FeaturedInternationalVOLUME 15 ISSUE # 16

Coronavirus: The economic fallout

In its latest report, the Asian Development Bank has projected that Pakistan’s economy may face $16 to $61 million losses due to the coronavirus outbreak. According to the report, in a moderate case scenario, the projected losses to be faced by Pakistan are $34.2 million. In the worst case scenario, the projected losses to be faced by Pakistan are $60.8 million.

The ADB also painted a hypothetical worst case scenario that shows Pakistan’s economy sustaining a staggering $5 billion loss due to the spread of the virus. In the case, Pakistan’s GDP will lose 1.57 per cent and 946,000 people would be unemployed.

A detailed analysis shows that in the best case scenario, Pakistan’s agriculture and mining sector could sustain a loss of $5.5 million; business trade, personal and public service $5.54 million; hotels and restaurants $0.67 million; light and heavy manufacturing $3.6 million and transport services $0.92 million.

In the worst case scenario, Pakistan’s agriculture and mining sector will face $21.7 million losses; business and trade $18.8 million losses; hotel and restaurants $2.4 million losses; light and heavy engineering $14.6 million losses; and transport services $3.4 million.

The report showed that the global GDP will also be affected from $77 billion in the best case scenario to $347 billion in the worst case scenario, with China affected the most. The lockdown has slowed down the pace of the Chinese economy, if compared to the last 30 years.

In addition to the global slowdown, the fear caused by the COVID-19 is going to cause an estimated loss of $1.5 trillion across the globe in the hypothetical worst case scenario. Coronavirus losses will depend on the magnitude of the problem and the scale of the underlying uncertainties in countries which have strong trade and production linkages with China.

Pakistan, already facing a range of economic troubles, is now faced with the challenge of the coronavirus threat. Needless to say, the government will have to take urgent measures to deal with the economic impact of the virus. The Covid-19 pandemic has drastically curtailed global demand and governments around the world are scrambling to provide fiscal stimulus and monetary easing to arrest the economic downturn. According to the Advisor to the Prime Minister on Finance, Prime Minister Imran Khan has entrusted him with the responsibility of dealing with the economic fallout of the epidemic. In this connection, significant concessions in terms of relaxation of time-bound structural benchmarks to the ongoing International Monetary Fund (IMF) programme have been secured by way of an agreement not to include any expenditure allocation for dealing with the threat of the coronavirus in the budget or fiscal deficit.

It may be added here that the agreed budget deficit during the IMF programme for the current year was 7.2 percent, based on the economic team leaders’ claim when the staff-level agreement was reached on May 12, 2019, that the deficit for the outgoing year 2018-19 was 7.2 percent. By August 2019, when actual expenditure and revenue figures were tallied, the budget deficit for the previous year was estimated at 8.9 percent. Subsequent to the first IMF review report, the revenue shortfall led to downgrading the projected revenue collection for the year to Rs5.23 trillion rupees against the programme target of Rs5.5 trillion and lower than budget expenditure, with releases under the Public Sector Development Programme no more than 8 percent of the total amount budgeted while social sector development disbursement was under one percent of what was budgeted for the entire year.

The government needs to develop strategies with the objective of ensuring that coronavirus will not adversely affect economic activity. Strategies will have to be developed to ensure that economic activity, which is already severely impacted by the ongoing IMF programme, is not further compromised because of the pandemic. It is reported that the government will strategize to ensure that there are no shortages or increase in prices of essential food items. This is a praiseworthy goal and the need of the hour because essential food items must be freely available. While in urban centres the government can ensure adequate stocks in the Utility Stores Corporation stores, yet areas, especially rural areas, where these stores are scarce, a greater effort on the part of the provincial governments would be required to ensure that each district is adequately stocked with essentials. It is indeed unfortunate that these efforts will be hampered by the lack of local governments because they are the best medium to ensure the provision of essentials to all.

On the other hand, Prime Minister Imran Khan has tasked Economic Affairs Minister Hammad Azhar to try to access part of the one trillion dollars earmarked for the pandemic and it is unclear yet how much would be accessible to the country. It is true that some measures have been taken by the government, though initially the measures reflected a lack of understanding of what quarantine entails, an example being the returning pilgrims from Iran; but the government’s focus is now required to educate the public on the critical need for social distancing by avoiding congregations, develop a network of home delivery of essentials, and formulate a policy of paid sick leave, including the number of days for those in self-isolation. The new discipline to be effective must be strongly enforced.