Central bank's role in combating recession.

Byline: Jawaid Bokhari

REMAINING within the existing monetary policy framework -- onth 'Refinancing Scheme for Payment of Wages and Salaries' which will enable businesses to get cheap loans with easy re-payment facilities to avoid layoffs. The scheme will cover all types of employees including contractual wage workers as well as outsourced workers in small- and medium-sized enterprises.

Another notable feature of the scheme is the two different lending rates: 4 per cent for borrowers on the active tax payments list and 5pc for the other category of businesses. Earlier, among other measures, the central bank had reduced interest rate for industrial investment to 7pc.

The scheme is seen by trade bodies as something encouraging but for suggestions such as the cut in interest rates and interest-free loans. The big businesses also want to be included in the scheme. Nonetheless, the small subsidiaries/sister firms run by big business groups may qualify for this scheme.

In a way, the State Bank is sharing the burden of the cash-strapped government in overcoming the adverse impact of Covid-19 through tax cuts and enhanced public spending to provide relief to firms and households. Selectively, the tight monetary policy is being temporarily and more widely relaxed as the current low falling economic growth carries the risk of recession.

Governance is getting more and more complicated and the solution lies in the wider dispersal of rights and responsibilities with a sound system of coordination and accountability

Pakistan faces a sharp economic recession along with a skyrocketing fiscal deficit while its external sector is coming under serious stress, says the latest World Bank report titled 'South Asia Economic Focus.' The International Monetary Fund estimates the country's economic growth at negative 1.5pc this fiscal year. And economist Sakib Shirani points out: 'we should be worried more about deflation than inflation in the months ahead.' In the US, some leading economists have even called for an end to inflation targeting by central banks.

The record shows that central banks in countries such as China, India and Brazil, considered less independent by western standards, performed better than more independent central banks in Europe and the United States in times of crisis. The objective of monetary policy in China is to maintain the stability of the currency and thereby promote economic growth.

The World Bank report on South Asia says the...