Measures by Government of Pakistan to contain the economic impact of COVID-19 Pandemic

Despite having limited resources and financial constraints, the government of Pakistan has responded fairly well to contain the adverse economic effect of the COIVD-19 pandemic and to support the already dwindling economy. Authorities at fiscal and monetary side are continuously evaluating the emerging scenario and appropriate actions are taken accordingly. let’s take a look at the measures taken by Government of Pakistan to contain the economic impact of COVID-19 Pandemic.

On the fiscal side, the Government introduced a PKR 1.2 trillion (3.1 percent of GDP) economic stimulus package. Under this stimulus package, the following disbursement will be made to assist various sectors of the economy to overcome the current economy situation:

1. Rs. 100 billion for the “Residual/Emergency Relief Fund” in terms of article 84(a) of the constitution for provision of funds to mitigate the effect of COVID-19.
2. For the poor sector of the country a cash assistance under the Ehsaas Program has been designed to provide direct cash grants to 12 million low income families. The cash will be provided in one installment of Rs. 12000 through branches / booths of Bank Alfalah and Habib Bank Limited after biometric verification
3. Rs. 200 billion of cash assistance for the daily wagers working in the formal industrial sector and who had been laid off as a result of COVID-19 outbreak. It was estimated that around three million workers will fall in this category and they will have to be paid a minimum wage of Rs.17500 per month.
4. Rs. 50 billion for Utility Stores Corporation (USC) to provide essential food items to the vulnerable section of the society at subsidized rates.
5. Rs.75 billion for Federal Board of Revenue (FBR) to enable them to payback the sales tax and income tax refunds, duty drawbacks and customs duties. Rs. 30 billion to Ministry of Commerce to payback duty drawbacks to textile exporters.
6. Reduction of various taxes and duties on import and supply of different food items such as rate of advance tax on the import of different pulses was reduced to 0% from 2%. Individuals and associations of persons providing tea, spices, dry milk and salt to USC without a brand name will pay 1.5% withholding tax instead of 4.5%. Individuals and AoP receiving payments from USC for supplying ghee, sugar, pulses, and wheat flour shall be charged 1.5% withholding tax instead of 4.5% earlier. Additional Customs Duty (ACD) @ 2% on soya bean oil, canola oil, palm oil and sunflower oil (and on these four oil seeds) has also been exempted.
7. Another appreciating measure taken by Government of Pakistan to contain the economic impact is the allocation of Rs. 6 billion for Pakistan Railways to meet its expenses.

On the monetary side, the State Bank of Pakistan (SBP) moved swiftly to ease financial conditions, provide liquidity to banks, and safeguard financial stability. The Monetary Policy Committee (MPC) has reduced the policy rate by 425 basis points on accumulated to 9.0 percent since March 17, 2020. The SBP has also announced a comprehensive relief package for households and businesses to ensure availability of adequate liquidity, through various policy measures and refinancing facilities. The major policy decisions / refinance schemes are as under:

1. SBP Refinance Scheme to Support Employment and Prevent Layoff of Workers will directly support to keep the employment of workers and avoid layoffs. The scheme provides low-cost financing for wage expenses for three months from April to June 2020 for those businesses which do not layoff their employees for these three months.
2. Refinance Facility for Combating COVID-19 (RFCC) to support hospital and medical centers to purchase medical equipment to detect, contain and treat the pandemic.
3. Temporary Economic Refinance Facility (TERF) to facilitate new investment across manufacturing sectors.
4. Regulatory limit on credit to SMEs has been increased from PKR 125 million per SME to PKR 180 million. Likewise, The Debt Burden Ratio for consumer loans has been relaxed from 50 to 60 percent.
5. Payment of principal on loan obligations will be deferred for one year by banks on the request of borrower.
6. The Capital Conservation Buffer (CCB) requirement for banks has been temporarily reduced from 2.5 percent to 1.5 percent.
7. Waiver of all charges on fund transfers through online banking channels.

Moreover, additional measures such as re-prioritization of expenditure towards health and social spending are being planned to address the economic impact of the pandemic as they unfold. Besides, the Prime Minister has set up a “Prime Minister’s COVID-19 Pandemic Relief Fund-2020” for providing relief and assistance to the people of Pakistan affected by the COVID-19 pandemic. Donations / contributions can be made to the Fund through various modes by both domestic and international sources.