NEWS is coming in that the agreement reached between the government and the IMF for restarting the programme includes up to Rs200 billion of continuing spending for Covid support, an amount that is substantially lower than the unspent funds committed by the prime minister under his relief package announced at the start of the pandemic last year. The news has not yet been confirmed officially by the Fund or the government, but has been reported by the intrepid Shahbaz Rana.
The Fund had hinted at this in its last statement when it said the fiscal strategy to be followed under the terms agreed “allows for higher-than-expected Covid-related and social spending to minimise the short-term impact on growth and the most vulnerable.” We do not yet have details on how the government proposes to spend this additional Rs200bn but note the distinction the IMF draws in its language between spending to support growth and spending to support the poor.
There are two different pathways available to the government to commit its resources in the name of Covid-related measures. One of these is to pour funds into the pockets of wealthy controllers of capital in the hope it will trickle down to the poor in the form of employment and perhaps rising incomes. The second pathway is to put the money directly into the pockets of the poor, through targeted schemes, and wait for it to percolate up in the form of rising demand as the poor use these funds to support their consumption.
Which of these is the government likely to emphasise? The answer is made easier today than it was at the start of the pandemic back in March when the Rs1.2 trillion relief package was announced in the name of helping the poor because we now have a near 10-month track record to draw upon.
The government is serving the poor with its words and the rich with its deeds.
How has the government actually utilised those funds? From their words it would seem they have put the interests of the poor front and centre while disbursing this money. But their actions tell a different story. Let’s start at the beginning and note three things.
First, at the very outset it was puzzling how the Rs1.2tr figure was computed. For example, Rs280bn was for wheat procurement which is a routine activity that happens every year starting from March anyway. How was this billed as a Covid relief measure? Another Rs100bn of the total was in the form of ‘tax refunds’ to industry, which is also hard to understand since the money belongs to those to whom it is being given anyway. Taken together, just these two heads account for almost one third of the total Rs1.2tr announced as a “relief package”.
Second, actual disbursements fell far short of what was announced. Of the total, around Rs875bn were actual cash outlays. The rest was either wheat procurement (which is not done on the fiscal account), or relief in fuel prices (totalling Rs75bn but not as expenditure) or other such categories. Of the Rs875bn cash outlays envisaged in the package, around Rs330bn has been utilised thus far, or is in the process of being utilised, according to a report prepared by Democracy Reporting International back in January. So a large amount of Rs575bn remains to be disbursed from that Rs1.2tr package announced back in March.
Third, where have the Rs330bn that have been disbursed (or committed) thus far gone? How much of it has gone directly to the poor and how much has been given to the rich under the hopes that it will ‘trickle down’ in the form of job creation? Of the various heads under which this money has been disbursed a few clearly stand out as those channels that place money directly into the hands of the poor. One is the Rs150bn that was earmarked for disbursement under the Ehsaas Programme, and the other is the Rs200bn that was to be disbursed as relief for daily wagers.
Actual disbursements under Ehsaas were Rs145bn and for daily wagers they were a paltry Rs17bn. Then there was Rs50bn allocated for the Utility Stores Corporation of which only Rs10bn were disbursed. There was another Rs100bn intended to be disbursed as “relief in electricity bills” of which only Rs23bn were disbursed (and another Rs33bn remain in process), and yet another Rs100bn in “emergency energy provision” whose intended beneficiaries are unclear, where actual disbursement was Rs41bn.
Now consider that the government repeatedly invoked the plight of the daily wagers in its arguments against aggressive mitigation measures in the early days of the pandemic, and pushed to reopen industry in the name of this group. They presented the package of incentives and subsidies for the construction sector as their flagship effort to help daily wagers weather the impact of Covid, but construction activity only picked up months after the lockdowns were removed, meaning the construction package did nothing for daily wagers at the time they needed it the most.
If the government could spare only Rs17bn for this group which is the poorest and most vulnerable among the country’s working classes, then under the impact of its construction package 15 out of the 16 listed cement manufacturers posted combined profits of Rs11bn in the second quarter of the fiscal year alone. The figure was slightly less than half that in the first quarter, meaning the profits of cement makers were equal if not larger than the total amount that the government was able to disburse as direct support to daily wagers in the six months from July and December This does not include the money made by property speculators where the real windfalls lie.
I’ve said it before and it bears repeating: the government is serving the poor with its words and the rich with its deeds. Its ministers have taken to social media to brag about the sharp jumps in corporate earnings (average 69 per cent jump year on year by all listed companies) even as various estimates say an additional 10 million people will fall below the poverty line in this fiscal year alone under the weight of double-digit food inflation, among other reasons.
Covid-related supports for the poor are now long gone, and the mitigation measures announced last March were also short-lived, but the government continues touting Covid-mitigation measures to its donors and creditors as reasons why the corporate dole needs to continue. Now that the IMF has green-lighted a portion of this dole, it remains to be seen how the Rs200bn will be utilised. Will it go to the poor or will it be showered on the rich in the hopes that some of it might trickle down to its intended beneficiaries?
The writer is a business and economy journalist.
Published in Dawn, March 4th, 2021