State Bank governor hopeful about economy despite corona

ISLAMABAD: State Bank of Pakistan (SBP) Governor Dr Reza Baqir Friday said that slashing the interest rate by 225 basis points is the second major reduction in the world.

2Talking to Shahzeb Khanzada in Geo News programme ‘Aaj Shahzeb Khanzada Kay Saath’, the SBP governor hoped that these actions would bring the recession level down. Saying the government’s priority is to kick start the process of development and to show stability in the job market the governor said that the current statistics for inflation suggest that the prices would come down in days to come.

Claiming the reduction in prices in the last couple of months, he said that the central bank decides about interest rate cuts on the basis of level of inflation. He said that the capital was flying out of all the emerging market.

Replying to a question about depleting foreign currency reserves the governor of the central bank agreed that the reserves have seen a fall but added that similar situation has been experienced by many other countries. He said the situation would’ve been worse had this virus affliction hit Pakistan a year ago.

He claimed that Pakistan’s economic fundamentals were strengthening before the coronavirus arrival, all indicators were showing improvement, stock market activity was positive, exchange rate was coming down, and international investors were showing interest in Pakistan. He said that the fundamentals were still intact

Our correspondent adds: Earlier, the SBP introduced a temporary refinance scheme for businesses entitled Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns with a view to support the employment of workers in the face of economic challenges posed by the spread of COVID-19. The core objective of this facility is to incentivise businesses to not lay off their workers during COVID-19 pandemic, says a press release of the State Bank of Pakistan issued here on Friday.

The scheme will be available to all businesses in Pakistan through banks and will cover all types of employees including permanent, contractual, daily wages as well as outsourced workers. The scheme will provide financing for wages and salaries expense for three months from April to June 2020 for those businesses which do not lay off their employees for these three months.

The mark-up on the loans under this scheme will be up to 5pc. Borrowers that are on the active taxpayers list, will be able to get loans at a further reduced mark-up rate of 4pc. The scheme has been designed to give preference to smaller businesses.

Businesses with a three-month wage and salary expense of up to Rs200 million will be able to avail the full amount of their expense in financing while those with a three-month wage and salary expense of greater than Rs500 million will be able to avail up to 50pc of their expense. Businesses in the middle category will be able to avail up to 75 percent of their three months’ salary and wage expense.

The banks will not charge any loan processing fee, credit limit fee or prepayment penalties for loans under this scheme. A grace period of six months will be allowed to the borrowers while the repayment of the principal amount will be made in two years. Banks will provide weekly reporting to the SBP on the take up of the scheme and in particular the reasons for any denials of financing requests under this scheme.