At the onset of a tough pandemic winter, there is a question doing the rounds in policymaking circles: how much room currently exists to provide more relief if things got worse? In its latest report, the SBP concedes that “the economic and social fallout of the Covid crisis would have been much worse” had it not been for the relief extended in the first coronavirus wave. While that relief was mostly a function of improving macro-economy pre-Covid, the economy was left weaker heading into second wave. Ministry of Finance has now termed Covid-19 resurgence as a “major risk” to Pakistan’s economic recovery.
If the earlier experience is any guide, extending more relief is dependent on whether Pakistan enters another month(s)-long lockdown in coming weeks. It is, then, that the pressure to extend fresh assistance may rise. Given how Covid curve has been rising of late, some observers call another round of lockdowns a matter of “when” and not “if”. But so far, the government hasn't come under pressure for wholesale closures, even though the current case positivity rate is comparable to when the country was in a rather strict lockdown.
There are at least three questions that need pondering at this moment. First, what lessons were learnt from the Mar-Jul lockdowns (of varied intensity) when it comes to providing relief to the actual beneficiaries in different sectors? Two, have the policy actions taken back then affected the government’s ability, for better or worse, to extend similar help again? And three, how much appetite do the country’s international development and finance partners currently have to offer more Covid-related financing?
On the first question, sadly the government did not conduct a public review of its Rs1.2 trillion relief measures announced on March 24, 2020. As per the IMF, this relief package has been “almost fully implemented”. Among the key items, a spending review should have been done, especially on emergency cash assistance to low-income families (Rs150 bn) and daily-wage workers (Rs75 bn), and financial support for SMEs and agriculture sectors (Rs100 bn). Some of the evidence that had previously come in from independent surveys is not encouraging.
For instance, a study by the Pakistan Microfinance Network earlier in May showed that a majority of microfinance borrowers were unware of debt relief or other forms of government Covid assistance. This was alarming, given that an earlier study in April, by Oxford Review of Economic Policy, had shown that 70 percent of microfinance borrowers were unable to repay their loans as their weekly sales and incomes had dried up by around 90 percent.
Meanwhile, surveys conducted in Balochistan and Sindh under the EU’s GRASP project in July showed high levels of dissatisfaction among MSMEs, especially in rural areas, especially with government relief measures. Smaller businesses wanted more meaningful supports in the form of input subsidies, wage support and protection against falling commodity prices. A Gallup Pakistan survey in August showed that only 38 percent of businesses across Pakistan were satisfied with federal government’s Covid relief efforts.
There was a need for a thorough Damages and Needs Assessment to understand which demographics and sectors were affected the most. But it didn't happen. Now, on the cusp of another potential lockdown and associated need for emergency assistance to the public, how confident is the government that its prior relief efforts have been more beneficial than wasteful? Also note that the decision to give people cash in crowded situations not only violated government’s own social distancing mandates, but it also wasted an opportunity to bring un-banked people into financial sector via e-banking or mobile wallets.
On the second question, the government’s ability to extend fresh help seems a lot more constrained this time around. The government has already set a high fiscal deficit target of 7 percent of GDP for the ongoing fiscal year, and potentially-large Covid relief measures in the winters may further widen the imbalance. Lower debt-servicing could create some fiscal space. The government’s hope was to seek over $2.5 billion in Covid-related extension in debt-servicing from G20 members during the fiscal. But reports suggest that only about a third of expected relief has been realized so far.
As for the central bank, beyond offering new, concessional loan schemes to shore up investment, there is not much room left to lower the policy rate. The ability to extend relief on debt repayments will also be tested if non-essential side of the economy has to close down again or even curtail operations. The relief granted to bank borrowers earlier this year worked well in avoiding defaults and cash-flow troubles, but another round of economic slump and extension in debt repayments may fuel indebtedness and impact the banking sector’s stability later on. There is already apprehension about NPLs getting high once deferred and restructured loans start coming in due in 2021.
On the third question, the donor fatigue may already be setting in, affecting chances to boost public funding to counter the new Covid wave. The IMF came in strong during the spring and helped some countries including Pakistan during peak coronavirus, but such urgency is missing in the fall. Also note that with the pathway to vaccination becoming visible after encouraging Phase-3 trials at Pfizer and Moderna, donors feel the need to prepare developing countries towards the goal of mass immunization. Therefore, potential future assistance under Covid-19 may be more technical than financial in nature.
The above scenario, which reasonable people can disagree with, at least points towards the need for a massive drive for social distancing. For that is perhaps the only viable option, short of a country-wide lockdown, to save lives and keep businesses running at a sustainable capacity. Unfortunately, there is disunity at the top, as the feud between the ruling party and the opposition parties intensifies. Instead of settling political scores, the political class must put on a few months of display of unity and responsibility.