A question of survival

The COVID-19 lockdown has damaged economies of all countries. Its effects may last for years to come. All economies will face recession. Economies which depends on earnings from production, tourism, exports, and industrial outputs are hard-hit whereas low income countries are plunged into economic recession badly. The World Bank in its latest forecast for the world economy, ‘Global Economic Prospectus’ has projected that global economic activity will shrink by 5.2 percent this year.
Pakistan will not be an exception. The country’s economy was on a ventilator even pre-COVID-19. Now the bottom has cracked. World Bank has predicted -2.6 percent growth this year. International Monetary Fund projects -1.5 percent negative growth this year. However, Pakistani authorities forecast -0.4 percent growth in current fiscal year. Whatever the number remains correct it’s a stark reality that our economy is moving fast toward recessionary phase.
On 12th June, federal government brought its budget for the financial year 2020-21 which shows fiscal deficit to touch 9.4 percent against the 7.2 percent target. On the contrary, budget paper shows decrease in taxes and tariffs on essential items. The government has also proposed exemption of all duties and taxes on diagnostic kits for coronavirus and cancer. Major concern which is feared is to finance budget deficit and lowering government expenditure. Already, the whole economic activity is at halt due to lockdown. So, revenue generation looks challenging, it already stands lower in last quarter amid lockdown. Thus, more deficit is expected to happen in the future.
Uzair Yunus, an economist says ‘Pakistan will plunge into a deeper recession’ because there is still perpetual increase is happening in reported cases of corona virus and its death. As a result, government is undecided over lockdown or no lockdown. Yet, it has imposed lockdown in number of sectors in Islamabad. May be there is a lockdown in Karachi in coming days, as the cases are skyrocketing there. So, this will again bring an end to already teetering economic activity. The recession is under way and will get worse as economy is under lockdown.
Furthermore, United States and Europe is major hub of Pakistani exports. Textile is major item to both these destination. From past six month, there is a cease to export from Pakistan. Directly or indirectly it has serious consequences for industry. It has stopped producing due to lack of demand amid lockdown. So, it may result an increase in unemployment because decrease in demand has caused closure of several industries rather corona virus lockdown inside country has further intensified it. In its latest report, World Bank predicted 70 to 80 million people will get unemployed due to lockdown.
Moreover, reported unemployment is increasing as lockdown remains in the world. For instance, USA has foreseen surge in unemployment which can touch over 9 percent. More than 20 million people have applied for jobs as latest figures are concerned. Currently, unemployment rate in Pakistan is 5.8 percent whereas youth unemployment (aged 20-24) is 11.56 percent. This may increase further as industry, agriculture, service sectors have cast lower growth against set target.
Undoubtedly, this is a question of the survival after the budget for the financial year 2020-21 is out. Pakistan’s economy is under astronomical pressure.
Thanks to friendly countries and IMF as well as other international monetary institution’s timely financial assistance in the time of crisis. Otherwise, the global pandemic has devastated our economy very badly. Later, Prime Minster requested to rich countries of the world for financial assistance, and demanded exemption from due payment in current year. Apart from Pakistan, other poor countries also applied for loan as well as requested absolution in due payment. Resultantly, G-20 as well as international Paris Club has approved loans and protection for 70 poor countries in this hour of needs which also includes Pakistan. But, this is not total absolution to repay our debt, it is only a delay in payment. As the pandemic forced lockdown will ease, liabilities are due to repay after suggested time period.
This is a high time, PM economic team should take the opportunity forwarded by G-20 countries in the form debt relief, and take measures to boost economic activity as well as create more opportunities to accommodate youth in service sector. When this time period is over, it will be difficult to correct macroeconomic indicators. Moreover, there is need to widen the tax base in order to generate more revenue from domestic sources. It also requires freezing all unnecessary expenditure, exemptions, and ill-conceived subsidy in the country. This will save a great amount of money for other productive work in country. As a result, we can overcome this global pandemic induce recession in our country.
Evidently, it might take few months more to stem the spread of virus. Till then, tourism, travelling, and export sector will not yield as expected. However, they are adding more losses to national exchequer amid corona virus; again, generating an extreme pressure for our crippling economy. Indeed, it is better to have an economic loss than sacrificing the entire nation. Thus, it is necessary to prefer people health and survival than choosing economic protection.
Last but not least, there will be more economic hardship in front of us. This was just beginning of recession when we lost over 1 trillion rupees in few months amid lockdown. Still, there is an uncertainty, how long this pandemic will long last. In normal circumstances, it can cost loss of 3 percent of gross domestic product. However, in extreme case lockdown for long period of time will cost more than 6 percent of GDP, and over -3 percent growth rate in country. Thus, it is sensible to choose lockdown where necessary in strict from to stem the spread of virus. Otherwise, no lockdown policy will affects us a lot as the whole world is closed for business exchange due to pandemic.