The continuous spread of corona virus forced International Monetary fund to revise global growth forecast downward. The global growth will now land in a negative territory of minus 3 percent in 2020. Evidence suggests that the cumulative fall in output could reach to more than 9 trillion dollars in the coming couple of years. Estimates of the International Labor Organization indicate that there will be a loss of 6.7 percent of working hours globally. World Bank and other estimates indicate that the current crisis will be particularly hard in terms of economic disruptions for third world and poor countries.

Pandemics not only bring miseries to the people's lives but also costly for the governments. The frequent shutdowns deprived the governments of tax revenue. On the one hand, revenue decrease and on the other, government is spending huge amount on health, social safety nets and social assistance. The shrinking fiscal space is a budgetary cataclysm. Based on the World Bank estimates, lockdowns and the resulting economic consequences will send millions below poverty line in underdeveloped and poor countries. The majority of the dependents, children and women, live in poverty will experience malnutrition and under nourishment thus increases demand for social safety nets.

Cohesive public policy is needed to deal with these massive disruptions. International financial institutions including Asian Development Bank, World Bank and International Monetary Fund extended helping hand and showed phenemenonal generosity towards third world countries and Pakistan is no exception. International monetary fund has already extended one year debt relief to Pakistan. State Bank of Pakistan has also received 1.39 billion dollars under the Rapid Financing Instrument (RFI) from IMF to cope with Covid-19 pandemic. Asian Development Bank has repurposed 50 million dollars from Pakistan's National Disaster Risk Management Fund to support Pakistan's preventive and response efforts to fight the outbreak of the coronavirus disease in the country. World Bank also approved 200 million dollar package to help Pakistan in strengthening national healthcare systems and to minimize the socioeconomic disruptions caused by COVID-19. These efforts will provide the much needed fiscal space to focus on people who lives in poverty.

Besides these external efforts, domestic policy response demands deeper understanding of the intricacies associated with these social and economic disruptions. Many small businesses have already slashed their spending and lay off workers.

Domestic economy is shrinking and so GDP growth rate is downward revised. State Bank of Pakistan cuts the policy rate by more than 400 basis points to arrest the decline in economic growth. The cumulative reduction of 425 basis points in interest rate since March 17 will somehow ease the burden of worsening economic growth outlook.

The central bank has also introduced refinance schemes to support employment and prevent layoff of workers. Data indicates that retail sales and small and medium enterprises experience a significant decline in sale and activities across the economy. State Bank of Pakistan also encourages commercial banks to provide loans to small and medium enterprises without any collateral.

The central Bank also changes the liquidity requirement for commercial banks to encourage more lending to households and businesses including SMEs, corporate, commercial, retail and agriculture. These initiatives include a reduction in the Capital Conservation Buffer (CCB) from the existing 2.5 percent to 1.5 percent.

This will allow commercial banks to lend an additional amount of around 800 billion rupees to minimize the cost of these disruption phases. To reduce the burden on households and individuals, State Bank of Pakistan has also relaxed the Debt Burden Ratio (DBR) for consumer loans from 50 percent to 60 percent.

Like many other countries, lockdowns in Pakistan are saving people's lives but carry devastating implications for the livelihood of people, especially those who are unskilled and working in informal sectors. ILO estimates shows that the informal economy is accounted for more than 70 percent of the employment in main jobs outside agriculture sector. Evidence suggests that these institutionalized arrangements made by the central bank are not likely to trickle down to the people engaged in the informal sectors.

Keeping in perspective the enormous economic cost of the pandemic crisis, the government needs to dive deeper and review the current policy response. The negative impact of the corona virus in terms of size and scope demands additional fiscal, monetary and other recovery strategies to finance and stimulate consumer's demand.

© Pakistan Press International, source Asianet-Pakistan