When an economy takes a downturn, private investors and bankers tend to avoid much of the business risks thus the government’s development spending serves as a stimulus for economic growth and creates jobs. The capital spending on social and physical infrastructure also provides the private sector with business opportunities.
However, according to the latest reported update issued by the Ministry of Finance, the government’s capacity to undertake development programmes seems to be shrinking not expanding though coronavirus/lockdown may be partially but not wholly responsible.
Issues limiting development spending range from scarce resource availability, restrained financial releases for projects and their final authorisation, the faltering capacity of the project executing agencies and to top it all, the overall state of governance. The uneven implementation of integrated Public Sector Development Programme (PSDP) also distorts synchronised economic development and perpetuates imbalances. And the delays result in cost overruns.
However, the policymakers are trying to do their best within the available government resources to help businesses to activate economic activities and protect workers from being laid off. Under the State Bank’s Temporary Economic Refinance Facility for imports of plants and machinery, the commercial banks have approved Rs157 billion for 203 industrial projects, says Federation of Pakistan Chambers of Commerce & Industry President Mian Anjum Nisar.
The State Bank of Pakistan (SBP) Governor Dr Reza Baqir recently assured the Lahore Chamber of Commerce and Industry that the central bank will continue to support economic growth as it did during the first wave of Covid-19. So far, the SBP has injected Rs1.73 trillion or 4.1 per cent in the economy to support individuals and businesses.
According to the latest reported finance ministry update, in the first quarter of this fiscal year, the actual spending on PSDP was a mere Rs70.7bn. The amount utilised stands in sharp contrast to the authorised expenditure of Rs117bn for PSDP. A sum of Rs46.3bn remained unutilised.
As of November 6, the Planning Commission figures show that Rs290bn were approved for financial release for PSDP against the annual budgeted figure of Rs650bn. Apparently, the approval of financial releases remains subject to the finance ministry’s authorisation.
The dysfunctional capacity of the project executing agencies in the power sector projects also came under the spotlight in a recent meeting of the National Coordinating Committee on Foreign Funded Projects. The Committee noted with concern that a mere little over 10pc or $373 million of the $3.42bn total external funds committed for key power projects was utilised.
Disbursements for some of these projects described as ‘white elephants’ were a mere 0.2pc while the country was paying 2pc commitment charges on foreign loans.
There are also other issues of governance. As many as 129 positions of chief executive officers and managing directors of various organisations are lying vacant since long. These entities work under 26 ministries and divisions. The establishment division has now directed relevant authorities to fill in the positions within three months.
Unable to improve governance, it is stated that the government has increasingly sought the army’s intervention in civilian affairs.
Over the past two years the incumbent has asked the army to take over management of a pandemic, eliminate the locust spread, resolve issues with the independent power producers, discover stolen stocks of sugar and wheat and assist in all kinds of investigations, says Rtd Air Vice Marshal Shazad Chaudhry.
He also recalls that the army has had to intervene to get essential legislations passed in conformance with international statutes to which Pakistan is a signatory and keep the country from defaulting sovereign guarantees. He thinks that the army must play its part to keep the China-Pakistan Economic Corridor moving.
Referring also to such past practices, the eminent analyst, however, recognises that it is time the civilian governments bear their burden and let the military confine itself to the barracks. It may be pointed out the CPEC Authority law is in limbo with the relevant ordinance for its creation having expired.
While the actual development spending went down, the total federal expenditure at Rs1.4tr was higher by Rs189bn or 16pc over the same quarter of last fiscal year.
The prime minister’s advisor on finance has informed the cabinet that over Rs2tr or 4.5pc of GDP were being provided to different sectors of the economy with an equal amount of potential losses owing to circular debt, guarantees as well as non-productive loans.
Despite the defence spending at Rs224bn, lower by 7.7pc or Rs18.6bn and foreign debt servicing reduced by 27pc or Rs57bn, an increase of 16.4pc in current expenditure was recorded in the first quarter. The debt servicing dipped owing to temporary debt relief provided by G-20 countries.
Cumulative spending on debt servicing and defence needs at Rs966bn amounted to 95.5pc of the total tax revenue of Rs1.01tr collected by the Federal Board of Revenue.
On the other hand, the global view that governments should seek to create another jobs boom avoiding a premature return to fiscal austerity is gaining ground.
To offset the impact of the virus in Pakistan the SBP, among other measures, has so far approved financing of Rs237.2bn for 2,949 businesses under the Rozgar scheme. Thus 1.6m jobs are stated to have been saved by preventing layoffs. But more needs to be done.
Policymakers are now focused on boosting labour-intensive economic activities. To quote the SBP annual report 2019-20, the outstanding portfolio of small- and medium-enterprises’ (SME) financing by banks and development financial institutions was at Rs401bn on June 30, 13.7pc lower than Rs464bn at the end of June 2019. The drop is attributed to lenders’ cautious approach and borrowers’ capacity adversely affected by Covid-19.
Under the Prime Minister’s Kamyab Jawan Youth Entrepreneurship Scheme launched on October 11, 2019, a sum of Rs655m was disbursed to 1,591 SME borrowers by the end of June.
One can get some clue of how the housing sector is performing from the level of refinancing by the Pakistan Mortgage Refinance Company. The company, which commenced business on June 12, 2018, has an outstanding refinance portfolio of Rs10.7bn as of June 30.
Based on global experience a report in ‘The Economist’ says the Covid-19 related income support to the households has been quicker, more transparent, and less vulnerable to the (non-intended beneficiaries’) capture than other forms of fiscal stimulus. The author concludes: automating payments to households during downturns would prevent peoples’ sufferings and guarantee that economies get the stimulus they need.
