- The government must try and keep the sinking economy afloat
We all are living in strange times as according to Yuval Noah Harari in his book Sapiens wrote that many short-term emergency measures become a fixture for life because the risk of doing nothing becomes bigger in crisis-like situations; and decisions which could take years of deliberation are then made promptly in a few hours, keeping in view that desperate times call for desperate measures.
The world has come to a standstill due to the outbreak of corona virus. The economic consequences are going to grow manifold with the passage of time in case the deleterious effects of the pandemic are not controlled. It takes us back to 1918 when similar effects were witnessed in US due to the spread of the pandemic Spanish ’flu’. The current scenario also hearkens back to the 1930s when there was the Great Depression and the economies of the USA and European countries plunged into deep recession which led to abrupt rise in unemployment levels. In Pakistan it has been for the first time witnessed in history that due to the spread of this deadly virus and its looming threat, the economic activity has been brought to a halt.
The world over has never seen such drastic effects on global economy due to the spread of a disease. Financial markets have slowed due to the capital outflow; production of multinational companies has reduced; people are becoming unemployed; poverty levels have risen due to the decrease of people’s real income; tourism activities have been curtailed; exports have decreased; flights operations have been cancelled and overall the free flow of goods and services has led to an overall drastic cut in GDP growth rates. Due to the drastic cut in economic activity the size of the global economy has shrunk and eventually its spillover effects on developing countries like Pakistan is likely to aggravate if the situation further worsens.
It was the slogan of the present government before the elections that it would play an instrumental role in framing such policies as would reduce the disparity between rich and poor in order to make Pakistan prosper and a welfare republic. Hence the state must fulfil its constitutional responsibility by acting promptly, rather leaving it to the invisible hand of market forces
Pakistan is a developing country and its exports primarily comprise agricultural and textile products. With the pandemic taking its toll over the entire global economy, the situation is likely to result in a decrease of exports for Pakistan. However it will be offset by the decrease of the oil price, which at present is at its lowest ebb in the past 30 years.
The decrease in petroleum products’ price is likely to save the cost for Pakistan’s oil import bill. The government has taken a good step by decreasing the petrol prices by Rs 15 per litre to ameliorate the woes of common man in the ongoing turbulent situation.
However it has kept the interest rates high at 11 percent. Although the government has cut the interest rates from 13.25 percent to 12.5 percent, and then recently further them brought down to 11 percent, still the economic experts say that the interest rate in Pakistan is one of the highest in the world. Contrary to this, in other countries, like the USA and European countries, interest rates have been drastically cut to zero percent in order to keep the cost of capital low in this recessionary period in order to boost demand. Keeping interest rates as low as possible is essential due to the economic slowdown and hence it has become indispensable to keep the cost of doing business now.
The government of Pakistan also needs to pay attention towards its monetary policy and bring interest rates to zero percent, keeping in view the economic losses suffered by the big businesses and small medium enterprises. It is further notable that at present government is giving finance at seven percent to those entrepreneurs who want to start new business enterprises whereas the already established businesses are being granted finance at higher interest rates at 11 percent, which is a poor policy.
The government at present is only keen to attract hot money in its treasury bills to keep the currency afloat and reduce its current account deficit level. It is not bothered about paying attention to the woes of the local businessman who is aggrieved by the high interest rates and further bogged down by the high import duties. By reducing the interest rates it would not only help the local entrepreneur but the government would also save its interest payment cost. At present most of the credit, approximately more than 70 percent, has been taken by the government and by reducing the interest rate, the government would be saving on its interest-payment cost.
The government should give a stimulus to the economy by not only reducing the interest rates to zero percent but also by reducing import duties on the imports. Furthermore the government’s department, the Federal Board of Revenue, is holding on to the sales tax refunds of business enterprises which it must pay back immediately as a relief. At present there is a lack of liquidity and hence in this hour of need the government needs to give stimulus to businesses so that liquidity is injected. Farmers should be given cheaper credit and fertilizers at reduced prices.
People who are likely to suffer the most are the daily wagers who are likely to be laid off if businesses are not doing well and their going concern is being jeopardized. Hence the government should identify the people who are living below poverty levels so that they are given financial support through either income support programmes or Employees Old Age Benefits Institution (EOBI). In this respect, the federal government must coordinate with provincial governments to launch income support programmes for the poor working class and clamp down upon the hoarders who are responsible for causing shortages in basic food items.
It was the slogan of the present government before the elections that it will play an instrumental role in framing such policies as would reduce the disparity between rich and poor in order to make Pakistan prosper and a welfare republic. Hence the state must fulfil its constitutional responsibility by acting promptly, rather leaving it to the invisible hand of market forces.
The writer is a human rights activist,lawyer and teacher.