Timely breathers

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SOON after Prime Minister Imran Khan made an impassioned appeal to bilateral and multilateral institutions to consider substantial debt relief for developing countries in view of the challenge thrown by the Covid-19, Pakistan (of course, along with others) has received breathers from G-20, International Monetary Fund (IMF) and the World Bank with indications that similar relief would also be extended by other creditors. One year breather in paying back loans would surely provide necessary space for the Government to spend its resources on prevention of the disease, mitigation of its impact on different segments of the society and sectors of the economy and initiate more measures for welfare of the people without resorting to additional taxation.
The economic managers of Pakistan promptly approached the IMF and other multilateral institutions for provision of additional assistance and what transpired on Thursday must be a source of satisfaction for them. The IMF approved an emergency loan of $1.4 billion for Pakistan besides expected relief in the repayment of around $1.5 billion in the shape of delay in repayment of principal and interest to bilateral creditors. This would be as per decision of the G-20 taken in its meeting in Saudi capital Riyadh on Wednesday where it included Pakistan among countries eligible for debt relief. Unfortunately, Pakistan has not been included in the group of countries eligible for loan write off, which would have been a genuine and meaningful relief for the country, which is struggling hard to cope with the emerging situation. However, what we are getting is also timely as the support would help provide a backstop against the decline in international reserves and provide financing to the budget for targeted and temporary spending increases aimed at containing the pandemic and mitigating its economic impact. The decision of the IMF would also have salutary effect on the overall economic and financial scenario as was reflected by gains made by KSE-100 index after announcement of the decision by the Board of the Fund. Meanwhile, the State Bank of Pakistan (SBP) Thursday slashed the interest rate by 200 basis points, bringing it down to single digit i.e. 9% from 11%. Monetary Policy Statement issued by the central bank stated that the decision had been taken as the “global and domestic outlook has further deteriorated” due to the Coronavirus pandemic. The development is welcoming as the central bank has cut the interest rate by 4.25% in one month to cope with the Coronavirus which has adversely impacted businesses globally and in Pakistan. However, the business community was apparently not satisfied over piecemeal cut in the interest rate and that too less than the demand of the ground situation. Elsewhere in the world, the central banks have reduced the interest rate substantially with some of them bringing it to the negative territory, even before the onslaught of Coronavirus, there were growing demands that the rate should be brought to single digit but the SBP did not oblige for its own reasons and strategy. Now businessmen believe it should be lowered as much as to 4% and only then it would help the economic activity in the country in the face of Covid-19. The remarks made by the SBP Governor Dr. Reza Baqir, who said as we keep receiving information about the country’s economy, the State Bank will be ready to take action in future about the interest rate, offer prospects for further reduction and hopefully the future decision would meet general expectations. No one knows for sure how long the crisis triggered by Coronavirus would persist and in this backdrop the decision of G-20 to delay repayments of principals and interest on all loans till end-year and further review of the situation afterwards is reassuring. The relevant ministries and authorities may also approach other bilateral creditors as well including China which is more than willing to offer assistance and cooperation to all countries of the world in coping with the situation. We must also bear in mind that the country would be required to pay back more when repayments for this year and next year become due. Despite prevalence of Coronavirus and its impact on the economy, measures aimed at boosting capacity of the country to pay back loans and gradually get rid of them should continue.