THE world is bracing itself to counter the impact of the coronavirus contagion and Pakistan is no different. According to the United Nations, Pakistan could be one of the countries that will likely be struck hardest by the economic fallout of the virus pandemic.

The government has projected the Covid-19 economic losses to be in the range of Rs2 trillion to Rs2.5tr and job losses are estimated to be 12 million to 18.5m. The nation’s GDP growth is estimated to contract – for the first time in 68 years – by at least 1.5 per cent and fiscal deficit to shoot up to 9.2pc or above this financial year. The long-term job losses are estimated to be up to six million with temporary unemployment to be about 12.5m owing to the virus lockdown.

GDP is likely to modestly recover by 2pc in the next financial year, says the State Bank of Pakistan (SBP). The public debt is expected to increase from 85pc to around 90pc of GDP at the end of this year, reversing the progress made earlier to contain it under the painful reforms dictated by the International Monetary Fund (IMF). The Fund, however, says the public debt will subsequently drop gradually over the next five years.

The government has partially reopened the economy in addition to implementing a raft of measures to support businesses and transfer cash into the hands of the 12m poor across the country. Besides, it has given a generous relief package for the construction industry to revive some growth and save millions of low-paid, temporary jobs. The fiscal and policy measures announced will cost an additional Rs500bn over a period of several months.

‘If the government doesn’t give us wage grants, every firm, small or large, will have to eventually lay off people; no company will borrow to pay its workers while losing money’

The SBP too has taken several liquidity management and regulatory initiatives to support government efforts, starting with a reduction of 4.25pc in its policy rate in one month. Other initiatives include the release of additional funds to the banks for lending, deferment of principal payments on outstanding loans, debt restructuring facility for businesses in trouble and an increase in the loan limit for the retail SMEs. It has also announced a concessionary, temporary refinance scheme for businesses that will not reduce their payroll during the lockdown period in order to protect jobs, as well as cheaper, long-term financing scheme for new investments in the industry.

The government and the central bank have been helped in their efforts by the generous support of $1.4bn from the IMF, $1.7bn from the Asian Development Bank and debt relief of $12bn by official creditors. More Covid-19 assistance from other donors is already on its way.

Nevertheless, the business owners do not appear much impressed by the initiatives so far announced by the government or the central bank. “This is not the time for the government to be timid in its response to the enormous challenge thrown by the Covid-19 pandemic; it now has significant fiscal space to support the businesses and workers both. The failure to act now will have colossal, long-term repercussions for the economy and people. We are being asked to not retrench workers and continue to pay salaries but what help will we get?” a major businessman said on condition of anonymity.

He was of the view that the government should pick up at least 50pc of the wage bill of all businesses affected if it wants them to maintain their payroll; a demand being made by almost every sector from the SMEs to large manufacturers. “How long do you think we will be able to maintain our pre-Covid-19 payroll? If the government doesn’t give us wage grants, every firm, small or large, will have to eventually lay off people. No company will borrow to pay the workers while it is losing money due to closure. Most have already started trimming their workforce to cut their losses,” he warned.

An auto parts supplier was of the view that the government could use the funds available with the Employees Old-Age Benefits Institution, the Workers Welfare Fund and the provincial social security institutions to support the wage bills of the SMEs for three to six months till they get back on their feet. “What are these funds for, if not to support the workers now?” He pointed out that several countries were offering significant tax breaks and wage subsidies for small businesses and temporarily waiving off interest payments in addition to subsidising utility bills and rents. Other measures include suspending social security and other such payments to help businesses get through the crisis without firing their workers.

A prominent textile exporter was of the view that the lockdown is going to have a drastic impact on the industry. “The businesses will continue to reel under the impact of this unprecedented health crisis for a long time. The government has ample room to support industry and jobs; the decrease in interest rates and foreign assistance from multilateral and bilateral creditors has created more than enough space to help the economy. If it doesn’t, it should create if it doesn’t want to kill the economy.”

Published in Dawn, The Business and Finance Weekly, April 27th, 2020