After tightening Covid-related restrictions (but still short of a brief-but-strict lockdown) in the face of third wave, the federal government seems to be considering a fresh round of fiscal relief for the people. The intent to ease the suffering was plainly stated by Prime Minister Imran Khan earlier this week on live television. “We are going to speak to the IMF, because we see disruptions ahead… So I think it’s time for second package and we will obviously talk to the IMF,” PM Khan said.
It isn't clear whether the IMF will be approached for a) extending more emergency financing (on the lines of Covid-related $1.38 billion disbursed to Pakistan under the Rapid Financing Instrument (RFI) back in April 2020) or b) allowing the finance ministry to run a potentially higher fiscal deficit on account of fresh relief measures. Given that the Fund is not actively looking to offer fresh pandemic-specific emergency assistance as it was last year, it will likely be the latter.
While it is not apparent what would classify as “relief” this time around, there can be several direct or indirect routes taken to deliver some impact. For instance, the PM mentioned the need for “a new Ehsaas programme” in the same remarks. Recall that related assistance offered in the March 2020 relief package entailed cash transfers of a) Rs150 billion to 12 million low-income families, and b) Rs75 billion to 6.2 million daily-wagers. (There was also R100 billion budgeted as financial support for SMEs and agriculture sectors).
The case for such direct relief again becomes stronger if stringent restrictions have to be put into place. But PM has ruled out a lockdown – so far. If direct cash transfers are off the table, the government could approach the IMF to go easy on a few critical fronts, thus helping with indirect relief. One, the SBP could be allowed to renew Covid-related facilities (e.g. payroll financing, new industrial project loans, loan deferment/rescheduling, etc.). The IMF will need some persuading, for earlier in February it IMF had called the SBP to “prevent possible financial stability stress as the temporary support is phased out”.
Two, the government could apply for relief on electricity bill payments (offered at Rs110 billion in the March-2020 package). The IMF will need to be approached for such a concession, because commitments have already been made on upward tariff adjustments as a way to bring some financial viability back to the power sector. And three, the government may demand lax taxation targets for next fiscal, whereas the IMF has stressed on “reforms” in both GST and personal income taxes in FY22. (Relief on taxes and electricity bills is among the top demands of SMEs during Covid-19, as per a SMEDA-ADBI survey).
It remains to be seen if lessons have been learnt from the last relief package. There is, as yet, no impact study on prior Covid spending, albeit one measure of success is that allegations of corruption haven’t come to the fore. However, some surveys and studies conducted by independent organizations last year showed that many people either were unaware of government incentives or deemed the relief to be insufficient. (For more on that, read “What if there is another lockdown?” published November 24, 2020).
While the IMF has recently stated that Pakistani authorities were “moving forward with the audits of contracts awarded for COVID-19 related spending”, it would be great if the federal government was more forthcoming on this issue. Better targeting of deserving households and businesses, especially those who have been directly affected by the virus in terms of contracting Covid or losing business/employment, has to be ensured if another package is announced.
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