SBP LEGISLATION TO SUPPORT THE ECONOMY OF PAKISTAN IN EPIDEMIC OF COVID-19

Categories: Asma Raza

COVID-19 is rapidly spreading worldwide and has devastating effects on the lives of many people. As countries block and tighten protection measures, the virus enters a path of disruption in all areas of society.

At the time of writing this article, the number of cases related to the world brought the United States, Spain, Italy, France and Germany to the top according to confirmed cases. With the exception of China, the major global economic blocs represented by the United States and Europe / Great Britain can continue to significantly suppress demand due to the considerable difficulty in controlling the spread of Covid19 Limited ammunition has already been used in the form of lower interest rates, and the historically significant asset purchase programs initiated by the Federal Reserve will have limited impact in the near future, as consumer attention remains focused on questions of health and quarantine.

For Pakistan, the total number of confirmed cases of COVID-19 is currently in circulation. So far 9750 have been reported with 209 deaths. The early school closure, total / partial blockades in all provinces, the effective quarantine of the return of Pakistani citizens and daily surveillance have helped to maintain the current rate of spread of the virus compared to global data.

Role of State Bank in COVID-19 Pandemic to Support Economy

Since the COVID-19 epidemic, State Bank of Pakistan has taken a number of measures to support the economy. Some of the key Legislation and finance schemes are listed below:

Refinancing Program For Wages And Salaries Of Employees And Business Concern

In order to support the employment of workers in the face of the economic challenges posed by the proliferation of COVID-19, the Pakistan State Bank (SBP) has established a temporary company refinancing system called the Refinancing System for Payment of Wages and treatments. The main objective of this structure is to encourage companies not to fire their employees during the COVID-19 pandemic. The system will be accessible to all Pakistani companies through banks and will cover all types of workers, including permanent and contractual daily wages and subcontracted workers. The system provides for financing salary costs for three months, from April to June 2020, for companies that do not fire their employees during these three months.

The supplement for loans granted under this scheme can be up to 5%. Borrowers on the list of active taxpayers can obtain loans with an additional reduced premium of 4%. The program was developed to promote small businesses. Companies with a salary of 3 months and a payroll of up to Rs 200 million will be able to use all their financial expenses, while those with a salary of 3 months and salary expenses higher than Rs 500 Millions can use up to ” 50% of their expenses. Medium-sized companies can use up to 75% of their salary and wages for 3 months.

Banks do not charge loan processing fees, credit limit fees, or prepayment penalties for loans made under this system. Borrowers have a six-month grace period, while principal is repaid in two years. Banks send the SBP weekly notification of acceptance of the system and, in particular, of the reasons for the rejection of applications for financing under the system.

Flexible Finance Facility to Hospitals & Medical Centers

One of SBP’s first steps was to support hospitals that led the fight against the disease by providing them with a structure to meet their financial needs, namely simple refinancing of SBP for the fight. COVID – 19 (RFCC)

Hospitals and medical centers involved in the fight against COVID-19 can now benefit from the financing of their existing equipment, as well as the purchase of refurbished equipment if it is used to create special facilities. / Insulation room for COVID -19. In addition, the maximum coverage of 60% for construction works aimed at creating separate / insulating structures has been improved from 100% to 100%. Banks were asked to ensure that the funds provided for under this instrument were used as intended. The above changes are aimed at making it easier for hospitals / medical centers to use the SBP refinancing option.

Reduction in Interest Rate

The State Bank’s Monetary Policy Committee issued a statement announcing the decision to lower the basic rates by 200 basis points to 9%. This reduces future real interest rates (defined as the exchange rate minus expected inflation) to around zero, which is at the center of the range in most emerging markets. The interest rate has been lowered considering the situation of the corona virus in the country. The interest rate fell by 4.25% in one month.

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