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The central bank’s temporary refinance scheme to incentivize businesses to retain employees during Covid-19, and perhaps in the aftermath of the pandemic, is being appreciated by certain economic observers. By any account it is much a better measure than Sindh’s government decision to force industries and businesses to pay salaries and wages at a time when these are closed, and employers are strapped for cash.

Incentives are a better measure than draconian laws that strike at the heart of freedom. There are enough precedents that support the legal wisdom that no private company can be forced to hire or retain an employee; nor can an individual force a company to hire or retain her. But if forcing corporations to retain employees is not the solution, the offering of subsidised loans isn’t the optimal solution either. Far from it!

That’s simply because Pakistan’s MSMEs don’t borrow from banks, whereas many of the M and S part of the MSME don’t even have bank accounts. In fact, for majority of SMEs in Pakistan, lack of access to finance is not even a major problem.  The total number of unique bank account holders and bank borrowers in Pakistan pales in comparison to the size of the SMEs. It’s another thing that despite all the focus on SME finance, the exercise to estimate total number of SME, their employment and other important datasets was last done by Pakistan Bureau of Statistics in 2005. (See BR Research’s ‘Is SME finance really at historic high?’ Feb 22, 2019 & ‘Ants, elephants, and SME finance’ Oct 22, 2019)

Meanwhile, the absence of effective local governments and poor status of provincial statistics departments means the state doesn't even know how many shops exist in Saddar (Karachi or Pindi), whereas it's no great insight that SMEs are also not in the tax net; some of them but relative to the estimated size of the SMEs, those in the tax net are a negligible number compared to those in the system. (Read also: ‘Data, not anecdotes, must drive Pakistan’ Jan 8, 2020)

What is the implication of these facts? Tax cuts, if any, by federal and provincial governments will only benefit those who are in the tax system, just subsidised loans will benefit those handful of companies that are banking system.

Those who are outside the system can only benefit from cuts or relaxations in utility bill payments. But one can't be sure if ease in utility bill payments will offset the losses. If one must bet then it's safe to bet that it won't since for most SMEs utilities payments are variable costs, and when goods and services are not being produced/offered or are produced/offered in smaller quantities then the cost of utilities bills is also smaller and so would be the size of relaxation on those bills.

There are three logical conclusions to be drawn from this. First, federal and provincial governments must now learn the important of statistics, datasets and documentation; too bad they must learn it the hard way but it’s still time to kick start a national business registration at all level of business.

Second, SMEs and the private sector at large, including individuals, should take this episode as a lesson and be part of the banking system and overall documentation. Third, while nothing can help countries to be completely ready for disasters, manmade or natural, savings help. Yet despite Quaid-e-Azam’s insistence on savings throughout his speeches, for one reason or another Pakistanis aren’t a fan of the Quaid’s maxim of savings.