PBC says accords 'conditional' welcome to SBP's payroll subsidy

The Pakistan Business Council (PBC) says it appreciates the intent behind the State Bank of Pakistan's Refinance Scheme for Payment of Salaries to the Workers and Employees of Business Concerns, which aims to help sustain employment for three months: April to June 2020.

This is likely to be a period when a number of industries will be closed due to the lockdown and/or will be suffering from liquidity shortfalls as a result of the economic downturn, according to PBC. The PBC, however, identifies the following scope for improving the scheme:

"By linking the interest subsidy to the size of the payroll, it fails to fully assist the largest employers in the formal sector, who also generate the highest exports, pay more taxes and have higher investment and fixed costs to defray. The PBC believes that all employers in the formal sector should be able to benefit from this scheme. Aside from salaries, the larger employers also offer facilities that others don't and which add to their fixed costs.

"It comes as a surprise that the scheme would be open to employers not on the active taxpayers list. Be that as it may, the positive discrimination for active tax payers could have been 3%(instead of just 1%) in consideration of their higher standards of employment documentation and regular social security payments. The PBC recommends payroll overdrafts at 2% pa. This cost contrasts with cash handouts for sustaining employment in other countries.

"The PBC is of the view that the severe and growing impact of the Coronavirus crises, as well as a non-cost-push inflation of 5.2% in March with a downward trend, merits a reduction in the Policy Rate to 7%. The formal sector has liquidity needs besides payroll funding. The cost of doing business therefore, needs to be brought down across the board. Subsidized payroll overdrafts, nevertheless is a good start."-PR