To conclude, some measures have been taken by the government, though initially these measures reflected a lack of understanding of what quarantine entails, an example being the returning pilgrims from Taftaan; but the government's focus is now required to educate the public on the critical need for social distancing through avoiding congregations, develop a network of home delivery of essentials, and formulate a policy of paid sick leave including the number of days, for those in self-isolation.