The government announced in March an inflated Rs1.24 trillion relief and stimulus package for people and various sectors of the economy to withstand the massive shock of the Covid-19 pandemic. Fresh loans, existing loan write-offs and aid followed.

The size of the package remained in question since day one as Rs280 billion had been approved and announced weeks ago for wheat procurement as part of an annual exercise mostly based on provincial shares. Another Rs150bn was for refunds that were overdue and illegally kept by the revenue machinery to show higher tax collection and hide its own poor performance.

After accounting for some unspent money against Benazir Income Support Programme (BISP) allocations, the actual package was slated to be about Rs775bn — yet even the ever-watchful International Monetary Fund (IMF) accepted the big numbers. In natural disasters like Covid-19, small things on the ground matter that support populations and economies stand on their feet. But it was not the case this time.

In a major move, the government conceded last week that two-thirds or a massive Rs540bn of the actual package remained unutilised. That meant only Rs240-250bn out of the actual Rs775bn package could be spent before the close of the fiscal year on June 30.

Two-thirds or Rs540bn of the stimulus package remained unutilised in 2019-20

The authorities first attempted to book the entire unspent amount of Rs540bn into the last fiscal year by parking it in a special account of the central bank for affording its spending in the new fiscal year. Tactically, this would have pitched the country’s fiscal deficit for 2019-20 at about 9.4pc of GDP — not a bad deal given a distress year and acceptable to lenders and donors in the wake of the global economic crisis.

The move could have created a fiscal buffer and helped the finance ministry contain fiscal and primary deficits acceptable to the IMF for the revival of the programme suspended for almost three quarters now. The IMF had already forecast it at 9.1pc while delivering a generous $1.4bn rapid financing instrument in response to Covid-19.

But then, fiscal accounting rules and procedures did not help. The authorities in the accounts and audit departments had a different opinion during the course of discussion. There were different views as to the procedural requirements for a technical supplementary grant, lapse of funds and supplementary grant. But then it was concluded that the approval of supplementary grant was necessary for its utilisation in next year.

It was, therefore, decided to roll over the amount through a supplementary grant into the current fiscal year. The Economic Coordination Committee (ECC) of the cabinet on August 12 “approved a supplementary grant of Rs540bn having remained unutilised due to procedural conditions under Covid-19 relief measures”.

This resulted in the country’s fiscal deficit for 2019-20 to come in at 8.1pc of GDP — almost 1.3 percentage points lower than official estimate and one percentage point lower than the IMF estimate. A consecutive second-year fiscal deficit of above 8pc is a clear indication of the unresolved fiscal challenge.

The finalisation of accounts for 2019-20 also showed the size of the economy was Rs41.72tr at the end of the fiscal year, down by Rs2.28tr from Rs44tr at the end of the third quarter of 2019-20.

It also confirmed the Federal Board of Revenue (FBR) had faced a whopping shortfall of Rs1.55tr against its target — to some extent, for genuine reasons — but the slippage was an unprecedented 3.7pc of GDP. Simultaneously, an unparalleled Rs935.5bn surplus profit of the State Bank of Pakistan (SBP), mostly on account of currency devaluation and high interest rates on government borrowing, helped build non-tax revenues to Rs1.59tr — almost double the target.

But then the revenue shortfall forced the federal and provincial governments to cut back on their necessary development activities. While the federal public-sector development programme was contained at Rs467bn against the allocation of Rs701bn, the provinces also had to make similar adjustments at the cost of living standards of people. The PTI-led governments of Punjab and Khyber Pakhtunkhwa also took overdraft from the SBP instead of offering a cash surplus to the centre.

The four provinces jointly provided just Rs77bn cash surplus or 18pc of what they had committed to the centre. It was almost half of Rs139bn that they had spared for the centre in the previous year. Punjab spent beyond means by Rs8.3bn against a Rs49bn surplus it had created in 2018-19. Khyber Pakhtunkhwa also had a negative balance sheet of Rs2.2bn against a Rs17bn surplus the year before.

The PPP-led Sindh government provided the largest cash surplus of Rs63.4bn in 2019-20 against Rs56bn a year earlier while Balochistan contributed a Rs24bn surplus to the centre against last year’s Rs17bn.

No wonder then the government is trying to build its narrative more around jargons than numbers.

Last week, the Ministry of Finance said the government had embarked upon a sustainable and inclusive growth journey and all economic indicators and recent developments signified the strength and reliability of the overall performance in reinvigorating the economy, spurring growth, maintaining price stability, providing jobs and rebuilding key infrastructure.

On the other hand, the finance ministry agrees that the revival of the IMF programme was linked to progress in reforms in the tax system, electricity and gas price adjustment mechanism, subsidies and the restructuring of public-sector entities. The finance ministry said last week the government was “well aware of the challenges emerged due to stabilisation measures like the economic slowdown, price stabilisation, low pace of job opportunities and resultantly its impact on the lowest income groups of society”.

It also concedes that the price hike had happened owing to a rise in international commodity prices, requisite upward adjustment in overdue gas and electricity prices, and market-based exchange rate adjustments required for correcting macroeconomic imbalances. Keeping in view the painful impact of these policies, the government has initiated reforms in key sectors of the economy, it said.

Published in Dawn, The Business and Finance Weekly, August 17th, 2020