DR SAMINA SABIR
THE COVID-19 pandemic has spread all over all the world and it has disrupted the supply chain. Even the developed countries with universal health facilities like US, UK, Italy, France and Germany are under the threat of pandemic with ramping up infection rate and death tally, and it has suppressed and crippled their economies. Situation in developing countries is not so good subject to insufficient health infrastructure and financial resource constraints but they are trying their best to cope with it. Government of Pakistan has imposed various containment measures, such as social distancing, quarantine, closure of schools, colleges and universities, closure of restaurants and offices, ban on travel and overall shutdown in the country that run the risk of encountering other human beings. Getting the infection rate down is the top priority of the government. Besides confinement and shutdown, more testing kits, more masks, more respirators, more beds and other vital medical supplies are needed. Moreover the World Bank has approved a package of $200 million and International Monetary Fund (IMF) has sanctioned $1.4 billion relief package to help Pakistan take effective and timely action to respond to the COVID-19 pandemic by strengthening health care systems and mitigating socio-economic disruption.
Moreover confinement measures have led to supply and demand contagion instantaneously. John Cochrane said that “shutting down the economy is not like shutting down a light bulb. It’s more like shutting down a nuclear reactor. Therefore there is a need to do it slowly and carefully or it melts down”. Thus shutdown policies have inflicted economic damage and it has amplified the prompt prospects of an economic recession and slump. Nobel Laurate Paul Krugman said that it is not the conventional recession, and therefore it urges for broad-based economic stimulus. Most of the job losses are inevitable owing to social distancing and lockdown to contain the spread of the COVID-19 pandemic. To enhance aggregate demand, government of Pakistan has taken effective policy measures to reduce the accumulation of economic scars by making sure that people have money to keep spending even if they are not working. In this regard, Ehsaas Emergency Cash Programme (EECP) would benefit the poor and daily wagers who are going through hard economic crisis due to COVID-19 pandemic shutdown across the country including GB and Azad Kashmir. At least, EECP will keep breathing the economic system through recession curve flattening package to minimize the damages that this health shock did to the economy if strings are not attached with economic relief package.
However no one knows when this money will flow to needy people, may be in weeks or may be in months. Let me clear one thing that principal objective of economic relief package is to provide life support to those people who have temporarily lost their jobs and income to minimize the hardships of people, not to provide stimulus to sustain employment and gross domestic products. However, this will indirectly help the economy to flatten the recession curve. Government of Pakistan has also taken remarkable measures to push up the construction industry by up lifting the taxes and giving subsidies to this sector to bolster economic activities. Main objective behind amnesty scheme is to keep balance between shutdown and unemployment. If construction sector starts back, this will have spillover impact on the other sectors of the economy. Government of Pakistan is scrambling to flatten the pandemic and economic recession curves. To revive the industrial activities, it is suggested that government should wave off tax or payroll payments and provide direct financial assistance where needed. Such type of stimulus package will be needed after pandemic will over if policy-makers do not take decision decisively right now to avoid a catastrophic collapse and it could hypothetically be much more expensive.
Moreover SMEs and other enterprises are likely to have lower liquid reserves and less access to credit, it is prudent to adopt effective policies to buttress firms to cope with aftermath of health crisis and to flatten the economic recession curve. Though, State Bank of Pakistan (SBP) has announced the relief package for household and businesses. The SBP has decreased the capital conservation buffer of the banking sector from 2.5% to 1.5% to supply the additional loans to businesses. This has enabled commercial banks to lend an additional amount of Rs 800 billion to household and businesses. Moreover the regularity limit on the extension of credit to SMEs has been increased from Rs 125 million per SME to Rs 180 million to keep their workers in job and to prevent massive bankruptcy to speed up economic recovery. This relief package has supported the economic support to SMEs but this is not still sufficient. The SBP should ponder over the policy rate to bring it in a single digit because it is increasing cost of doing business. During this Corona Virus contagion, central banks of developed countries have cut down their policy rates to provide temporary relief to the borrowers. Moreover, existing debtors affected by Corona Virus outbreak should be allowed credit holidays to delay paying off loans and reduce financial scars. The bottom line is that government should take effective policy measures to fight against COVID-19 pandemic to flatten it, spend as much as needed to avoid hunger and bankruptcy and inflate aggregate demand and supply to flatten recession curve.
—The writer is Assistant Professor, Institute of Economics, University of Azad Jammu and Kashmir Muzaffarabad.
