Pakistan’s COVID-19 Response: Help the SMEs, please @Government of Pakistan

SME’s need help!

The need for the government to help small and medium businesses is growing by the day as the lock-down continues. This has also been a key issue discussed during the daily virtual global-national brainstorming meetings being spearheaded by PIDE. How should the government help these SMEs during this pandemic and resulting economic slowdown?

In the previous discussion “Pakistan’s COVID-19 Response: What of the Small and Medium Enterprises?” the significance of helping SMEs was highlighted and questions were raised about adequacy of the government’s COVID-19 fiscal support package and about who will be spearheading cause of the SMEs. [https://empowerpakistanbyazd.blog/2020/03/31/pakistans-covid-19-response-what-of-the-small-and-medium-enterprises/]

SMEs matter to our economy!

Allow me to refresh our collective memories. Somewhere between 3 and 4 million SMEs collectively provide 90 percent of the overall employment in Pakistan. Excluding the agriculture sector SMEs, 78 percent of the workforce is SME based. SMEs add 30 percent to 40 percent to the GDP of our country—depending on whose numbers you believe. They are spread in the proportion of our population across our provinces.

These SMEs are in almost every imaginable sector: 10 percent in Wood & Furniture; 4 percent in Jewelry; 16 percent in Grain Milling; 5 percent in Art Silk; 4 percent in Carpets; 7 percent in Metal Products; 13 percent in Cotton Weaving; 6 percent in Other Textiles; and 35 percent in Other Sectors.

This last “Other Sectors” is important. Technology and other start-ups, intellectual services providers, and so on constitute this “Other Sectors” category and are really where a lot of the employment for those with higher education is concentrated. The IT SMEs contributing to our exports fall within this category.

The CONVID-19 resultant layoffs will hurt SMEs more than the big-industry!

PIDE’s recent analyses in its recent CONVID-19 response bulletins on “Impact on Employment – Layoffs” [https://www.pide.org.pk/pdf/PIDE-COVID-Bulletin.pdf and https://www.pide.org.pk/pdf/PIDE-COVID-Bulletin-4.pdf] show the we are heading toward a vulnerable employed layoff in the neighborhood of 20 mil persons. Taking the range of estimates available, we have between 30 and 40 million Pakistanis employed by the SMEs. What the layoff estimates mean to SME sector is anyone’s guess, yet it would not be unreasonable to assume that almost a third to half of the SME sector employees are at risk if this slow down continues another month or so.

SMEs are not benefited by the post COVID-19 relief measures posited by the State Bank of Pakistan (SBP)

There is very little credit to the SME sector. SMEs finance is around 7 percent of the total private sector financing in Pakistan. The total outstanding SME financing per SME is barely 2.4milPKR per SME—way lower than even the allowed exposure of up to 25milPKR by SBP. This is further verified when we find that 83 percent of all credit by the SBP and scheduled banks is to the government sector (including State Owned Entities or SOEs). So, deferment of loan payments, lowering of interest rates, and other such financial measures really don’t by and large impact the SME sector of Pakistan.

SME Financing by State Bank (Rs in Billion)Jun 19Sep 19
SME Financing (outstanding)464.86422.12
Domestic Private Sector Financing6,200.06121.1
SME Financing as percentage of Private Sector Financing7.50%6.90%
SME NPL ratio17.04%18.95%
No. of SME borrowers183,606182,149

Supporting Pakistani SMEs requires direct support to them through innovative approaches which may have multiple impacts

Government of Pakistan should directly offer to support the SMEs as follows.

A) Provide wage and rental subsidies to SMEs who have tax registration with FBR; this can be in the form of cash payments directly to SME employees and to lessors.

B) Advertise that all SMEs registering with FBR through a simplified registration procedure will get all the same subsidies.

As a start, both these measures will compliment the cash payment schemes for through the Kafalat program of Ehsas and will have a higher stabilization impact than supporting large businesses at this time.

 

Acknowledgements to contributors

Useful inputs for this blog were received from Ms. Uzma Zia (Senior Research Economist) and Dr Usman Qadir( Senior Research Economist), both at the PIDE.

 

References other than those listed above

Economic survey 2018-19

Akhtar S. H. Shah (2018) Framework for SME Sector Development in Pakistan, Planning Commission of Pakistan Ministry of Planning, Development & Reform Government of Pakistan

SBP website (http://www.sbp.org.pk/sme/index.htm)

Quarterly SME Finance Review(2019), SBP (http://www.sbp.org.pk/sme/PDF/DFG/2019/Sep.pdf)

SMEDA (https://smebank.org/media-center/sme-sectors-brief/)

Zafar, A., & Mustafa, S. (2017). SMEs and its role in economic and socio-economic development of Pakistan. International Journal of Academic Research in Accounting, Finance and Management Sciences6(4).

Published by #empowerpakistanbyazd

Amer Zafar Durrani is the President of Reenergia and Paidartwanai. He is an acknowledged development expert and entrepreneur with thirty five years of global experience spanning more than twenty four countries—of which almost 18 years were spent with the World Bank Group. His present work keeps him engaged in Pakistan, China, Somalia, South Sudan, Kenya, Philippines, Afghanistan, Kazakhstan and Tajikistan amongst others. He is now based in Pakistan and developing Reenergia as first of its’ kind ‘do-tank’—innovating and delivering solutions for improving lives while making a profit. In parallel, he has set up Paidartwanai Private Limited, an energy supply and consulting company with a mission to develop sustainable provision and consumption of energy through increasingly distributed and renewable energy systems. Amer is also a Senior Fellow at Pakistan Institute of Development Economists. He is also the Industry Co-Chair on the Energy Corporate Advisory Council in National University of Sciences and Technology, and a partner to NJHR, Geopolicity and RIZ Consulting. He continues supporting, through Reenergia, Pakistan Poverty Alleviation Fund (PPAF), International Trade Center (ITC), the Asian Development Bank (ADB), the World Bank Group, and the United Nations Office for Project Services, amongst many global organizations. In his personal capacity, he has been lecturing at the National Defense College and University (Islamabad), National School of Public Policy and University of Birmingham. He frequently appears as invited special guest in Media (TV and Radio) on issues relating to public policy and is a regularly speaker on various other international and local forums. Amer speaks Urdu, English, Punjabi, and can has working knowledge of Arabic, Russian and Dari-Persian. He is a graduate of the University of Texas, Austin, USA and has trained at the National Defense University, Pakistan and Lahore University of Management Sciences. He can be reached at adurrani@reenergia.com and adurrani@1818aluminwbg.org.

2 thoughts on “Pakistan’s COVID-19 Response: Help the SMEs, please @Government of Pakistan

  1. Sir its good to see that there are intellectuals that are seeing the bigger picture and are givingbgood suggestions. I hope the government takes action.

    I especially like the mention of government taking innovative approaches and that they will have multiple impacts.

    If our government helps the registered businesses and base that monetary help on the taxes the people and businesses are paying. That will make the tax payers feel better and more businesses will register and start paying taxes. Which will be a really good step for our country and the people.

    Like

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