WITH initial estimates of a substantial decline (negative growth) in services and manufacturing sectors, the government has engaged international development and lending agencies for an in-depth damage needs assessment (DNA) of Covid-19.

Meanwhile, it anticipates major deviations on the fiscal side and priorities in the next federal budget.

In a detailed Q&A with Dawn, special secretary and spokesperson for the Ministry of Finance Omar Hameed Khan explains how the economic team is looking at the crisis and plans to respond.

How long will the lockdown continue? How will it affect GDP?

The lockdown will depend on the dynamics of daily numbers of new infections, hospitalisations, intensive care figures and the number of casualties. It will be relaxed gradually as the situation improves. It can be relaxed or intensified depending on the intensity of the crisis.

The budget strategy will change to note the impact of the coronavirus on economic growth, says the spokesperson for the Ministry of Finance

Before the outbreak, the GDP growth rate was estimated at 3.3 per cent for 2019-20: agriculture 2.84pc, industry 1.95pc and services 3.95pc. The economy is likely to be affected through various channels. However, the magnitude of economic losses is uncertain and depends on the intensity and the duration of the crisis. The government is engaged with development partners such as the World Bank, Asian Development Bank, United Nations Development Programme and others to assess the DNA.

The direct impact on the agriculture sector is expected to be marginal with regard to production. It is expected that agriculture growth will remain between 2pc and 2.3pc in this fiscal year against 0.9pc in 2018-19.

Large-scale manufacturing (LSM) — down 3.37pc in July-January — is expected to decline further in the remaining months for 2019-20 and may probably touch -4pc. Growth in industry will remain between -0.1pc and -1.5pc against 1.4pc in 2018-19.

It will have an impact on the services sector, which may post negative growth in the last quarter owing to the economic slowdown. In particular, wholesale and retail trade, transport, and storage and communications will be affected. But other private services, housing and construction will benefit from the recently announced government package, which will open new avenues for employment and capital accumulation.

The relief package of Rs1.24 trillion will support business activities in other components of the services sector. It is expected that the services sector as a whole will grow by 2.5-3pc in 2019-20 versus 4.7pc a year ago.

Thus, real GDP growth in 2019-20 will remain 2-2.5pc against 3.29pc in 2018-19.

Are you working on a salvage plan for the economy after the initial relief phase to protect the vulnerable?

The government is working on a plan to protect the vulnerable from the adverse impact of the outbreak. The government has already taken various relief measures to safeguard the lower segments of society. These measures include the following:

• Relief of Rs150 billion through the Ehsaas programme

• Rs200bn for daily-wage workers

• Rs50bn for utility stores to ensure continuous availability of food and other items of daily use

• Households consuming electricity up to 300 units and receiving gas bills of up to Rs2,000 have been allowed to make payments in three instalments

• For the industrial sector, a Rs100bn relief package (tax refund) for exporters

• Rs100bn to increase the activity and work of SMEs and the agriculture sector

• Rs15bn for tax relief on food and health items

• Rs280bn for wheat procurement

Obviously, the provincial governments’ cooperation in the implementation of these measures is important. The prime focus of the government is on health, social safety, industry, farming, trade and employment/livelihoods.

How important is the informal economy? What can be done to sustain it at a level where it can bounce back when the lockdown ends?

There is no real estimate about the size of the informal economy. With this outbreak, there will have to be a loosening of the strict taxation regime to allow certain exemptions on taxes and duties. The plight of informal workers has to be countenanced to ease their hardship.

The government has allocated Rs480bn to support businesses. The government has introduced a package for the construction industry, which will stimulate business activities in related sub-sectors.

Also, Rs100bn is provided to provide SMEs and the agriculture sector with relief. This feature is being supported by the provincial governments in implementation. The government’s plan is based on providing relief and subsistence to daily-wagers in both formal and informal sectors.

How will Covid-19 change your budget strategy?

Under the current scenario, the government has to support the economy. The budget will, therefore, temporarily deviate from initial targets. A short-term economic challenge has emerged, which can have potential long-term effects.

We have agreed with the IMF that any coronavirus-related fiscal impact will be taken into account with regard to the fiscal deficit target.

The government is in contact with international financial institutions to tap additional foreign finances.

The finance ministry and the provincial governments are reviewing the situation on a constant basis and bringing in additional measures to support the vulnerable segments of society.

In this extraordinary situation, the budget strategy will change to note the impact of the coronavirus on economic growth, accommodate the fiscal stimulus accordingly and take into account the impact of revised interest rates and other mitigation measures.

Policies are being designed to ensure that the momentum of economic growth is maintained and livelihood/employment generation is sustained. Furthermore, the availability and the prices of essential commodities are being controlled. At the same time, we are aiming to increase foreign exchange reserves.

What would be the possible means of resource mobilisation when businesses expect waivers and international sources are limited in the wake of widespread global needs?

The government’s revenues will be lower because of the necessary policy measures. As for the external resource mobilisation, we are regularly in touch with international financial institutions. The government has requested $1.4bn from the ‘rapid finance instrument’ of the IMF. We are also redirecting funds from the slow-moving foreign-funded portfolio.

On the domestic side, the State Bank of Pakistan (SBP) is regularly assessing the liquidity situation. We are in the process of issuing a three-year sukuk and introduce a new investment opportunity for non-resident Pakistanis.

On the taxation side, a short-term impact can be predicted. But our medium-term strategy of the increase in revenues will remain. Some of the shortages on the tax revenue side will be met by an increase in non-tax revenues and privatisation proceeds.

The government is fully cognisant of the gravity of this crisis. While being aware of its responsibilities, the government also expects that all segments of society will come together, including the media, to fight this battle. Suitable proposals/solutions should be forwarded to us to help tackle the situation.

Published in Dawn, The Business and Finance Weekly, April 6th, 2020

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