AMID all the noise and fury of the past week, a number fluttered through the news flow without much comment but with a big story behind it. It came from the State Bank that said something like Rs1.58 trillion — equal to 3.8 per cent of the country’s GDP — has been injected into “the cash flow of businesses and households” since the Covid-19 pandemic began. Pause here for a moment to absorb the full meaning of these words, and consider a few things.
First, the lion’s share of this largesse has been enjoyed by “the cash flow of businesses” and not by households. Second, this amount relates only to what the State Bank has injected through various monetary measures — which include interest rate cuts alongside subsidised credit and loan deferments — and does not include the Rs1.24tr “relief package” announced by the government on March 24 only days after the lockdowns began. Third, this amount has been injected directly into the veins of the country’s business and industrial elites in a period of less than six months.
Combined with the fiscal stimulus administered by the government (separately from the State Bank) this represents one of the largest transfers of wealth from public to private hands in such a short period of time ever undertaken in the country’s history. Not all of the Rs1.58tr announced by the State Bank is public money moving to private hands though. The single largest amount under this total is loan deferments given by private banks to private creditors, which the State Bank counts as “supervisory actions” that (presumably) do not imply the use of any subsidised credit.
But the monetary policy statement in which the State Bank gave its trillion-and-a-half-rupee figure says that “private sector credit has recently been supported to a significant extent by SBP refinance facilities”.
The question is: how much was given to whom in the name of fighting the pandemic and helping the poor?
Of course, one cannot begrudge the fact that the government undertook extraordinary steps in order to deal with an extraordinary situation. After all, every country in the world took stimulus measures to keep their economy afloat through the lockdowns. What is necessary to consider though, is the details of how much was given to whom in the name of fighting the pandemic and helping the poor.
It is entirely possible that many business enterprises would not have been able to survive had it not been for these measures, especially the loan deferments and the interest rate reductions. But the amounts involved are truly stupendous and given how the story has shaped up on the fiscal side of the stimulus, it is perhaps necessary to ask who availed what share of the benefits from these monetary measures.
The fiscal stimulus that was announced back in March shaped up very differently to what was initially announced. To start with, we had a figure of Rs1.24tr to be given in the name of the poor. But when looked at more carefully, it turned out the figure itself was misleading. It contained Rs280 billion for wheat procurement, an activity that is undertaken every year as a matter of routine, as well as Rs150bn as tax refunds for industry, which was money that had been illegally withheld from industry in the first place and never belonged to the government. These were routine allocations and should not have been presented as an extraordinary stimulus of any sort.
But those were heady days and the people in power did not take kindly to quibbles about a quarter trillion here or there. ‘Here we are fighting a historic battle and you’re counting up the money?’ they would ask. So not many questions were asked and the general perception was allowed to pass itself to the public’s consciousness that the government, under the leadership of Prime Minister Imran Khan, was gearing up to spend a historic amount of money to support the poor in the midst of a pandemic.
Then came the modifications and the deflections from the course originally announced. Those of us who followed the money always knew this, but the finance ministry recently conceded that Rs540bn from the stimulus remained unutilised. Recall that the original amount was misleadingly presented as Rs1.24tr, when in reality the amount of the stimulus was closer to Rs775bn when those measures that should never have been packaged as ‘stimulus measures’ were removed.
The unspent amount helped lower the fiscal deficit from the dire predictions, but even more importantly, when you looked carefully at where money was spent and where it was withheld, it became evident that something else was happening. First we saw money being diverted from its intended purpose towards entirely different purposes, such as when the government allowed the use of money from the relief package to be used for paying power-sector interest payments.
The biggest sleight of hand that was slipped past the people was the sudden change of the Covid relief package into a subsidy for the pump-and-dump rackets that prevail in the property markets, under the guise of “housing for the poor” and jumpstarting the economy and providing jobs for daily wagers. At the heart of this sleight of hand was an amnesty scheme for undeclared black assets in cash to move freely into property developments, with ‘no questions asked’. So much for fighting the pandemic. So much for the poor.
It is now critical to take deeper stock of how the various stimulus measures undertaken by the government and the State Bank have fared in reality. Who got how much, and what were the opportunity costs and trade-offs involved? It was only a short while into the implementation of the stimulus package that the prime minister delivered his speech announcing an opening of the economy with the words “we cannot feed the poor forever”. Hindsight tells us why this was so, because they had the rich to feed instead, and their appetites are far larger than those of the poor.
The writer is a member of staff.
Published in Dawn, September 24th, 2020