The economic team’s fiscal stimulus to contain the economic fallout of COVID-19 is expected to be released today (Tuesday, March 24). The finance minister hinted over the weekend that the government was considering several measures, including beefing up development spending. Does increasing the PSDP spending, especially on construction, make sense at this moment of peril?
Evidence from overseas corona-management suggests that bulk of emergency fiscal spending should be prioritized towards improving public health infrastructure. Pakistan’s economy, which is already in a downward spiral, can recover later – but countless lives lost cannot be revived. To shield against joblessness that a lockdown will provoke, it is better to send money directly to vulnerable segments than to let the economy operate as if nothing has happened and hence risk avoidable fatalities.
Massive spending is in order to build makeshift hospitals and to flood the woefully-inadequate healthcare system with protective gear (such as masks and uniforms) and equipment (such as ventilators). The healthcare workers are valiantly manning the frontlines; they need all the moral and financial support that they can get. Several healthcare workers in hard-hit China and Italy have died treating infected patients. Pakistan will be no different. Get the priorities right!
There is also this question as to how the PSDP pump will function when its valves are blocked. The number of infected cases is on an alarming rise, and in a few weeks’ time, the contagion would likely jam the economic wheels. Regardless of whether labor will be available for public works or not, would the bureaucrats risk their lives coming to office to oversee some far-away projects they have little idea about? If not, can teleworking roll asphalt down the roads? Get real.
The government also has to be sure that the IMF would allow an increase in direct PSDP spending. Last one checked, the IMF had allowed discounting only corona-related spending from fiscal deficit. As of mid-March, the finance ministry was considering slashing the Rs701 billion PSDP by about Rs100 billion in the last quarter. That was a quid pro quo with the Fund to create fiscal space to clear the second review. How will a push for construction projects qualify as corona expenditure?
This crisis is an opportunity for the government to shed its decades-old PSDP mindset and do some serious planning for once. Undertake development spending that is directly linked to building healthcare infrastructure that addresses the crisis. Incorporate public-private partnerships that can build specialized hospitals across the country. Set up manufacturing facilities to produce medical supplies and equipment that are currently being imported at higher prices. Take help from the Chinese friends in this regard.
This virus cannot be wished away; it is going to live among the people for many more months, if not years. Therefore, now is the time to contain its spread by enforcing lockdowns of varying degrees, use that breathing space to do rapid testing on a sample basis across the country, and then prioritize healthcare spending based on risks posed by different geographical clusters. Better route all development spending over next several months towards building capacity to respond to these challenging pursuits.