More than one year has passed but the battle against pandemic still continues. Governments and businesses are struggling hard to reduce the damages caused by the on-going Covid-19 pandemic to the socio-economic fabric across the world without any discrimination of rich or poor. While the analysts and medical scientists are busy in categorizing its spell into wave-1, wave-2 and at some places even wave-3, the arrival of the vaccine and marathon campaign to administer it, fortunately faded away the looming dark clouds of fears and uncertainties to a great extent.
With the approval and rollout of the long awaited coronavirus vaccines, expectations of an early global recovery have strengthened, despite rising Covid-19 cases and persistent uncertainties surrounding the economic outlook. In its Global Financial Stability (GFS) Update released on January 27, 2021, the International Monetary Fund (IMF) underlined that until the vaccines are widely available, the market rally and the economic recovery remain dependent on continued monetary and fiscal policy support. Inequitable distribution of vaccines risks worsening financial vulnerabilities, especially for developing economies.
GFS Update further mentions that: i) policy accommodation has mitigated liquidity strains so far, but solvency pressures may resurface in the near future, ii) profitability challenges in the low-interest-rate environment may hamper banks’ ability and willingness to lend in the future, iii) policymakers should continue to provide support until a sustainable recovery takes hold as under delivery may jeopardize the healing of the global economy, and iv) with monetary policy anticipated to remain accommodative in coming years, policymakers should contain rising vulnerabilities to avoid putting growth at risk in the medium term.
In Pakistan, the on-time, precise and closely monitored policy measures taken by State Bank of Pakistan (SBP) and the Government of Pakistan on monetary and fiscal fronts saved the economy from plunging into any recession like situation, particularly in early days of the Covid pandemic, when economic activities, including transportation, went through the general lockdown. The SBP policies introduced during the first spell of Covid-19 including i) Reducing the policy rate by a cumulative 625 basis points from 13.25 percent to 7 percent, ii) Temporary Economic Refinance Facility (TERF) is a concessionary refinance facility aimed at promoting investment both new and expansion, iii) Loan Extension and Restructuring Package of State Bank of Pakistan (Debt Relief Scheme), and iv) SBP Rozgar Scheme to prevent layoff by financing wages and salaries of employees (permanent, contractual, daily wagers as well as outsourced) for six months for all kinds of businesses except for government entities, proved successful in avoiding transformation of corona riddled health problems into a full-blown economic crises.
All the schemes offered by SBP were overwhelmingly responded to by the target groups who availed these priority/concessionary finance schemes to keep their businesses going in the difficult times when uncertainties were at their peak due to unchecked spread of Covid-19. Continuing upon the past efforts, the formidable challenge is now to decide about the future course of action to enable the businesses to stay competitive in domestic as well as international markets in post vaccine era. While different options are on the cards, we may also consider to set the recommended safe limits of ‘twin deficits as percent to GDP’ for the time being and prioritize more on generating and maintaining aggregate demand at a level sufficient to create employment opportunities, necessary to overcome pandemic inflicted economic adversities.
Since the coronavirus is not going to become extinct in the near future but will stay with us like many other curable diseases, it is our turn how we react to this and to what extent we bring change in our attitude to accept this emerging reality. Jack Welch (1935-2020), a writer and Ex-CEO of General Electric has rightly said that “Change before you have to.” In other words, the sooner we learn to live with it, the better we would be getting out of it.