The World Bank has downgraded growth forecast for Pakistan to negative 2.6 percent – 1.1 percent more than what was projected by the International Monetary Fund (IMF) in April 2020 in documents pertaining to the approval of the Rapid Financing Instrument (RFI), and 5 percent less than what was projected by the IMF/World Bank in July 2019 at the start of the Extended Fund Facility (EFF) programme. The government of Pakistan has reportedly downgraded the growth rate from the budgeted 2.4 percent, which Advisor to the Prime Minister on Finance Dr Hafeez Sheikh repeatedly claimed rather optimistically pre-Covid-19 would be in excess of 3 percent, to negative 0.38 percent as per a statement issued on 18 May 2020 after the 102 National Accounts Committee (NAC) meeting.
The provisional estimates of the GDP and Gross Capital Fixed Formation for the year 2019-20, the statement added: “were presented on the basis of latest data of 6 to 9 months which were annualized by incorporating the impact of Covid-19 for the final quarter.” The growth rate for 2019-20 projected by the NAC is clearly an understatement which is likely to be corrected in the budget 2020-21 documents and, if last year’s budget is taken as precedence, then it would be identical to IMF’s projection which may be revised upward from the earlier estimate of negative 1.5 percent.
The NAC statement added that “the smart lockdown policy adopted by the government minimized the impact on economic growth compared to the lockdown situation.” This is reminiscent of the repeated claims by the government that key macroeconomic indicators were improving prior to the onset of Covid-19, a claim that has been challenged by data indicating stifling of economic activity (with persistent negative large-scale manufacturing growth) resulting in thousands of job losses in the private sector. It is also relevant to note that ‘smart’ lockdown devoid of strict enforcements of SOPs has fuelled the spread of the virus in the country; and while our weak health system is currently overwhelmed with patients yet there appears to be little indication that the ‘smart’ lockdown has fuelled economic activity with a resulting positive impact on the growth rate.
Covid-19, the World Bank added, would push 70 to 100 million people into extreme poverty instead of the earlier forecast of 60 million. The figure for Pakistan has not been quantified; however, the Bank’s Country Head warned that given the uncertainty surrounding the duration and extent of the damage on the economy wrought by Covid-19 “further downgrades to their outlook are very likely.” In Pakistan’s case it is extremely disturbing that the cash disbursements for the Ehsaas programme (including the subsumed Benazir Income Support Programme) were budgeted at 190 billion rupees for the current year - 70 billion rupees more than the 120 billion rupees earmarked for BISP in 2018-19, however this amount naturally did not incorporate those who have been pushed into extreme poverty due to Covid-19 and who would be eligible for assistance post-Covid-19. It is unclear whether this amount even includes those who were pushed into extreme poverty due to anti-growth policies, read contractionary fiscal and monetary policies, in place as per the EFF programme designed by the IMF staff and accepted by the Pakistani team leaders.
It is, however, unclear what is the actual amount disbursed under the Ehsaas programme post-Covid-19 (given the additional disbursements targeted for daily wage earners announced by the Prime Minister and the pre-Covid-19 disbursements) yet, hopefully, the budget 2020-21 would clarify exactly how much has been released under this head. This necessitates a budget 2020-21 focused on pro-growth policies that would naturally raise tax revenue collections while expenditure would have to be drastically curtailed. Care must be taken that only non-development expenditure is slashed as development expenditure contributes to not only the growth rate but also to employment prospects that, in turn, fuel the wheels of private sector industry.
There is no doubt that the challenges facing the budget formulators are immense, however, one would hope that their objective remains pro-growth because it is growth alone that can take the country towards higher revenue generation and enable the government to reach the poor and vulnerable through targeted cash disbursements.
