State Bank wants growth-inducing policies for recovery

KARACHI: The State Bank of Pakistan (SBP) on Monday stressed need of growth-inducing policies to reinforce recovery in domestic demand crippled by the coronavirus-sparked lockdown.

The SBP sees uncertainty about over the time for which the lockdown would stay in place. “The longer these measures are in place the more severe the impact will be on the economy,” it said in the fourth video in the series to explain: how could COVID-19 impact Pakistan economy going forward.

“If Pakistan manages to flatten the COVID curve soon and reverses the containment measures in a definite manner then we can hope for early supply side recovery.” The State Bank said manufacturers, transporters, retailers can all be expected to reposition themselves and make all-out efforts to compensate for the earlier losses.

“Domestic demand may remain suppressed as higher unemployment and weak consumer confidence would weigh in,” it said. “Nonetheless, recovery can be reinforced with the help of growth-inducing economic policies.”

The SBP doesn’t see much difference between the COVID-19 impact on the economy and other calamities. There always happens to be “a sudden disruption followed by reconstruction and recovery and ultimately return to normalcy”.

“The difference is that the disruption caused by COVID-19 is more widespread and prolonged,” it said. “Shopping malls, restaurants and other public spots remain closed or severely curtailed and all economic activities have been scaled down.”

The SBP, in the past, also said the extended lockdown poses risks to the economy because of the country’s multidimensional poverty, high consumption rate and informality in job market.

The SBP said very high informality in job market increases the risk of layoffs and decreases earnings. Since the consumption rate in the country is the highest among the regional economies, this means that GDP growth is vulnerable in a limited mobility scenario.

Pakistan’s economy was striding towards growth pace under an International Monetary Fund-backed reforms program before the coronavirus outbreak. Following the lockdown, the SBP projected growth to contract 1.5 percent this fiscal year.

The SBP warned that if the domestic spread continues to accelerate then the healthcare outcomes will be much worse, healthcare facilities stretched and lockdowns strictly tightened.

“This will further suppress economic activities and can potentially create an existential threat to micro and small businesses,” it said. “Consequently, more funds will be spent on healthcare and vulnerable households, whereas overall economic policies will be fixated on businesses’ survival and growth.”