ISLAMABAD: The State Bank of Pakistan (SBP) has disbursed Rs229 billion among 2,858 firms so far to incentivise businesses and avoid laying off their workers during the pandemic, says the International Monetary Fund (IMF).
The IMF in its updated report, "Policy Actions Taken by Countries" reviewed various steps Pakistan has taken since March to deal with the Covid-19 crisis, which has also stated that the daily new cases are averaging 600 compared to around 300 cases at the start of September.
The economic activity worsened notably, and growth is preliminarily estimated at -0.4 percent in fiscal year 2020.
A gradual recovery is expected in fiscal year 2021 as the economy reopens, it added.
The report further stated that SBP has expanded the scope of existing refinancing facilities and introduced three new ones to: (i) support hospitals and medical centers to purchase COVID-19-related equipment (40 hospitals, Rs7.8 billion, to date); (ii) stimulate investment in new manufacturing plants and machinery, as well as modernization and expansion of existing projects (170 new projects, Rs125 billion, to date); (iii) incentivise businesses to avoid laying off their workers during the pandemic (2,858 firms , Rs229 billion, to date).
Given their success, these facilities have been extended beyond their original deadline of June 2020 to September or December 2020.
The SBP introduced temporary regulatory measures to maintain banking system soundness and sustain economic activity. These include: (i) reducing the capital conservation buffer by 100 basis points to 1.5 percent; (ii) increasing the regulatory limit on extension of credit to SMEs by 44 percent to Rs180 million; (iii) relaxing the debt burden ratio for consumer loans from 50 percent to 60 percent; (iv) allowing banks to defer clients' payment of principal on loan obligations by one year (with a total of Rs654 billion being deferred to date); (v) relaxing regulatory criteria for restructured loans for borrowers who require relief beyond the extension of principal repayment for one year; and (vi) suspending bank dividends for the first two quarters of 2020 to shore up capital.
The SBP has also introduced mandatory targets for banks to ensure loans to construction activities account for at least five percent of the private sector portfolios by December 2021.
The SBP has introduced further regulatory measures to facilitate the import of COVID-19-related medical equipment and medicine.
These include (i) lifting the limit on import advance payments and import on open account; and (ii) allowing banks to approve an Electronic Import Form (EIF) for the import of equipment donated by international donor agencies and foreign governments.
The SBP has also relaxed the condition of 100 percent cash margin requirement on import of certain raw materials to support the manufacturing and industrial sectors.
A relief package worth Rs1.2 trillion was announced by the federal government on March 24, which has been almost fully implemented.
Key measures include: (i) elimination of import duties on emergency health equipment; (ii) cash transfers to 6.2 million daily wage workers (Rs75 billion); (iii) cash transfers to more than 12 million low-income families (Rs150 billion); (iv) accelerated tax refunds to the export industry (Rs100 billion); and (v) financial support to SMEs and the agriculture sector (Rs100 billion) in the form of power bill deferment, bank lending, as well as subsidies and tax incentives.
The economic package also earmarks resources for an accelerated procurement of wheat (PKR 280 billion), financial support to utility stores (Rs50 billion), a reduction in regulated fuel prices (with a benefit for end consumers estimated at Rs70 billion), support for health and food supplies (Rs15 billion), electricity bill payments relief (Rs110 billion), an emergency contingency fund (Rs100 billion), and a transfer to the National Disaster Management Authority (NDMA) for the purchase of COVID-19 related equipment (Rs25 billion).
The unexecuted part of the relief package will be carried forward to fiscal year 2021.
In addition, the fiscal year 2021 budget includes further increases in health and social spending, tariff and custom duty reductions on food items, an allocation for "COVID-19 Responsive and Other Natural Calamities Control Program" (Rs70 billion), a housing package to subsidize mortgages (Rs30 billion), as well as the provision of tax incentives to the construction sector (retail and cement companies).
Since the onset of the crisis, provincial governments have also been implementing supportive fiscal measures through June 2020, consisting of cash grants to low-income households, tax relief, and additional health spending (including a salary increase for healthcare workers).
The government of Punjab's measures included a Rs18 billion tax relief package and a Rs10 billion cash grants program.
The Sindh government's measures included cash grants and ration distribution program of Rs1.5 billion for low-income households.
The FY21 budgets for provincial governments also provide tax relaxations and sizeable increases in expenditure allocations, especially on health services, to mitigate Covid-19 effects.
More recently, to preempt a potential second wave, the government has set up several measures through December 2020, such as PCR test requirement for international passengers arriving from high-risk countries and the selective closure of educational institutions with reported cases of infections.
The government has also issued warnings for a potential lockdown in case SOPs are not followed properly.
Copyright Business Recorder, 2020
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