Dr. Muhammad Shahid
The corona virus pandemic has already caused economic downturn around the globe. Earlier the modest global growth was expected at the start of the year. International Monetary Fund has also predicted global growth rebound this year. But the emergence and abrupt spread of Covid-19 has changed the entire economic landscape. The economic impact of past pandemics including SARS in 2003 did small damages to the world economies. The latest statistics indicates that deaths caused by the novel Covid-19 have crossed 191,000 and more than 2.74 million are affected. Besides many deaths and acute health problems, the current pandemic caused serious economic issues.
Both the developed and developing countries are not insulated from the negative economic consequences of Covid-19. The economic fundamentals of rich and industrialized countries are relatively strong to deal with economic recession. But there are many countries, majority of them are third world poor countries. The degree of vulnerability of these countries is high due to their significant dependence on china and other developed nations. IMF has reduced the growth forecast for china to 5.6 percent. This is lowest during the last three decades. China has a 17 percent share in the global GDP holding considerable implications for global gr-owth. There is a disruption in the global supply chain due to increased restrictions on mobility, grounded planes and ceased ships.
Governments around the world are fighting this deadly pandemic and Pakistan is no exception. Currently economists and economic managers are not in a position to predict the duration of economic downturn because of the high degree of uncertainty. This is a test for policy makers to respond with creative new mix of economic policies which are needed on urgent basis. The cost of the pandemic is enormous. Every action and policy intervention by the government will carry economic, social as well as political cost. We are bound to face the grave economic, social and political consequences of the Covid-19.
We are living in a country with so much political division. The current pandemic has caused another division among those who can work from home and those who are illiterate and unskilled, cannot work from their homes. The poor workers and unskilled labors demand the end of lockdown and reopening of the business activities. The daily wage earners usually have no savings for the rainy days and their demands of liberating them from lockdown are logical.
These are tough times and people are highly distressed. Keeping in perspective the economic hardships of the poor workers, government has allowed the construction sector and related businesses to operate. This is a good decision as the spillover effects, forward and backward linkages of the construction sectors are usually very strong.
The government also needs to increase the transfer of resources to provincial and district governments to counter the negative impact of pandemic on the people and economy. The piecemeal measures in short run should be accompanied by integrated approach and strategy in the long run. This integrated approach should include aid and assistance from the government to the neediest people and to the deprived areas. Transfer of financial and technical resources to the district level will allow the government departments and institutions to maintain and even expand the availability of essential services in lockdowns.
The government should also take initiatives to protect the small businesses. The government’s decision to close down small and medium enterprises and other businesses to contain the spread of virus increased the hardships of business community. The provision of a financial resources or bailout package to small and medium enterprises will allow these firms and businesses to pay wages to their workers, rent and interest on debt. State bank of Pakistan has already taken the initiative and reduced the policy rate by more than 4 percent. In the absence of effective and generous government support, these firms will suffer cash flow problems and are at greater risk of liquidation. Besides the reduction in policy rate, tax credits should be given to firms for financing the costs of maintaining jobs. These tax credits should be directed to sectors and firms with the chances of sharpest rise in unemployment. State bank of Pakistan should also take initiative and should defer the debt repayments of firms and small businesses up to five years. The rapid economic recovery requires incentivizing the preservation of jobs and generation of new economic opportunities. Incentives in the forms of lower interest rate, debt deferment and tax credit provision to employers help retain and rehire workers. These measures by the government would set the stage for early recovery.
Direct cash transfer program is also effective in uncertain times and crisis. Easing economic distress of the people, the provision of unemployed cash allowance and other cash grants under the Ihsas program would allow the indigent and impoverished segments to buy medicine and food for the families and pay their rent. These measures would help people avoid eviction and expulsion. Government should also make arrangements for the repeated payments depending on the magnitude of the pandemic in terms of severity, longevity and economic conditions. There is another dimension of the Covid-19 pandemic. The impact of sluggish economic growth is uneven, affect different people and sectors differently. The burden of these increased restrictions and repeated lockdowns heavily falls on transport sector, travel, tourism and the unskilled class.
The journey to economic recovery is not easy and we have a very bumpy road ahead. Government initiatives to arrest the decline in economic growth and provide relief to the people are important. Long run economic prospects of the people hurt when the country suffers slow economic growth and experience recessionary trend. The corona virus is new in nature and hard to model its trajectory. There is a possibility that these short terms economic pain could be transformed to permanent economic harms if government fails to adopt appropriate policy response.
