Punjab GDP may shed $20b if lockdown exceeds

CM Punjab likely to inaugurate RISE strategy to support provincial economy


Shahram Haq April 27, 2020
PHOTO: Reuters

Punjab may lose around 4% of its gross domestic product (GDP) per month during the lockdown due to ongoing Covid-19 pandemic, says a provincial document.

The document further says that if the lockdown continues for a three-month period, the cumulative provincial GDP losses will be around 10-12% or roughly between $18-$20 billion in the worst-case scenario.

The document titled ‘Responsive Investment for Social Protection and Economic Stimulus (RISE) Punjab, post Covid-19 public investment strategy’, has been prepared by the Punjab Planning and Development Department along with Department for International Development (DFID). It is a comprehensive framework for the entire economy.

Based on the recommendations of the RISE Punjab, Chief Minister Sardar Usman Buzdar is likely to inaugurate this programme, which policy makers said has the potential to lift provincial economy through a seven-point agenda.

The document says that the coronavirus outbreak will cost 5-8 million jobs and the most of them will be those who are already living below the poverty line. It warns that after the three-month shock, the economy is not expected to recover quickly, because the businesses will struggle to re-open, as export-oriented companies may find themselves out of orders amid a 30-40% 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.

The entire value chains across the country are disrupted and it will take, short-term, medium-term and long-term measures to claw back to normal functioning, it says.

Substantial and effective public investment and policy calculations under the Punjab growth strategy shows that an increase in development spending equal to 1% of GDP growth increases the provincial GDP itself by more than 2%.

The province’s development portfolio for the current year is projected at Rs308 billion, which is just above 1% of the provincial GDP. However, it is suggested that mere simple increase in the development spending will not give the desired results.

The province needs to strongly advocate with the federal government and development partners to increase this spending to at least 2% of the provincial GDP to have a meaningful impact to offset the magnanimous shock to the economy.

The spending will have to be planned and effective and targeted at those sectors that will ensure that sufficient funds are available to fight the health pandemic, support those who need social protection and revive the key economic sectors.

The increased spending will have to be managed for successive years as it may take three to five years for the economy to recover from this loss. Moreover, it is the private sector that generates around 90% of the jobs in the economy.

Thus, if the province is to meet its objective of supporting the unemployed lot, it will have to move aggressively to enhance capabilities of the private sector that has been crushed under the existing circumstances.

Measures to take
The document proposes substantial reforms to ease out the business and investment climate with a strong push towards making factor markets more accessible and flexible, especially in generating the required amount of credit and human resource.

First, it says, the government will work towards rebuilding the growth model for Punjab by incorporating the shock to the economy. The proposed framework realises that the macroeconomic indicators under the current state of extreme recession (depression) will not make much impact on their own and micro-level interventions along all the key supply/value chains of the economy will be required.

The government will take a sector-by-sector view of interventions to help firms sustain, reorient, diversify and grow. This will require horizontal measures such as providing land for setting up new markets in open places, ensuring significant liquidity, chopping off all regressive regulations, providing productive and trained workforce and support in knowledge and technology acquisition.

There will also be a strong focus on MSMEs and rural enterprises which are not only the backbone of Punjab’s economy but also play a strong role in employing those who are the most vulnerable. It proposes an MSME rehabilitation fund, saying that the sectors will be supported to find new markets locally and internationally.

The agriculture sector to-date has not suffered as big a loss as the manufacturing or the services sector, however, the disruptions in supply chains may impact the availability of quality seeds, fertilisers and other inputs. The government will have to come up with interventions to ensure that the agriculture sector is well protected.

The services economy has probably been the hardest-hit, with more than 70% of the enterprises being impacted. Moreover, these enterprises probably face the longest lockdowns due to their nature of human contact. The government will have to invest and give substantial incentives for these businesses to reorient the way they conduct the business.

Second, a direct consequence of the economic tragedy is the job losses, especially the most vulnerable groups working at low wages in the informal sectors or working on a daily wage, or piece-rate workers in industries.

