Cover Story 
 

Cover Story

Moving Towards Reality

There is a shift in the quality of growth so that there is more focus on improving livelihoods of lower income households.

By Zafar Masud | July 2021


As the global economy recovers from the COVID-stricken economic crisis, the focus of policy-makers has shifted towards growth and job creation. Pakistan has done better than regional peers both in terms of managing the pandemic and stimulating the economy towards growth.

The COVID-19 crisis has been termed by the IMF as the worst global economic crisis since the Great Depression of the 1930s. The IMF estimated that the global economy contracted by 3.5% in 2020, with nearly all developed and emerging markets going into recession. The U.S. economy contracted by 4%, EU 8%, India 7.3% and the Gulf states 5%.

Effective data-driven response has helped Pakistan to control the pandemic and outperform other countries. The GDP growth has accelerated to 3.9% in FY2020-21, after a contraction of 0.5% in FY2019-20. Per capita incomes increased 13.4% to $ 1,543, reflecting strong growth and a stable currency. The economy posted broad-based recovery, with all sectors showing a rebound in economic activities, driven primarily by Government-induced measures.

A record fiscal and monetary stimulus package of Rs. 2.5 trillion (6% of GDP or US $16 billion) was unveiled by the Government in March 2020. The package focused on emergency cash assistance to 15 million families through the Prime Minister’s Ehsaas program, the largest ever social welfare transfers in Pakistan’s history, covering nearly 45% of the total population. The Government provided subsidy on essential food commodities and deferred utility payments for households and businesses. Record amounts of pending refunds were issued to exporters and the manufacturing sector through an industrial support package and a blanket discount on additional power consumption for the next 3 years was given to the industry.

The central bank moved decisively and cut policy rates to 7% (from 13.25%) in line with actions undertaken by the global central banks. Over 1.6 million businesses, including SMEs, were allowed to roll over Rs. 657 billion of debt to avoid defaults. A a subsidized credit scheme was launched to protect jobs, over 1.7 million workers were protected through the SBP Rozgar scheme. More importantly, the central bank encouraged new investments through the Temporary Economic Relief Facility (TERF), resulting in Rs. 435 billion of new investment from private businesses.

Perhaps, the most effective of impetus measure was the Construction Package, which has spurred growth in the labour-intensive housing and construction market. The estimated impact of the package is Rs. 300 billion with over a 1,000 projects registered with the FBR and due to be completed by 2023.This has led to growth of 8.3% in FY2020-21 in the construction industry.


The policy-making has now been shifted towards the quality of growth with focus on improving livelihoods of lower income households. The measures announced by the Government in FY2021-22 Budget are truly revolutionary and aimed at providing opportunities for low income and middle class households.

The Government has announced to pursue a bottom-up approach to ensure more even and just benefits of economic growth. The Finance Minister has announced the Kamyab Pakistan Program (KPP) which would be an extended and based on the more aggressive Kamyab Jawan Programme and the affordable Housing and Sehat Card schemes. The Kamyab Pakistan Program proposes to engage Micro Finance Providers (MFPs) through provision of cheaper liquidity for large-scale distribution of subsidized small loans to small enterprises, start-ups, farmers, and individuals for housing needs, under the Wholesale Financing model. The available Ehsaas data shall be shared with MFPs as an initial referral list for booking these new finances.

The Kamyab Jawan program is being extended to provide interest-free loans or qarz-e-hasana (up to Rs. 5 lakhs) to all unemployed persons with feasible ideas and to grass-root level entrepreneurs, including home-based businesses. The Government will fund mark-up payments through a budget subsidy. During the first year alone, over 100,000 entrepreneurs could potentially benefit from this scheme, leading to higher economic activity at the grassroots levels and more job creation opportunities. This segment of financing will be called Kamyab Karobaar.

Similarly, financing of Rs. 150,000 on crop inputs and, up to Rs. 200,000 will be made available for leasing Farm Machinery and Equipment, etc., to small farmers at zero interest/ mark-up rates and this will be labeled as Kamyab Kissan. Small farmers are defined as those having land holdings of upto 12.5 acres; they are almost 90% of the total farming segment in the country. This will incentivize small farmers to enhance productivity and scale-up production.

Another key incentive given under KPP is further subsidized loans/ financing to all citizens for low-cost housing finance. These long-term (to the extent of 20-years) financing facility of up to Rs. 2 million will supplement the Government’s construction package and the efforts of Naya Pakistan Housing & Development Authority (NAPHDA). For the first time, the Government is providing low income households with the opportunity to become home-owners or to build their own homes through subsidized bank financing; this is basically owning a house by paying the same amount in financing repayment as rent per month.

These interventions will not cost much to the Government, particularly in comparison to the benefits of these programs to the thousands of low income and middle class households. Lifting the quality of life of these households will bring a multiplier effect to the local economy and thus, outperform the costs manifolds.

To ensure sustainability of these efforts and their impact, the Government’s existing Skill Development Program has been dovetailed in KPP, under the banner of Kamyab Hunarmad.

This bottoms-up approach to growth marks a significant shift from earlier government policies of the trickle-down growth paradigm.

To foster economic growth, right policies and incentives packages are being provided by the Government. However, it is imperative that growth is sustainable and resilient to any future shocks. The COVID pandemic has provided the global community with an opportunity to build back better and in a secure fashion. In this context, the Kamyab Pakistan Sehat Card initiative aims at providing health insurance to the lowest income strata. It will be ensured that each new borrower gets a Kamyab Pakistan Sehat Card (co-branded with the respective agency), if not already a beneficiary of the Ehsaas Sehat program.

These are exciting times for Pakistan. All necessary ingredients are available for the country to foster a decade of high growth, built on sustainable policies, with uniform benefits across all segments of society.

Read More

Zafar Masud is the CEO of the Bank of Punjab. He is a seasoned banker and entrepreneur with over 25 years of leadership experience and has served in top positions in multinational banks in Pakistan and abroad.

Leave a Reply

Update