« PFM Solutions in India to Combat the COVID-19 Pandemic | Main | Fiscal Policies to Contain the Damage from COVID-19 »

April 16, 2020

COVID-19 is Testing Pakistan’s PFM Limits

Covid
Muhammad Afnan Alam[1]

Pakistan’s government in late March announced a range of fiscal and monetary policy interventions to do “whatever it takes” to strike a balance between a lockdown and ensuring that economic activity continues throughout the country on a limited scale. The government has announced a PKR 1.2 trillion (USD 6.76 billion) fiscal policy intervention, equivalent to 3 percent of GDP, to frame-freeze the economy whilst the two tiers of Pakistan’s government (federal and provincial) are making an all-out effort to contain the spread of the pandemic.

The government has announced measures to support the poor and the business sector that include the following:  

  1. Cash transfers and grants amounting to PKR 144 billion targeted at 12 million poor families through Ehsaas - the country’s flagship social safety net program. The beneficiaries include 5.3 million poor households recorded in the program’s National Socio-Economic Registry (NSER) and targeting another 6.7 million beneficiaries through wealth profiling, data analytics, and average monthly utility bills. Cash transfers to existing beneficiaries are already screened through the NSER based on a nationwide Poverty Score Card (PSC) survey in 2010-11 which collected information on the socioeconomic and welfare status of almost 27 million households. This information is in the process of being upgraded. However, making transfers to the additional 6.7 million beneficiaries that are swift and transparent remains a challenge that has not yet been resolved.
  1. A supplementary appropriation of PKR 25 billion to the National Disaster Management Authority (NDMA) for the purchase of equipment to deal with the pandemic. The NDMA is in the front line for coordinating pandemic activities. The organization operates through a single-line budgetary allocation mechanism and its expenditures are routed through Pakistan’s FMIS.
  1. A one-time transfer of PKR 50 billion to the Utility Stores Cooperation, a federal government enterprise that provides subsidized basic commodities including wheat flour, edible oil, sugar, pulses/rice, and milk.
  1. Accelerated payment before the end of March of the salaries and pensions of 4.1 million public sector employees due on April 1. Similar early salary payments were made for local governments, municipal corporations and state-owned enterprises.
  1. Use of an emergency provision for federal and local governments to fast-track procurements for urgently needed medical equipment, protective supplies, and measures to ensure food security.
  1. A grant of PKR 100 billion to the Residual/Emergency Relief Fund for mitigating the effect of COVID-19.
  1. Payment of long-standing dues of PKR 105 billion for income tax refunds and drawback of customs duties, thus providing support to more than 650,000 businesses, enabling them to pay employee salaries and maintain their operations.

The PFM system, however, faces challenges in continuing to provide COVID-related support. For example:

  1. No guidelines have been issued on the criteria to be used in fast tracking procurements for crisis-related spending.
  1. Internal audit arrangements remain weak: the government has not been able to roll out the establishment of “Chief Internal Auditor” positions established under the PFM Act of 2019. This poses substantial risks to the transparency and efficiency of transfer payments and the streamlined procurement processes.
  1. The federal government presented its first budget strategy paper in March 2020 in compliance of the PFM Act. However, the economic assumptions and revenue forecasts did not consider the impact of the pandemic on the economy.
  1. The government was already facing massive revenue shortfalls in the first nine months of the financial year. The Pakistan Institute of Development Economics (PIDE), an affiliate of the federal Planning Commission, estimates revenue collection of PKR 4.4 trillion against the government’s latest projection of PKR 5.24 trillion. This shortfall will have significant impact on the development of sound economic and fiscal assumptions for the coming year.
  1. The government has not rolled out its cash-management policy for 2019-20, nor has it established a real-time gross settlement system (RFTGS). This may make it challenging for the government to put together an overall picture of available cash at any point in time and to ensure that enough liquidity is available for COVID operations.
  1. State owned enterprises and arms-length public sector agencies hold huge amount of cash outside the TSA structure citing either their functional independence or essential operational and commercial needs. These idle balances are not available to the government to meet their emergency spending requirements.
  1. Pakistan’s Supreme Audit Institution has yet to develop procedures which will enable it to conduct ex post audits of the regularity of payments made during the crisis and the value for money of emergency procurements.
  1. The PFM Act of 2019 introduced improvements in the dissemination of financial reports, but it is not clear that these changes will enable spending related to the COVID-19 crisis to be transparently reported.

To conclude, pandemics like COVID-19 shine a large spotlight on the responses of the PFM system in Pakistan. It remains to be seen whether the system is robust enough to deliver benefits to poor people and businesses in desperate need quickly and efficiently, while providing the necessary degree of accountability and transparency to satisfy citizens and NGOs, as well as the international agencies that are providing emergency funding.

This article is part of a series related to the Coronavirus Crisis. All of our articles covering the topic can be found on our PFM Blog Coronavirus Articles page.

 

[1] The author is a career civil servant and can be approached at afnanalam@gmail.com

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

 

Comments

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Back to top of page
©2007 IMF. All Rights Reserved. About Us | Terms of Use