By Muzzammil Islam
March 22, 2020 (MLN): COVID-19 virus outbreak now is coming home from overseas. Remember virus has no borders. Therefore, you cannot sit-back and avoid. Originated from Wuhan the COVID-19 have hit 186 countries in the world and majority are fighting with it.
The COVID-19 is hidden enemy and hard to defeat , unless coordinated efforts are executed by all nations. China took extreme measures, formulated national coordinated policy and applied it in one go. From locking down the cities to financial markets, factories and offices and extending its annual Chinese New Year Holidays for more than 10 days. She has not only ensured health emergency but also financial, monetary, fiscal, border, law & order emergencies to counter the virus from spreading. Similarly, rest of the world is putting all measures in place and doing their best to protect the interest of their citizens by applying health checks and economic measures.
What has Pakistan done so far?
Unfortunately, we are still busy in politics, point scoring and blame game. The battle is on between opposition & government. Although after 18th amendment the health is provincial subject and they have more fiscal space to invest in health, but they are still looking at Federal government for funds & direction.
Till today only SBP has offered some hand to mitigate liquidity and investment related concerns. It began with slashing in Policy rate by 75bps, can be debated sufficient or not. Followed by concessionary borrowings for new investments by Rs100bn and Rs5bn for Corona related medical equipments at zero percent. Later it announced comprehensive liquidity package for exporters to save them from unforeseen drop in orders and supply chain. However, domestic industries are encountering the same situation and need a dire concessions from SBP. Let’s hope some concessions for domestic industries will be announced on Tuesday.
No fiscal measures from Provincial & Federal Government reported.
*Province- disappointed as always*
Let’s start with provincial governments. This year provinces will get Rs3.3trn as transfers from Federal Govt, up by Rs1trn from last year. They don’t have to pay much for debt. In my view, they have huge fiscal space to relocate resources to health than federal government. But unfortunately, provinces are still looking at Federal government for rescue. Moreover, no efforts have materialised to cushion the daily wagers and the industries. Immediately all provinces at least should cut the provincial sales tax to protect the businesses and employment.
*Federal government- always late*
The fiscal policy response never comes before time. It always follows the crisis. Our Finance Minister is still figuring out the damage and looking at IMF permission for fiscal response. Things like cut in petroleum product prices (inline with international prices), deferment of utility bills in instalments, cut in taxes can encourage lot of local business continuation. But unfortunately, we are waiting for Industries to either go for strike or bankrupt.
Prime Minister, on Friday reported that he will announce economic package on Tuesday. I suggest him to formulate balance package for business and poor friendly. We cannot avoid both.
Lastly, financial markets are backbone for every economy. Government revenues are based on sound financial markets. So far SBP and government focus is on commodity producing sectors and nothing for financial markets. SBP should also relax the stringent regulatory reporting for banking sector and SECP should further ease its regulations towards protection of investors. Some policy steps mentioned below can support the market sentiments and reduce the panic.
1. *Special Financing Facilities*:
SBP should approve a special facility of Rs. 20 to 25 billion for purchase of shares, (a list can be issued for approved shares). This should be one time special arrangement for a fix term of 3 to 4 Quarters only with a to 12 with a fixed rate of 9% against fresh purchase of shares from market. A cheap mid term facility will provide opportunity to buy shares in this panic.
It can be offered through banks or a special counter or through PSX.
2. *Financing Facilities for Purchase of Group or Associated Companies shares*:
Prudential Regulations need a temporary arrangement to provide one time facility for 18 months period under which banks are allowed to accept these shares as collaterals. This should also be against fresh buying only.
3. *Relaxation in Rules for Purchasing Associated or Group Company shares*:
If a listed Company Directors own more than 51% can invest in group companies share by greeting approval of BOD, instead of 4 to 6 weeks long share holders approval process.
Private Limited company can buy with consent of BOD and Majority shareholders by way of approval of Resolutions through circular.
4. Provident Funds investment limit in shares only banking sector should be increased.
5. Government institutions like State life, EOBI, Pension Funds of Federal and Provincial governments should allow to invest 2% to 3% of their funds, to invest in government owned shares of other selected.
As highlighted above special time needs special measures and it’s time to prove that our leadership is capable enough to defeat the hidden enemy.
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