Prime Minister Imran Khan flanked by those members of his Cabinet, and Chairman National Disaster Management Authority, engaged in mitigating the impact of the COVID-19 on the general public as well as the productive sectors, announced a 1.13 trillion rupee package. While the sheer size of the package is impressive and no doubt does lend a comfort level to the people of this country yet further clarifications especially with respect to the mode of implementation of specific components of the package are lacking.
The package focusing on the general public includes 200 billion rupees for labour with negotiations ongoing with the provinces to provide additional support. This can be fully endorsed as the large number of unskilled daily wage earners (whether they operate independently or are hired by the formal sectors including the construction industry) would be the hardest hit as Pakistan goes into a lockdown defined by the Prime Minister as distinct from a curfew. The question is how would the government ensure that only those eligible benefit from this scheme? Additionally, how would the government identify those who are laid off by the formal productive sectors because of lack of business or the inability to reach their place of work due to lack of transport? Pakistan has been engaged in contractionary monetary and fiscal policies under the ongoing International Monetary Fund (IMF) programme since 12 May 2019 when the staff-level agreement was reached with the objective of reducing aggregate demand and inflationary pressures. This in turn accounted for downsizing followed by lay-offs in all productive sectors throughout the current year - in large-scale manufacturing as well as small and medium enterprises. Would those who lost their jobs due to the government's economic policies also be eligible under this package?
Another 150 billion rupees has been earmarked for paying 3,000 rupees per month to poor families for four months and panahgahs/shelters would be expanded o accommodate those who have been screened and declared virus-free. This would be fairly easy to implement as a new robust and transparent biometric-based payment system was completed in December and therefore the beneficiaries are identified.
An additional 50 billion rupees would be disbursed to Utility Stores Corporation (USC) though if past precedence is anything to go by the government would be well advised to strictly monitor/police these stores to ensure that the beneficiaries of subsidised merchandise are the general public and to set up makeshift stores in rural areas where there are no utility stores. And 280 billion rupees has been earmarked for wheat procurement.
The government has also wisely earmarked 50 billion rupees for medical workers and equipment, 25 billion rupees to NDMA for procurement, and another 100 billion rupees would be allocated to deal with emergencies arising due to the lockdown with those affected by the virus the main beneficiaries one would assume.
Thus a total of 855 billion rupees has been earmarked for the general public, about 74 percent of the package, and while this is appropriate yet one would hope that the modalities of the releases are clarified.
Industry would receive refunds of 100 billion rupees - refunds that the government had already pledged it would release under the IMF programme. And 100 billion rupees was earmarked for small and medium enterprises and agriculture though here too the actual modalities of who would be eligible require further clarification.
A separate package for the construction industry would be announced soon though one would assume that the construction sites may well become breeding grounds for the spread of the virus; besides without transport labourers may not be able to reach the site.
The Prime Minister also announced a reduction in petroleum and products prices by 15 rupees per litre, which would raise the value of each rupee earned, though under a lockdown one would assume that with limited public transport allowed this measure would help those with their own transport - lower middle and middle income earners.
To pay for the package the government is expected to abolish duties and taxes on imports of critical items expected to reduce revenue collections by 15 billion rupees though it is fair to say that any budget deficit target agreed with the IMF under the second review (whose report is not yet uploaded on the Fund website) would have been seriously compromised after this package. Dr Hafeez Sheikh, Advisor to the Prime Minister on Finance, has stated that the IMF has agreed not to include coronavirus-related expenditures in the budget deficit for the year. However, debate on whether all the measures announced by a cash-strapped Pakistani government, only nine months into a 39-month IMF programme, would be accepted in totality by the Fund would depend on the negotiating skills of the economic team leaders.