Bolstering the economy during the COVID-19 pandemic

By: Ammar Muzaffar

As the tally of Coronavirus cases in Pakistan crosses 89,000, the impacts of the pandemic are beginning to gain strength.

Pakistan faces both a humanitarian as well as economic challenge with continuing lockdowns causing problems for individuals and organizations alike.The slow financial growth is causing major concerns among various stakeholders of society.Fortunately, there are signs for hope on the international front which indicate that the recovery process can begin in a few months. China has eased major lockdown restrictions in the country, several US states are also opening up with specific health and safety guidelines, countries like Spain and Italy are also easing certain limitations to allow people in initiating stalled business operations.

In Pakistan, the prevailing health systems have forced an extension in lockdown orders. The partial resumption of businesses, however, has offered some semblance to elements that are working as fundamental support mechanisms for the economy.

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The economy of this country relies greatly on agriculture and SMEs (Small and Medium Enterprises). The government and the State Bank have introduced support packages like the Temporary Economic Relief Facility (TERF), a PKR 1.2 trillion stimulus plan and other facilities like the Payroll financing option for major organizations. The interest rate has also been slashed thrice to the current rate of 8%.  

Banks are offering hospital financing and other subsidized loans to bolster health care institutions in their efforts towards battling a large influx of patients across the country. Simultaneously, financial institutions are taking a diverse set of initiatives to facilitate the economy during these trying times.

BankIslami recently launched the Initial Public Offering of their Additional Tier 1 Sukuk known as ‘Ehad”. The instrument is designed to offer investors a chance to earn an expected profit of 2.75% over 3 months KIBOR. The IPO was oversubscribed and received subscriptions worth PKR 320.6 million  against the designated target of PKR 300 million indicating that the market has a potential to recover once financial activity resumes post-lockdown.

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Financial institutions in Pakistan have shouldered an additional responsibility in the present situation where they are acting as safety buffers and lending organs that organizations can rely on. They are also offering cover to investors by extending loans in excess of PKR 100 billion against listed shares after the SBP reduced the marginal call requirement to 10%. At the same time, the reduction of Capital Conservation Buffer has freed up a greater loan pool for these institutions.

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The future at present is uncertain with numerous financial analysts and economic experts holding their predictions due to the volatility of the situation due to coronavirus. Despite the fact that banks in the country are expected to take significant profit cuts, the plans and packages being introduced by this sector continue to drive the economy forward.

The International Monetary Fund has estimated that the country’s GDP may contract by as much as 2.5% which can translate into initial economic loss of PKR 1.3 trillion but various experts believe that organizations and individuals sharing the burden can reduce the overall damages to the country. These are difficult times and this seems to be the only viable solution to mitigate long term risks of the threat.

The Writer is MBA Researcher and Communications Specialist   

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