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How Government Can Escort SMEs during the Current Economic Meltdown?

By 19/10/2022 0 Comments

The floods and economic meltdown are discouraging the startups as they are unable to operate at the break-even point. The recent floods affected 118 out of 160 districts of Pakistan, whereas 78 out of 143 districts were affected in 2010. As per the government survey, moderately and severely affected districts were performing well in business activities. In Pakistan, 90% of enterprises are SMEs and these are categorised into trading, manufacturing and services SMEs. It is contributing 40% to the GDP and is responsible for generating 25% of exports.

The torrential rainfall adversely affected all SMEs. But manufacturing SMEs (which include textile, leather, food and agriculture) faced huge losses as compared to service and trading. The floods have damaged their inventory and stocks and disrupted access to power and gas supplies, affecting labour availability.  More than two dozen SMEs are located across Punjab and floods damaged the infrastructure of SMEs located in the Southern area of the districts. Whereas, Balochistan and Sindh district situation is even worse as most of the infrastructure has washed away. In KP, SMEs related to tourism has affected, most notably hotels and restaurants, which have lost almost all business and it might take them some time to get their clients back.

Apart from floods, the economic crises in Pakistan compel micro and small enterprises to shut down their operations. The country has a complex business ecosystem that requires various procedures and approval to initiate it. However, the unstable macroeconomic environment, with the rupee devaluation as a result of a negative balance of payments, escalating geopolitical tensions, and an unstable political system have reduced the confidence of businessmen.

Government has to change its focus from merely investing in brick-and-mortar infrastructure which is the dead capital towards revenue-generating business. The resource-scarce government should reach out to international donors and NGOs to seek exclusive funding for reviving SMEs. Moreover, the government has to provide concessional loans to SMEs located in flood-affected areas. To facilitate during the recession period, the government has to reduce their taxes and provide subsidies on electricity and gas supplies. It is a dire need to promote a start-up culture by reducing entry barriers and improving the regulatory framework. 

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