Pakistan's economic options during the coronavirus crisis

For immediate financial relief, it may be necessary to look towards institutions such as the IMF and World Bank

No matter what form of lockdown prevails in Pakistan, one thing is for sure, it will hurt the economy at large with the poorest households being affected the most. As the pandemic pushes the world towards a recession, thousands may lose jobs. According to the last census, a majority of our population, particularly those living in rural areas, earn around Rs 5,000 or less, which already greatly reduces the purchasing power of such households. Most daily wage labourers, both skilled and unskilled, are the most vulnerable and may slip further into destitution during the lockdown.

Let us try and estimate a number of people that are being adversely affected during this time. The Household Integrated Economic Survey (HIES) for 2015-16, divides the population into income quintiles, ranging from low income to high income. Out of the two lowest income quintiles, it was estimated that an average household spends 49 per cent of their expenditure on food, which came to about an estimate of Rs 9,700 a month in the years 2015 to 2016 and the current rates of inflation and living cost have not been factored in here.  Out of the 32 million households in Pakistan at least 33 per cent fall in the lower and lowest most income quintiles. The total fiscal burden per month to just cover food for these families comes to over Rs100 billion. That is a mammoth amount to provide monthly.

Prime Minister Imran Khan announced a relief package recently, which includes Rs 150 billion of income support for four months. Each household will get Rs 3,000 per month. By that estimate, the monthly allocation is Rs38 billion for 12.5 million households. That's 39 per cent of the total households in Pakistan. But Rs 3,000 will not cover food and expenditure. The shortfall is still Rs8,000 per month, per household at least. In fact, to cover that large a population share, we could require up to Rs133 billion, an additional Rs 96 billion per month. Add to this mix the fact that the pandemic is not going away in a month and we have a recipe for a sure fire disaster.

Furthermore, Pakistan’s economy is based on agriculture and textile, which will also take a hit if the situation prevails without any further planning. This may lead to widespread food insecurity, which may not only be a concern for those not financially stable but in fact would affect the entire country adversely. In such cases, hoarders tend to control markets and mark prices way above those approved by the government further making things harder for the populace.

Our country’s economy was not stable to begin with, with the World Bank estimating that the country’s Gross Domestic Product (GDP) growth slowed down to 3.3 percent during the fiscal year 2019. With a downward economic trend already prevalent and many already struggling to ends meet, the coronavirus presents unique economic, as well as security challenges.

The lockdown strategy has emerged after China successfully managed to clamp down on the virus by completely shutting down the epicentre of the disease, Wuhan and eventually almost the entire country. Having said that, an economy like China’s is also showing unprecedented signs of slowing down, something that has not happened in 44 years. It is estimated that the GDP growth will trickle down to one or two per cent from a robust 6.1 and many stand to lose jobs.

If an economic power like China is going through such turmoil, one can only imagine how we would fare in the long run.  For now, people are cooperating and abiding by the government’s instructions but this cooperation could be short lived if people feel like their lives are in danger due to hunger and the lack of basic amenities. So what can the government do in such sensitive circumstances?

It can first and foremost plan better. Even when it was imminent that Pakistan will be hit by the novel coronavirus, the federal government took no immediate steps to circumvent the spread in the country. The matter became more convoluted when the provincial governments felt like they had no chance but to take their own measures, confusing the public about the severity of the virus.

There is still a dire need to follow a uniform policy that is coming from the federal government, so all the provinces are on the same page and can assist each other in solving the unique economic and healthcare issues that each province is facing. In addition, the government, along with ensuring that necessary transport for food and related goods is not stopped, should also ensure that prices of essential food items, such as wheat, sugar, rice and meat should not be inflated, while offering rebates where possible. This move may further help to placate those who may be financially suffering.

But in order to get immediate financial relief for the country, it may be necessary to look towards institutions such as the International Monetary Fund (IMF) and the World Bank, while also turning to our ally, China. According to a press release from IMF, Pakistan has already requested for the Fund’s Rapid Financing Instrument, while there is speculation that the on-going IMF programme will have to be renegotiated. It is also perhaps time to renegotiate the country’s internal financial models and structures, because even before the pandemic, Pakistan’s economy was barely afloat and had just turned to the IMF for a bailout.