Around the globe, countries are trying to manoeuvre through the coronavirus; monetary and fiscal policies are extensively being used to ensure the economic impact of the pandemic can be adequately dealt with. Pakistan is no different. The Pakistan Economic Survey 2019-2020 has revealed that for the first time in over 63 years, Pakistan’s economy registered a record contraction of 0.4% during the past six months. The story only gets grimmer as we go forward.
The massive devaluation of the Rupee to its real value, rather than an artificial one, has had its pros and cons. The government tried to make the best of this devaluation by increasing the interest rates to 13.25% to encourage inflow of foreign reserves. Similarly, this enhanced desire to implement an import-substitution policy as commodities, which were freely imported before, became out of reach of people overnight.
As the new fiscal year began, the economy started to witness a remarkable turnaround which confirmed the government had taken appropriate policy recourse to address the macroeconomic imbalances. The stabilisation effort paid off with a sustained adjustment in current account deficit and continued fiscal prudence. As Pakistan was on its way to make a slow recovery to 2016 levels, the pandemic struck.
This global economic lockdown has been a bane all over. The World Economic Outlook (April 2020) projects global growth to contract sharply by -3 percent in 2020, and the loss to global GDP over 2020 and 2021 could be around 9 trillion dollars due to the global health crisis.
The impact of the pandemic has been widespread in Pakistan as well. Private consumption due to depressed consumer demand has decreased to 78.5% compared to 82.9%. On paper this may seem a small 4.5% decrease but if one were to do simple mathematics that’s a substantial $11 billion loss.
Similarly, private investment has dropped along with an increase in Foreign Asset holdings. All these problems compound to a ‘double-whammy’ situation; people are not investing instead are taking out money from cash flows to stock somewhere else; this is reminiscent of the Wall Street crash of the 1920s.
What this pandemic, however, has helped in doing is further highlighting the fundamental weaknesses of Pakistani economy: low tax to GDP ratio, reduced savings rate and minimal export growth with negligible value addition etc. also attenuated by misaligned economic policies. The once-bustling services sector, which boasted an increase of nearly 10% over the past two years, has contracted by 0.6%. The industrial sector continues to regress as it has virtually wiped out all it gained two years ago from the economy.
Remittances, the backbone of our continued growth over the years, will be hard hit by the global slowdown, massive lay-offs and a hiring freeze. All this begs the single most significant question: where do we go from here?
If ever in Pakistan’s history was there a time for reform it is now. People will argue that it was during the 2008 recession or it was after Pakistan was victim to ‘Pressler Amendment’. But never before in modern history has the global economy been hit in such unanimity. Every sector of every industry has been impacted mostly negatively.
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In Pakistan alone, the Ministry of Planning has estimated that 12.3 million to 18.5 million people in the country will lose their jobs. The economy will sustain Rs2 trillion to Rs2.5 trillion losses in just three months due to “moderate to severe shocks from the coronavirus outbreak” – now is the time to bring meaningful change.
Regulatory authorities must revisit their manuals and bring themselves up to speed with changing global standards. Health care must be prioritized along with education to ensure that the future will be in the best of hands. The FBR must finally be set straight. After multiple failed attempts to reform it, the goliath must finally be reined in and placed on the path of meaningful change. Internet connectivity must be enhanced to ensure a level playing field. Now is the time to set the right decades of wrong.
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Whose responsibility is it at the end of the day? It must be understood that, unlike the case in Pakistan, it is the people who are responsible for ensuring such changes. The first words of the US constitution are ‘We the people’. Political change can only come when people want it. Henceforth, the public is responsible for ensuring that change happens. The power to vote must be realised and fully embraced. The people must ensure that the system of checks and balances is maintained.
Hamza Aamir is an Economics and Mathematics graduate from the Lahore University of Management Sciences. He can be reached at firstname.lastname@example.org. The views expressed in this article are the author’s own and do not necessarily reflect Global Village Space’s editorial policy.