Probably I am biased, but I find it absurd that policy makers namely RB, RD, AU, and AHS, don’t have their finger on the pulse of the economy (they aren’t buteaucrats, AU and RD come from business world and RB should be talking daily to bank presidents).

Take the example of 3% hospital finance facility. That is very very very cheap money. Yet the way the facility has been designed (and updated already in 3 weeks reportedly after talking to stakeholders), it won’t be utilized much.

3% is almost 0% ie SBP is giving free money for 5 years to setup an isolation ward or update facilities for Covid-19. Yet hospitals aren’t willing to take it. This must have been deemed countercyclical policy in IIW and pro-government circles.

In reality, it’s a stupid policy. For it to work, Covid-19 needs to make money for hospitals or at least break even. From news, Covid-19 is loss making for hospitals. Private sector hospitals don’t want Covid-19 patients.

So why would they borrow money to setup a loss making facility. Even if you give them money at 0%, no hospital will borrow it.

May be some private sector labs may borrow it to import testing equipment and make money by charging Rs.8,000 per test but that’s it.

Policy design is an art and this administration has been found severely lacking in it.

If you would have asked SBP economists, what will be the impact of this policy? Their answer would have been Rs. 5 billion direct gdp impact (assuming all local equipment for simplicity).

Plus the multiplier impact X of jobs and contracts, plus impact of reduced mortality and better health. Thus the net impact of this policy will be increase of 0.5% of GDP and Rs.XX billions (I just pulled that number of out of thin air).

But due to badly designed policy, no hospital will borrow and whatever rosy forecasts SBP economists have given above turned out to be pure hogwash.

Purpose of this preamble is to make people question the GDP numbers that are and will be thrown around for construction package

Not denying construction is labor intensive, employs large number of low skilled workers, probably has the best GDP multiplier but for that to work, policy design needs to good. Need not be perfect but at least thought out unlike the hospital facility.

Times are not the same as they were BC (before corona). Jobs, income, savings, remittances, exports all tanking. What would have easily worked BC, won’t be that easy to work now. If government believes that this will lead to construction boom, I think it’s delusional.

May be I am biased. But at least I have some sound reasons for thinking government is delusional. Yes all economist and planners etc are optimistic and expecting a construction boom and I am the odd one out here. Really, the only one going out on a limb.

But then if you have asked the same economists and planners what will be the result of 3% or 0% hospital financing facility, they would have told you that hospitals will go on Covid-19 construction binge.

But like hospital facility may lead to few testing labs importing small stuff, the construction package as announced may lead to some construction here and there but not what government is expecting. I can be spectacularly wrong. Who knows?

Is there no hope? There is. It will require innovative thinking or may not innovative just fresh thinking or may be just brainstorming.

Let’s go back to hospital facility. If the government or SBP economists believe that the overall impact of Covid-19 facility will be positive in GDP terms, why not offer a package.

Instead of each hospital hiring engineers, planners, architects, to design the ward, then researching for the equipment, importing it, installing it etc say government hires services of FWO (state capture I know but bear with me) to prepare a standard design and construct it.

Standard and ready made design and construction contract awarded to FWO (ignoring for now thay FWO will subcontract it after skimming off profit) will mean quick and relatively lower cost construction. On the revenue side, government can say

all Covid-19 patients sent to these wards, government will pay Rs.XX per patient per day from Sehat Insaaf fund or Ehsaas etc.

The hospital is providing healthcare workers, operation and maintenance of the wards.

If the economics make sense ie revenue and profit will be sufficient to pay off the loan in 5 years along with interest and the some, hospitals may consider utilizing the loan to build isolation wards.

But Covid-19 won’t last 5 years and will be done in 2 years you may say?

Government wouldn’t pay if it’s empty. My strategy is stupid you will say. I propose government to continue pay something even if it’s empty or SBP allow them additional loans to repurpose it to use it for other purposes. It’s getting absurd you will say.

Haina

These are not challenges that can’t be overcome but this gives you an idea of challenges of policy or incentive design.

Saying “here,take this money at 0% or 1% or 3%” will not result in increase in healthcare facilities or increase in health or increase in GDP.

But the imported geniuses from multilateral institutions don’t get this.

Similarly, if we want construction sector to pick up (good construction as in isolation wards and not just small testing labs) we need to make a comprehensive policy and not just offer whitening.

Disclaimer: you may say testing labs is better than isolation wards. May be. But SBP brought the policy assuming it will result in increase in development of isolation wards etc.

Incentive design is a fascinating topic. Also developers are shrewd enough to find loopholes to build what they want and not what you want. Right now the construction package doesn’t obligate to build anything. At least ask them to build affordable, livable a, breathable places.

Anyway, zindagi rahi to will do a thread on what considerations to put in a construction policy. Amnesty/money whitening scheme is not a construction policy despite what economists and planners here think.