This requires a robust and inclusive social protection intervention, the document says. It identifies a critical gap – the lack of data on these vulnerable individuals. The closest to the best resource is the BISP data that itself is nine years old. Therefore, the province will enhance its surveying capacity to enrich the data for policymaking and decision-making.

Moreover, to sustain social protection plans and payments, the government will establish a social protection fund in Punjab. This fund will pave the way for contributory insurance schemes for workers in informal sectors.

Punjab currently has over 37 million employed people, however, the number of registered workers is just a paltry two million. The government aims to close this gap by addressing the regulations and also introducing worker self-registration programmes.

The government will have a conscious shift in the development spending to introduce schemes and projects in the construction sector, irrigation works and other public works schemes to support an employment guarantee scheme for the workers who have lost their livelihood due to the crisis.

Third, building minimum core health capacities beyond the immediate emergency response to fight Covid-19 has been identified as a critical pillar for Punjab’s future strategy. A key lesson from the ongoing fight against Covid-19 is that delivering effective healthcare is not just the responsibility of the health department. The document says a more integrated approach is required that includes the judiciary, agriculture, livestock, food safety, police and transportation and others.

The government will establish ‘One Health Council’ to help the province fight such deep-rooted health issues and outbreaks. The government will look to make investments in ensuring better compliances with international health regulations, support the adoption and implementation of Global Antimicrobial Resistance Surveillance (GLARS) to build antibacterial resistance in the province.

Fourth, implementing new targeted interventions and responding to bigger challenges will require substantial improvement in the governance capabilities. A first critical step is the ability of the government to engage meaningfully with a variety of representative stakeholders.

For this, the government plans to establish an online feedback mechanism which will be a technology-driven solution to help the government conduct meaningful policy dialogues with private sector, social sector and even citizen groups.

Punjab has been leading the e-governance drive, however, there are still certain gaps that exist. These gaps have suddenly magnified, where the government is now required to deliver its works and services under the new normal of ‘social distancing’. This would mean that the government will have to invest more in improving it e-systems and reduce the contact between citizens and the departments and still deliver more effectively.

The government will increase focus towards more effective donor coordination and state-citizen dialogue as well as developing and maintaining information management systems that will not only help the government deliver better services but be more transparent and accountable.

Fifth, the calculations done under the Punjab Growth Strategy 2023 show that investment in education and human capital development has the highest return multiplier and a strong impact on multi-dimensional poverty.

These returns remain valid in Covid-19 and post-Covid-19 scenarios and the province will continue to focus on improving not just the access but the quality of the education. The strategy is clear, that access with quality has no returns.

A number of measures have been suggested that will focus on developing better teachers, interactive and progressive teaching and assessment material, encourage the use of IT and under the new normal, build capabilities to deliver effective education through e-learning platforms. The province sees large returns to developing successful PPPs in e-learning and remote learning technologies and materials.

Sixth, the fight against pandemic’s or disease outbreaks like Covid-19 cannot be won without effective risk communication. The government’s response strategy to Covid-19 places risk communication at the heart of its major intervention.

The focus and effort required to bring a behavioural change in over 110 million people of the province, of whom a large portion has low levels of literacy, is indeed a big challenge and the one that requires a dedicated intervention.

As a first step, the strategy will look towards assessing the existing information value chains and build on them an integrated and unified public channel to disseminate risk communication. This will further involve policy changes and coordination between a host of departments and stakeholders, and media and cyber-control agencies to ensure strict standards are developed and enforced.

Seventh, the strategic interventions presented above can only be implemented effectively if the public financial management systems are responsive to mega shocks and there exists a clear approach and processes for disaster risk financing.

The government is cognisant that it will not have much space in the short-term to introduce any new taxes as the economy is already in a depressed state, however, at the same time, it will have to work towards reducing the deficits that will accrue due to stimulus and bailout packages.

Therefore, the strategy to enhance revenue potential through increased expenditure efficiency and by increasing the effectiveness of existing taxes. In the initial response, the government relaxed provincial taxes worth Rs18 billion till June 2020, however, some of these relaxations may need to be reviewed post-June especially, to improve targeting of the tax relief measures.

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