Health crisis and unstable economy of Pakistan

434

Samina Sabir Khan

MINISTRY of Finance has unveiled economic survey of Pakistan of the FY 2019-2020 at the time of high uncertainty when COVID-19 has halted our economy. It has been mentioned that economy of Pakistan has recorded negative economic growth of 0.38 per cent owing to lack of fiscal discipline, lack of planning and coronavirus crisis. It is the lowest growth rate ever recorded in the past 68 years due to COVID-19 pandemic coupled with fragile financial situation and stabilization policies pursued before the pandemic hit Pakistan. Moreover, industrial and services sectors have shown negative growth while agriculture sector has reported positive growth of 2.67 per cent. Pakistan has availed the IMF’s 39-month extended fund facility (EFF) arrangement in July 2019 to stabilize aggregate demand pressure and to curb fiscal and current account deficits (Twin deficit).
It is remarkable that fiscal deficit has reduced by 4 per cent and current account deficit has decreased by 71 per cent respectively. However, it is disappointing that output growth of manufacturing sector has contracted by 3.4 per cent from July 2019 to January, 2020. Before the outbreak of COVID-19 in Pakistan, the State Bank of Pakistan had kept the policy rate at 13.25 per cent to dampen inflationary pressure but it has deaccelerated investment in Pakistan. Macroeconomic stabilization program, currency devaluation and high policy rate have badly affected the industrial sector of Pakistan. Moreover high inflation had also curtailed the purchasing power of the poor consumers, and resulted in decrease in aggregate demand that further slowed down economic activities in Pakistan. This has ramped up unemployment and poverty that are the pressing issues of Pakistan in economic discourse.
The outbreak of COVID-19 in Pakistan in March 2020 and then nationwide lockdown from March 13, 2020 further jeopardized the wobbling economy. This lockdown decreased the industrial, services and agricultural activities that resulted in massive unemployment and declined revenues generation of the government that has a ripple effect on the economy. Even after lockdown, government could not take the timely needed policy measures and steps that all other countries were taking to cope with challenging situation. For instance, the SBP took decision to reduce policy rate after a lot of delay that created uncertainty among the investors and it has indeed hampered economy due to low investment. Ultimately, economic crisis was already indulged in Pakistan and health crisis in the form of COVID-19 pandemic has further triggered it and further transformed into financial crisis.
Remittance inflows into Pakistan are serving as a lifeline that not only buttress households but also provide much needed tax revenue. Remittances of Pakistan have exhibited attenuated growth due to upward trajectory in global unemployment rate due to slow down of economic activities that have negative impact on Pakistan economy. As global economy is in deep recession and it will further slash down remittances growth that has huge repercussion for wobbling economy. For instance, this will likely to heighten economic, social and fiscal pressure on the government that is already struggling in normal time to cope with these socioeconomic problems. COVID-19 Bulletin of Pakistan Institute of Development Economics has projected that remittance inflows have decreased by 5 per cent in the first quarter of 2020 due to outbreak of pandemic in many developed countries. However expected growth of remittances depends on the recovery of global economy. It is pertinent to mention that there is not only a risk of reduction of remittance in future but more pressing and challenging will be the arrival of returning workers owing to joblessness that will surge unemployment in Pakistan.
Despite aforementioned potential problems and challenges, government of Pakistan has taken the decision of easing of lockdown in haphazard to please the traders and businessmen without considering the consequences of spread of Coronavirus and it’s wreaked havoc on human lives. Today Pakistan has surpassed China which was the epicentre of this lethal pandemic. After relaxation of lockdown, exponential growth has been observed in infected patients that is alarming and this needs a serious attention of policy makers and government. It is expected that Pakistan has to opt another lockdown if it could not contain the spread of Coronavirus and reduce the fatalities in a short span of time. If it happens again, this will give a huge loss to Pakistan’s economy but no other option remains to contain the spread of lethal novel virus. Although international financial institutions such as the World Bank, Asian Development Bank (ADB) and International Monetary Fund (IMF) are providing the much needed support to Pakistan to cope with COVID-19 pandemic crisis with less losses but ultimately success depends on the governance and transparent policies of the government. At this moment, top leader should give first priority to the life and health of people. Government should put her best efforts to contain the spread of pandemic and flatten it. Otherwise economy will die later but people will die first. Moreover government should roadmap the right policies to rescue the wobbling economy and roll it over to the public to gain the confidence of the masses.
—The writer is Assistant Professor, Institute of Economics, the University of Azad Jammu and Kashmir Muzaffarabad.