International monetary organizations have painted a gloomy picture of the global economy. Pakistan also faces worst recession of its history over the severe impact of the deadly pandemic, as its economy is expected to shrink up to 2.2pc and per capita income will decline sharply.
In its latest report, the World Bank has said that Pakistan may fall into a recession – for the first time in 68 years. The country was in such a bad economic condition almost 68 years ago but even after the third India-Pakistan war that led to the separation of East Pakistan, the country posted some growth. The report titled “South Asia Economic Focus” anticipates a sharp economic slump in each of the region’s eight countries, caused by halting economic activity, collapsing trade, and greater stress in the financial and banking sectors.
Pakistan is among Maldives, Sri Lanka and Afghanistan whose GDP growth forecast for this fiscal year is in negative territory. In the worst case scenario, the whole region would experience a contraction of GDP. “South Asia is in a perfect storm”, said Hans Timmer, World Bank Chief Economist for the South Asia Region. Pakistan is already in a difficult fiscal situation so that makes response more difficult, he added.
The latest report is in contrast to its estimates of 1pc growth in the current fiscal year 2019-20. It projected a decline in Pakistan’s national output in the range of 2.2pc to 1.3pc, which will also hit personal incomes badly. Pakistan, which has already experienced low growth rates in recent years, could well fall into a recession. With 1.8pc population growth, that would imply a painful decline in per capita income.
In the case of Pakistan, 54pc of manufacturing exports are related to the textile and food, beverages, and tobacco sub-sectors. Bangladesh and Pakistan, the main exporters, will suffer disproportionately, in part because the countries that suffered the largest outbreaks are also the largest buyers of garments from the two countries. Capital markets seem less vulnerable for the time being, but declines in capital flows may impact India and Pakistan, according to the WB.
The entire region might well experience its worst economic performance in 40 years, with at least half of the countries falling in a deep recession. The harsh reality of inequality in South Asia is that poor people are more likely to become infected with the coronavirus, as social distancing is difficult to implement for them. If the coronavirus spreads further and lockdown measures remain in place for a long period, it will become more challenging to guarantee food security, especially for the most vulnerable in the population, the WB warned.
The report also blamed India, Bangladesh and Pakistan for mishandling the lockdown issue. “In India, Bangladesh and Pakistan, the time between the announcement of suspension of inland passenger transport and its enforcement was less than a day, which created chaos as migrants scrambled to get back to their provinces, exacerbating the crowding and making enforcement of social distancing impossible. In Pakistan, India, Nepal and Bangladesh, with high levels of food insecurity and widespread malnutrition among children, the consequences of the virus spreading widely could reverse the recent positive trends in poverty and prove to be catastrophic and far reaching,” it added.
Overall, South Asia regional growth will fall to a range between 1.8pc and 2.8pc in 2020, down from 6.3pc projected six months ago. It would be the region’s worst performance in the last 40 years, with temporary contractions in all South Asian countries.
The International Monetary Fund (IMF) has also warned the year 2020 would see the worst global economic fallout since the Great Depression with over 170 countries likely to experience negative per capita income growth due to the coronavirus pandemic. It said just three months ago there were expectations of positive per capita income growth in over 160 of the member countries in 2020. “Today, that number has been turned on its head: we now project that over 170 countries will experience negative per capita income growth this year,” IMF Managing Director Kristalina Georgieva said. The bleak outlook, she said, applied to advanced and developing economies alike as the current crisis knew no boundaries and hurt everybody. The IMF chief said emerging markets and low-income nations across Africa, Latin America, and much of Asia, were at high risk.
The Asian Development Bank (ADB) has also projected Pakistan’s economic growth to shrink to 2.6pc in 2020 from 3.3pc in 2019, while inflation will remain around 11.5pc for 2020. In its latest report, it said the Covid-19 outbreak would pose a downside risk to growth prospects as it further dampened consumer demand and as private businesses were temporarily shut down in efforts to control the pandemic. It said weaker demand under Covid-19 could adversely affect exports. Economic growth in Pakistan is expected to slow down to 2.6pc this year due to ongoing stabilisation efforts, slower growth in agriculture and the impact of the Covid-19 outbreak, before recovering to 3.2pc in 2021. The report said agriculture was expected to see slow growth in fiscal year 2020 as the worst locust infestation in over two decades damages harvests of cotton, wheat, and other major crops.
All the reports have blamed the pandemic for the gloomy economic situation in the world. Like the rest of the world, Pakistan will have to continue its efforts to contain the virus and limit losses from it. Except the World Bank report, forecasts of other institutions for Pakistan are not much depressing. In fact, the IMF has praised Pakistan for reform efforts to address it economic challenges. Pakistan can hope for the best after controlling the pandemic. However, it may take few months.