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Capital suggestion

March 22, 2020

War chest

Opinion

March 22, 2020

Red alert: Unless the government comes up with a solid Rs6 trillion war-chest (15 percent of our GDP) our economy is heading towards disaster. We must fight two wars: one against the virus and the other to save the economy from unmitigated disaster.

The only power that can now save the economy from a complete disaster is the government. Two things. One, export orders are sharply down – because global demand has tanked. Two, Pakistani consumers – after paying out Rs600 billion in additional electricity bills and Rs700 billion in new taxes – have no purchasing power left. That’s a recipe for disaster.

The SBP has already played not one but two cruel jokes. First, the Monetary Policy Committee cut its policy rate by 0.75 percent to 12.5 percent (the same in the US is 0 percent; UK 0.25 percent, India 5.15 percent, Bangladesh 6 percent and Sri Lanka 7.5 percent). Second, the SBP announced a ‘Temporary Economic Refinance Facility’ to provide financing for setting up of new industrial units. SBP please wake up; no one is setting up new industrial units and every central bank in the world is coming up with corona packages to save business units already under stress.

The US is working on a $1 trillion coronavirus war-chest (5 percent of GDP) that includes payouts to individual Americans ($500 billion in order to boost household demand); $50 billion airline industry bailout; $300 billion small business interruption loans and $150 billion other affected industries bailout.

Germany has unleashed the “biggest post-war aid package against the coronavirus”; a $600 billion war-chest (15 percent of GDP). This war-chest will “shore up companies, offering them unlimited credit to keep their businesses afloat”. The $600 billion war-chest is just for starters. Peter Altmaier, the economy minister, said, “We will reload our weapons if necessary.”

The UK has unveiled a $420 billion war-chest by announcing ‘lifeline for firms hit by coronavirus’ (15 percent of GDP) that includes “loan guarantees and provide a further 20 billion pounds in tax cuts, grants and other help for businesses facing the risk of collapse from the spread of coronavirus.”

France has announced a $320 billion corona war-chest (15 percent of GDP) that includes $48 billion for the more than 3.5 million small business and other hard-hit sectors of the economy. There’s $9 billion linked to forced part-time employment and $2 billion for the self-employed and shopkeepers.

The SBP must save Pakistan’s corporate citizens and Pakistani families from corona-induced economic disaster. The SBP must do two things: bailout affected industries and boost household demand (some of these measures – guaranteeing business loans, for instance – do not require any upfront funding). We must not expect other countries to help us out because they all have their own problems to deal with.

Do we know our enemy? We would need to overwhelm the enemy with speed. Do we have a strategy to fight this war? Mitigation? Suppression? Lockdown? The Italian Army is enforcing the lockdown. The British Army is set to be on streets for up to six months. The National Guard is being activated in the United States. The German Army has been called in. The Malaysian Army is being deployed.

Yes, we are in a state of war. Question: Do we have a war-chest? Answer: None so far. Fighting a war without a war-chest and expecting to win!

The writer is a columnist based in Islamabad.

Email: [email protected] Twitter: @saleemfarrukh