Reset and reboot

In the worst case scenario growth rate would remain negative 1.5 percent, so stated the Ministry of Finance in the aftermath of a meeting with representatives from multilateral institutions stationed in Islamabad notably the International Monetary Fund (IMF), World Bank and Asian Development Bank. This rate is in synch with the revised rate uploaded on the IMF website subsequent to the onslaught of the pandemic. And reflects a downward revision from the projected 2.4 percent for 2019-20 in the 6 billion dollar 39-month Extended Fund Facility (EFF) programme documents, a projection sustained in the documents on the first mandatory quarterly review of the EFF dated December 2019. Thus the pandemic will cost the country a decline of nearly 4 percent as per the IMF estimates. The World Bank and ADB have yet to update their website and while the former gives a growth rate of 2.4 percent, identical to the IMF programme projection, the ADB gives the rate at 2.6 percent.

The growth trajectory into the negative territory has been challenged by a number of Pakistani economists as well as some officials in the Planning Ministry who told Business Recorder that the lockdown was effective mid-March while the growth rate for the first eight months (based on good farm output including rice, cotton, wheat and sugarcane which is already in the market, livestock, small and medium enterprises and banking and insurance sectors) would take the rate into the positive realm for the current year. In this context, it is relevant to note that the low projected EFF programme growth rate was premised on contractionary monetary (a high discount rate, and rupee depreciation) and fiscal (existing taxes were raised rather than widening of the tax net) policies designed to reduce aggregate demand which, in turn, was projected to depress the growth rate. The government was unable to meet the tax revenue target and its initial claims that it would generate more revenue from non-tax sources (mainly sale of two RLNG plants) to meet the shortfall have now been abandoned for the first quarter of next year as per Ministry of Finance officials and till 2021-22 by the IMF. Aggregate demand has further plummeted due to the pandemic and in this context the IMF's updated projection appears to be based on more empirical evidence.

The government has undertaken a series of policies to mitigate the impact on the poor and the vulnerable and in this context, the State Bank of Pakistan has reduced the rate to 9 percent (from the high of 13.25 percent effective 20 July 2019) though there is a consensus that it needs to be further reduced to enable business to better deal with the aftermath of the pandemic and more importantly to create the fiscal space for the federal government to cope with its fallout. The government has not only reduced taxes to enable the public and businesses to better cope with the negative economic impact of the virus but has also announced a 1.2 trillion rupee package mostly consisting of cash disbursements. In other words, expenditure has risen exponentially, though the entire coronavirus relief package does not constitute additional allocations, lower revenue partly due to the lower collections due to the lockdown but also due to tax relief extended by the government. In addition, deferment of utility bills as well as payment of bills by the government would further raise the unsustainable energy sector circular debt to a realm where reforms would seriously erode the value of each rupee earned by the householder as well as firms - reforms that would have to be brought back on track once the stalled EFF programme is back on track.

The meeting pointed out that there was a need to pursue clear, transparent, and unified plan of action backed by the necessary constitutional approach which may indicate why the discussion on revisiting the 18th Constitutional Amendment specifically with respect to the division of resources from the divisible pool between the federal government and the provinces has gathered momentum recently. Though PML-N had supported the constitutional amendment and the NFC award yet after it came to power in 2013 Ishaq Dar, the then Finance Minister, constantly lamented the lack of resources available to the centre to meet its obligations - a complaint echoed by the PTI today.

At present, the EFF is stalled in light of the rampage wrought by the pandemic globally as well as in Pakistan and while some argue that there will be a reset and reboot to the programme as the base would be even lower than in May 2019 yet there are others who argue that the structural benchmarks are unlikely to change and the rebooting would be limited as the programme's time-bound objectives are unlikely to change.