Covid-19 pandemic has shaken the world economy due to the unprecedented lockdowns enforced by states worldwide, to control this contagious disease. Even developed nations and their health care systems have failed to contain the outbreak of this disease. The IMF, World Bank, ADB and leading economists all over the world are fearing that it may trigger global recession.
Undoubtedly, this pandemic is also posing threats to the economies of developing nations like Pakistan. Financial experts are forecasting mass unemployment, poverty, and slow economic growth. But there is always a silver lining embedded in dark clouds, only if we are able to convert this threat into an opportunity. This can be done by focusing on some positives that are beneficial for our peculiar native conditions.
Being a part of the developing world, our economy has not yet fully integrated into the global economy. So the effect of recession would not be felt with the same magnitude in Pakistan as would be felt by the developed nations. Historical evidence shows impact of 2007 recession on Pakistan was far lesser than developed economies because our contribution to international trade was negligible.
Blessing in disguise for poor countries as IMF&WORLD BANK are likely not to get debt payment this time. Pakistan, a proud nuclear Islamic state likely to get benefit for being so poor.https://t.co/edidImnxMx
— KASWAR KLASRA (@KaswarKlasra) March 27, 2020
Covid-19: Pakistan’s agricultural economy on the rise
Covid-19 in some ways has also been beneficial for our economy. The decrease in fuel demand and price and reduction in air pollution are some of the ways it has been useful.
Now, we should examine how these positives can benefit our economy and increase the pace of growth and development in the country. The reduction of air pollution and a decrease in emission of greenhouse gases will have to reduce global warming. Pakistan is in the list of top ten countries which are effected by global warming despite the fact that our contribution is negligible. Our agricultural products are decreasing due to unexpected rains at the time of harvest and severe climate changes. Hence, the reduced emissions of greenhouse gases is good news for Pakistan.
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If we exclude import fuel and machinery along with exports of textile products, our economy is predominantly locally based. The fear of recession or recession itself has little effect on our exports because our major exports include basic necessities. Suppose the worst case scenario happens; exports decrease drastically, and when this happens, imports would also decrease at the same rate, hence the net effect on balance of payment would be zero. Moreover, the percentage of export in GDP is less than 9%, so a reduction in exports would not hurt GDP to a great deal.
More than 30 percent decrease in fuel prices this month will help economy in many ways. It will help to reduce inflation to single digits. Ease in inflation will give SBP more space for easing of monetary policy that is hurting businesses, due to historically high borrowing rates. The reduction in fuel prices means reduction in electricity price and also reduced load shedding. Pakistan’s import bill consists of 28% fuel imports and due to 30 percent decrease in its prices, our import bill will reduce by 5 to 6 billion dollar. This will help reduce the trade and current account deficits. The cheaper fuel and uninterrupted power supply will also reduce the cost of agriculture and manufacturing.
Covid-19: Employment opportunities for the poor
The upcoming wheat harvest season would not be affected much by Covid-19, as harvesting would provide employment to the poorest in the country. The money used for procurement of wheat would serve people living in the rural areas. It will increase the purchasing power of the poorest segments. The demand for basic necessities will boost the overall economic growth.
After completion of harvest, sowing season of cotton and rice will start which is also a labor extensive activity. It will provide employment opportunity to a large number of rural populations. According to a World Bank report, 80 percent of total population below poverty line lives in rural areas of Pakistan. Next four months are the months where the poor will earn employment. In December, when cotton and rice crop will be ready, the vaccine for Covid-19 might be ready, and the demand for goods and services would be normalized.
Plunging tourism helps Pakistan
Another blessing in disguise for Pakistan is a halt in tourism. For the next few months, no Pakistani will travel abroad. The money saved by these tourists, Zairian and potential performers of Ummerah would be spent locally. This will increase the demand for goods and services, helping the local economy. In 2019, 2.1 million Pakistanis performed Ummerah; the exact figure of holiday tourists and Zairine is not available. If each person on an average spend RS. 1lac on Ummerah, total amount spent by Pakistanis would be 210 billion, whereas PM has announced a relief package for poor amounting 200 billion. If the Saudi Govt bans Hajj this year due to the fears of the spread of Covid-19 — we will have another 85 billion Rs. Available that could be spent locally.
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All these positives will help the poor families to rise above poverty level, and this bottom up approach will boost economic growth as a whole. Besides fighting against Covid-19 requires us to employ our full resources. We must increase our agricultural products and facilitate large scale manufacturing by providing them with uninterrupted power and gas supply. All this will strengthen our local economy, and effect of recession would be minimized.
Rashid Ali is a Banker by profession and Student of MS. The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.