FeaturedNationalVOLUME 16 ISSUE # 06

Worsening inflation, rising unemployment

Prices and unemployment have reached their highest level in Pakistan in the first two years of the Pakistan Tehreek-i-Insaf government. The situation has worsened in the aftermath of the coronavirus pandemic and if latest projections by international financial institutions are any guide, there will be no respite for people in years to come.

According to estimates, inflation may cross above 10pc and the rate of unemployment will further jump by the end of the current fiscal year. Though prices are expected to come down in the next few years, yet the unemployment rate will continue to rise in the foreseeable future. It means, more people will lose their jobs in the coming years. Pakistan’s economy, which contracted in the last fiscal year, is projected to grow by 1pc in this fiscal year 2020-21, according to the World Economic Outlook, released by the International Monetary Fund (IMF). The 1pc growth rate is less than half of the official target of 2.1pc and broadly in line with the projections made by the World Bank.

Undoubtedly, Pakistan performed impressively to contain human losses during the pandemic, but lockdowns and measures to contain the virus have affected its fragile economy badly. All advanced and regional countries, which had better economies, are recovering fast, but Pakistan lags far behind, though it had made structural adjustments before the onset of the pandemic. According to the IMF report titled “A long and difficult ascent”, advanced economies are recovering from the adverse effects of the Great Lockdown faster than earlier projected. The report stated that more than one million lives had been lost to Covid-19 since the start of the year and the toll continues to rise. Close to 90 million people are expected to fall into extreme deprivation this year. “These are difficult times, yet there are some reasons to be hopeful. Testing has been ramped up, treatments are improving, and vaccine trials have proceeded at an unprecedented pace, with some now in the final stage of testing,” it added.

The recent data suggested that many economies had started to recover at a faster pace than anticipated after reopening from the Great Lockdown. “We are projecting a somewhat less severe though still deep recession in 2020, relative to the June forecast,” the IMF said. The revision was driven by second quarter GDP outturns in large advanced economies, which were not as negative as had been projected after China’s return to growth, which was stronger than expected, and signs of a more rapid recovery in the third quarter. While the global economy is coming back, the ascent will likely be long, uneven, and uncertain. However, prospects have worsened significantly in some emerging markets and developing economies where infections are increasing rapidly.

Rising prices and unemployment are the biggest issues of Pakistanis and there is no immediate relief for them. Inflation in Pakistan could be 10.2pc on an annualised basis, which by 2025 is expected to remain around 8.6pc and the unemployment rate, which till this fiscal year was 4.5pc may further jump to 5.1pc. The IMF projected an over 13.3pc increase in unemployment in Pakistan within a year.

Earlier, the World Bank also painted a bleak outlook of Pakistan. It sees an “anaemic” economic outlook of Pakistan, with the growth rate of just 0.5pc in the current fiscal year. Pakistan’s economic outlook remains fragile for at least two years, as the pandemic compounded the country’s miseries. In its biannual flagship report, “the South Asia Economic Focus,” it forecast an increase in current account deficit, budget deficit and public debt in the current fiscal year. “The news is not good and the outlook is dire for South Asia,” World Bank Chief Economist for South Asia region Hans Timmer said. While domestic economic activity is expected to recover, as lockdown measures are lifted, with a gradual decline in active Covid-19 cases, Pakistan’s near-term economic prospects are subdued, the report said.

The economic growth in Pakistan is projected to remain below potential, at 0.5pc for FY-21, compared to over 4pc annual average in three years to fiscal year 2018-19. The projection, which is highly uncertain, is predicated on the absence of significant infection flare-ups or subsequent waves that would require further widespread lockdowns. Given anaemic growth projections in the near term, poverty is expected to worsen. Vulnerable households rely heavily on jobs in the services sector, and the projected weak services growth is likely to be insufficient to reverse the higher poverty rates precipitated by the pandemic.

With government estimates of pandemic job losses at approximately 14 million, poverty is expected to increase for the first time in two decades. “Economic activity contracted and poverty is expected to have risen in FY2019-20, as monetary and fiscal policy tightening, earlier in the year, was followed by lockdown,” the report said. Poverty has increased by 33pc in India and the situation is not different in Pakistan.

The projections by the two intentional lenders are not encouraging for the economy and people. They have forecast a better growth rate, one percent and 0.5 percent, than their previous projections, as the IMF in April and the WB in May had scaled down Pakistan’s growth projections for 2020-21, from positive 2pc and negative 0.2pc to one percent and 0.5pc respectively. However, the growth rate faces risk from a possible resurgence of the pandemic. However, people are not interested if fiscal indicators are improving or falling. They need immediate relief from rising prices, especially of food and essentials. They cannot wait for years for it and the government will have to make serious efforts for it. Hoarders and profiteers have been given a free hand. The government will have to improve the situation in days and weeks, or the opposition will exploit the situation.