COVID-19 has emerged as one of the biggest healthcare and economic crises the world has faced in many decades. No country, least of all struggling economies like Pakistan, was prepared to tackle a challenge of this magnitude. The global economic recession, and lockdown restrictions enforced by the country to stop the spread of the infection, has created new challenges and issues for both the federal and provincial governments. The health crisis has impacted every section of the economy, creating an uncertain economic and financial situation and forcing policymakers to look for out-of-the-box solutions to tackle the new challenges. Punjab is no exception.

The Covid-19 pandemic has adversely hurt Punjab’s revenues, upending all budget estimates for the present financial year and spawning economic uncertainty that makes it difficult for the provincial finance managers to predict and estimate the future income and expenditure for the next fiscal year.

A Punjab Planning and Development Department document — Responsive Investment in Social Protection & Economic Stimulus (RISE-Punjab) — released last month had estimated that the province could lose around 4 per cent of its GDP per month because of the lockdown enforced in March to halt the spread of the Covid-19 pandemic.

The province is planning a rolling budget that will allow the government to change its income and expenditure estimates for the year and tweak its tax policies according to the economic and financial situation

The document, which has been developed in response to the challenges faced by the province in the wake of Covid-19 and its containment strategy, had also predicted a job loss of 5-8 million in all the sectors of the economy. Most of them will be those who are already living below the poverty line.

Recently, provincial finance minister Makhdum Hashim Jawan Bakht had informed the provincial cabinet committee on finance of the challenges he is facing in making revenue and expenditure estimates for the next budget.

He also told the committee that the province would have to leverage its state land to create resources for meeting expenditure next year. “If the pandemic is controlled, we might have to announce a mini-budget in the middle of the year,” he was reported to have said. He also hinted at significantly slashing subsidies and cutting the non-development expenditure of the government next year to make up for tax revenue losses due to the severe hit the businesses have taken because of the pandemic. Additionally, the government is going to give serious thought to an increase in the retirement age for its employees, allow voluntary retirement option and reduce jobs where not needed to save its expenditure.

The province is faced with a potential revenue shortfall of between Rs550 billion and Rs650bn this year because of the reduced federal transfers from the tax divisible pool and downward revision of its own provincial tax and no tax estimates. The reduced income receipts have already forced it to freeze its development spending for the current year to Rs175bn, down by 50pc from its original estimates of Rs350bn, which included projects worth Rs42bn in the Public-Private Partnership (PPP) mode. None of the PPP schemes could be implemented.

“It is an unusual situation,” he told this correspondent later on. “We were on the right track and significantly growing our provincial tax resources when the Covid-19 crisis hit us, drastically changing everything and upending all budget estimates for the year.”

He expects the provincial economic situation to remain fluid in the near future. “We are planning to give a ‘rolling’ budget next year,” he said in answer to a question. A rolling budget will allow the government to change their income and expenditure estimates for the year and tweak its tax policies according to the economic and financial situation.

“We do not know how the economy is going to behave, how businesses are going to perform and if the disease going away of not,” he asserted.

This means the government shall have to be flexible in its policies, allowing tax concessions to businesses facing difficulties. The looming financial uncertainty also means that the government will need to change its tax administration and regime, make it business-friendly, plug leakages, broaden the net and improve collection.

The RISE document had also warned that after the shock the economy is not expected to recover quickly because the businesses will struggle to reopen, as export-oriented companies may find themselves out of orders amid a 30-40pc dip in the global trade. The disruptions in supply chains of imported inputs will continue to hamper the production of several industries and the new norm of social distancing will mean that the services economy will have to reorient its design to become functional again. It has also recommended that the government should at least double its core development spending from the original estimates of Rs308bn for the present year. The document authors were of the view that the government will need to sustain public development investment for a longer period to aid in the recovery of the provincial economy from coronavirus shocks.

Makhdum Hashim said the government was firming up its development expenditure estimates for the next fiscal. But it will be too early say anything definitively. “But it is for sure that we are going to leverage private capital for our development objectives under the PPP mode. That will also help us increase the size of our development spending on schemes that are important for the economy but for which the government does not have enough money to implement,” he said. “These are unusual times. It is no longer business as usual.”

Published in Dawn, The Business and Finance Weekly, May 18th , 2020