Private companies and bankers prefer to escape a lot of investment risks as an economy fails, so government development infrastructure spending acts as a catalyst for economic recovery and generates jobs. Capital expenditure on social and economic infrastructure also offers investment opportunities for the private sector.
According to the most recent recorded update provided by the Ministry of Finance, however the willingness of the government to implement development projects appears to be dwindling, while coronavirus/lockdown could be partly but not entirely liable.
Issues that limit construction investment range from insufficient supply of capital, restricted financial releases for and final authorisation of programmes, the faltering capability of the implementing entities of the project and to top it all the general state of governance. Often distorting synchronised economic growth and perpetuating imbalances is the inconsistent application of the Centralized Public Sector Development Programme (PSDP). And cost overruns stem from the delays.
However, within the limited government tools, politicians aim to do their best to help companies activate economic operations and prevent jobs from being laid off. According to Federation of Pakistan Chambers of Commerce & Industry President Mian Anjum Nisar, commercial banks have authorised Rs157 billion for 203 industrial projects under the State Bank’s Temporary Economic Refinance Facility for imports of plants and machinery.
Recently, Governor Dr Reza Baqir of the State Bank of Pakistan (SBP) told the Lahore Chamber of Commerce and Industry that the central bank would continue to foster economic development, as it did during the first wave of Covid-19. So far to help individuals and companies, the SBP has pumped Rs1.73 trillion, or 4.1 percent, into the economy.
Cumulative debt servicing and military spending at Rs966bn amounted to 95.5pc of the overall Rs1.01tr tax revenue collected by the Federal Revenue Board.
According to the most recent update published by the Ministry of Finance, the real expenditure on the PSDP in the first quarter of this fiscal year was merely Rs70.7bn. The sum used contrasts sharply with the approved PSDP spending of Rs117bn. A Rs46.3bn total remained unused.
As of 6 November, the Planning Commission figures indicate that Rs290bn against the annual budgeted figure of Rs650bn was accepted for the PSDP financial release. Apparently, clearance of financial releases is subject to authorisation from the Ministry of Finance.
A recent meeting of the National Coordination Committee on Foreign Sponsored Projects also brought to the fore the dysfunctional potential of the project execution agencies in the power sector projects. The Committee noticed with apprehension that out of the $3.42bn cumulative foreign funds allocated for main power schemes, a mere little over 10pc or $373 million was used.
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 remembers that in order to have important laws enacted in accordance with foreign legislation to which Pakistan is a signatory, the military had to interfere to avoid the government from defaulting on sovereign guarantees. He thinks that to keep the China-Pakistan Economic Corridor going, the army must play its part.
The eminent analyst, however even pointing to those past activities, agrees that it is time for civilian governments to bear their responsibility and let the military confine itself to the barracks. It must be pointed out that the legislation of the CPEC Authority is in limbo and that the relevant ordinance for its establishment has expired.
Though real development investment decreased, over the same quarter of last fiscal year, overall federal spending at Rs1.4tr was higher by Rs189bn or 16pc.
The finance advisor to the prime minister told the cabinet that more than Rs2tr or 4.5pc of GDP was granted to various sectors of the economy with similar possible losses due to revolving debt, guarantees and non-productive loans.
With military spending at Rs224bn, lower by 7.7pc or Rs18.6bn, and international debt servicing decreased by 27pc or Rs57bn, the first quarter saw a rise of 16.4pc in current spending. Thanks to the immediate debt relief offered by the G-20 nations, debt servicing has reduced.
At Rs966bn, combined spending on debt servicing and security requirements contributed to 95.5pc of the overall Rs1.01tr tax revenue collected by the Federal Board of Revenue.
On the other hand, there is an increasing global opinion that policymakers should aim to build another employment boom in order to prevent a premature return to fiscal austerity.
The SBP has so far approved funding of Rs237.2bn for 2,949 companies under the Rozgar scheme to mitigate the effects of the virus in Pakistan, among other initiatives. Thus by avoiding layoffs, 1.6 million jobs are said to have been saved. Yet it is important to do something.
The priority of policymakers is now on improving labour-intensive economic activities. The outstanding portfolio of small and medium-sized enterprises (SME) funding from banks and growth financial institutions was Rs401bn on 30 June, 13.7pc lower than Rs464bn at the end of June 2019, to quote the SBP Annual Report 2019-20. The decline is due to the prudent attitude of lenders and the ability of borrowers adversely impacted by Covid-19 development.
A amount of Rs655m was disbursed to 1,591 SME borrowers by the end of June under the Kamyab Jawan Youth Entrepreneurship Scheme initiated by the Prime Minister on October 11, 2019.
From the amount of refinancing by the Pakistan Mortgage Refinance Firm, one can get some hint of how the housing market is doing. As of June 30, the firm, which started business on June 12, 2018, has an outstanding refinance portfolio of Rs10.7bn.
Based on global practise, a study in The Economist’ notes that household income assistance associated with Covid-19 was smoother, more open, and less prone to capture (non-intended beneficiaries’) than other forms of fiscal stimulus. The author concludes that automating household transfers during recessions will avoid the misery of people and ensure that economies get the stimulus they need.