The State Bank of Pakistan’s (SBP) initiative titled “Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns” is indeed a welcome development aimed at mitigating the risk of mass unemployment. As businesses across Pakistan suffer cash flow issues due to the coronavirus pandemic, they are likely to lay off employees and enforce pay cuts to deal with the new normal. The SBP scheme aims to prevent just that by offering low interest refinancing.

Small businesses in Pakistan tend to employ between 10 to 50 people at most, with wages approximately ranging between Rs0.2 million and Rs3 million per month. The SBP has done well to launch an initiative to help these small businesses stay afloat, as they form a sizeable chunk of the economy. They are also most vulnerable owing to limited resources available to them. Perhaps the SBP should consider raising the Rs. 200 million ceiling for 100 percent refinancing so that maximum number of businesses can avail the opportunity. This will further prevent unemployment and keep the economy relatively secure. For the last two years, the only winners have been commercial banks owing to extremely high interest rates. Now is the time to pay back for the benefit of the country.

As for the refinancing scheme that has been launched, the SBP should ensure that an effective mechanism is put in place to guarantee transparency and effectiveness. Unfortunately, there is ample historical precedent of government schemes falling prey to opportunistic elements, depriving deserving recipients and costing the national exchequer billions of rupees. The global economic outlook is not very encouraging as per reports released by the World Bank and other financial institutions. Governmental policies will play an especially crucial role in the weeks and months ahead towards determining the economic health of the country. All in all, a good move by the SBP.