The perfect storm & our misplaced priorities

Temporary Refinance Facility, relief package for the industry, and relaxations for exporters; if there were a list of tangible actions taken over past week by those at the helm of central government, this is where it would end.

There is little doubt that the pandemic will push brakes on industrial activity in the country in a manner never seen before. It is also true that the signalling made to industrial sector will prove momentous in setting the tone for limiting downsizing and managing risk of large-scale unemployment in the months to come. But there is a time and place for those actions - and at the risk of raising ‘economic’ optimism in the times of gloom – this is not it. At least, not yet.

If government machinery – much like any other resource – has finite and limited capacity, its immediate priority should be containment of the spread, and provision of life-saving healthcare to those battling for their lives. There is no set prescription on ‘how to manage a pandemic’, anywhere in the world, much less for a perpetually struggling nation such as ours. In fact, as Dr. Nadeem ul Haque has noted repeatedly, this is going to be a case of learning by doing, requiring an ever-adaptive strategy.

Instead, it appears that fears of slowdown in exports, missed LSM targets, and private sector credit offtake has dominated the discussion in economic policymaking circles. This is unwise, at best. If the number of those infected climbs to thousands in coming weeks as various projections based on current trajectory seem to show, the human cost of the disaster will far outpace damage to economic activity.

If that sounds alarmist, consider that the Governor of New York state called on US federal government to nationalize the medical supply chain, as states are currently competing against each other to procure essential equipment. It is no surprise that those with deepest pockets are thus able to outbid ones facing highest risk of casualties.

If one of the richest states in world’s largest economy is struggling to acquire ventilators, consider how a country with limited financial means and diplomatic wherewithal will fare in a race against 177 countries currently battling the pandemic. Soon, it may become a race for survival where countries begin to hoard essential medicine supplies and restrict their export. If that dark night draws ever close, what comfort will stock market valuations buy for those desperate for care and treatment?

This is not a call for full, partial or no lockdown. Nor a judgement whether civil or military LEAs are best equipped to manage law and order. But a plea for the authorities to get their priorities straight. Managing economic fallout indeed matters if the country is to avoid protracted recession that may exacerbate suffering by other means. But it needs to be targeted, monitored, timely, and strategically communicated.

For example, have the authorities yet worked out the fiscal space required to acquire essential medical supplies and ventilators to cater to the projected number of infected by the end of this month – and next? Has any debate taken place on the urgent need to extend universal basic income through BISP or other means? Have consultations been made between FinMin and SBP on the efficacy of rate cut to reduce government debt servicing cost to create space for a fiscal stimulus?

On that note, it is a pity that the focus of debate on monetary policy has been limited to hot money, and private sector credit off take, even though the extension of TERF to all sectors (except power) has effectively reduced borrowing cost for majority of private sector.

It is also a pity that the fearmongering on export slowdown has not stopped, even though the causes are clearly exogenous and beyond Commerce ministry’s power to correct. Even as latest SBP relaxation means that 66 cents of every export dollar under EFS will come from working capital borrowed at 3-5 percent interest rate.

If the objective is to protect jobs once this is over, then any further relief offered to industries need to be targeted and commensurate. For example, export packages should be pegged to actual quantities exported rather than a blanket package for export orientated sector that may benefit only the producer at the cost of taxpayers without intended increase in exports. Likewise, proportioned income tax cuts be given for FY20 and FY21 for both exporting and non-exporting businesses if they do not lay off employees; to this end, a slab-based tax cut may be considered against slab-based employee retention.

There will be no easy solutions out of this; and if history is any guide, state’s footprint is likely to grow in the aftermath of the pandemic. And that brings us to the last leg of this cautionary tale: strategic communication.

Given the crisis is unprecedented and still unfolding, some degree of confusion and uncertainty is understandable. It is hoped that the state and its machinery is already considering some of the aforementioned ideas, among many more. But if one weakness has been felt most strongly over past few days, it is government’s perpetual struggle to communicate its grip over the situation.

It matters not that in absence of data and estimates, the authorities find themselves unable to assign a number to the quantum of fiscal stimulus needed. But that should not keep the political leadership to signal calm to both industries and the general public. For example, with respect to fears of unemployment, it could at the very least outline the proposals under consideration, while delaying firm commitment (and details on its extent) for a fortnight.

If there is any one lesson from available literature on crisis management, it is that the leadership must be seen leading from the front. In 70 years since independence, no government had to deal with a crisis of this nature. Rest assured that performance of past regimes on power generation or export growth will not be the metrics to compare against. This time, the marks are for effort; but for that the government must prioritize and prioritize better than it has so far.