A meeting of the Monetary and Fiscal Policies Co-ordination Board (MFPCB) presided by the adviser on Finance Dr Abdul Hafeez Shaikh has been informed of serious impacts of coronavirus pandemic on GDP growth as well as on aggregate demand and supply and the country's exports.
At the opening of the meeting adviser on finance emphasized the need for arriving at consensus on targets of macroeconomic and policy actions to deal with the impacts of corona on economy and all organs of the state should play their role in this difficult time to fully capitalize their potential to achieve set macroeconomic targets as per their mandate.
The MFPCB meeting has taken place few days after a think-tack formed by the Prime Minister for inputs to deal with impacts of corona on the economy suggested further cut in policy rate.
Deputy Chairman Planning Commission suggested that the government should provide further support in terms of simplification of processes and lowering administrative burden on businesses, and help SMEs find some ways to cope with emerging situation.
He further stated that accommodative fiscal and monetary policies adopted by the government would be helpful in stimulating economic activities as corona virus eroded the confidence of both consumer and investors and consequently both aggregate demand and supply has been disrupted after the society is following risk aversion behavior.
The meeting was also informed that GDP growth may decline significantly for the current fiscal year and country's exports to remain at $21 to $22 billion.
Shaikh stated that stated that this high powered Board facilitates the policy makers to review and coordinate in an effective manner to adopt a comprehensive set of policy actions to overcome the economic challenges that we are facing at internal and external fronts. Secretary Finance gave an overview of economic performance of first three quarters pre Covid and post Covid challenges to the economy and stated that government was moving on path to stability and sustainable and inclusive growth through various structural and policy adjustments which began to pay off in the form of decline in current account deficit, fiscal deficit, buildup of foreign reserves, stable exchange rate, etc.
Thus for the first time primary balance posted surplus of Rs 104 billion during July-March first three quarters of the current fiscal year (0.2 % of GDP) as compared to deficit of Rs 474 billion (1.2 % of GDP) during same period last year, he added. The pandemic has brought multiple challenges for Pakistan's economy. Prior to corona virus, the GDP growth was estimated at 3.24% for 2019-20 and after pandemic it may decline significantly, he added.
The government has timely initiated a fiscal stimulus package of Rs 1.24 trillion envisaging emergency response, support to businesses and relief to citizens. Couple of other schemes approved by ECC and the Cabinet is also in place to minimize the adverse impact of the Covid-19.
Governor State Bank of Pakistan (SBP) Reza Baqir acknowledged the efforts of Ministry of Finance for curtailing fiscal deficit and achieving positive primary balance in first three quarters of current fiscal year. From Monetary perspective he briefed that SBP has given the stimulus to economy through cut in policy rate (425 bps) and increasing quantity of money by injecting additional liquidity.
He stated that SBP has introduced number of measures and some concessional refinance schemes to address both the demand and supply side conditions for businesses. These include Temporary Economic Refinance Facility (TERF), Refinance Facility for Combating COVID-19 (RFCC) and Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns. These measures are aimed at facilitating the businesses to remain afloat during the crisis times. On the demand side, a cumulative reduction of 425bps in the policy rate is expected to address the high cost of borrowing issue.
Adviser for Commerce and Investment was of the view that in prevailing situation exports will be around 21 to 22 billion, while imports will fall to 42 billion mainly due to decline in international commodity and oil prices. There is a risk of decline in remittances.
However, due to decline in imports current account deficit may not be adversely affected. Even in these testing times, Pakistan's exports to Africa and Middle East have remained positive and are growing which has been a direct outcome of the government efforts to explore new avenues in export markets.
Zaman emphasized the need for enhancing the capacity of institutions like Federal Bureau of Statistics for timely dissemination of authentic data that will be helpful to reset policy direction in the post Covid changing environment by setting realistic targets and to monitor and analyze the performance of relevant stakeholders.
Other members of the Board present in the meeting were the Adviser to prime Minister on Commerce and Investment, Deputy Chairman Planning Commission, Finance Secretary, Governor SBP and Dr Asad Zaman. The Chairperson FBR also attended the meeting on special invitation.
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