Covid-19: economic impacts on Pakistan

At the end of December 2019, a novel virus reported in china which spread very rapidly coercing the World Health Organization to declare “public health emergency of international concern”. Later when the cases grew exponentially across the world, the WHO declared COVID-19 a “pandemic”. This virus deteriorated the very fabric of human organization; manufacturing factories, large-scale industries, educational institutions, markets, companies and other man-pilot organizations ceased to function their routine activities. This outright shutdown had enormous economic and social repercussions for the whole world—the world economic situation shambled by the stoppage of the very wheel of human organization. This in concurrence with already crippled economic situation posed unprecedented challenges and threats to Pakistan.
The first case of COVID-19 in Pakistan reported on 19 February 2020. With this, the government imposed a complete lockdown across the country. The immediate impact on the society was airlines suspension, travels ban, labor mobility restrictions, and the closure of schools, markets, and shops. This in turn had a severe impact on the economy of Pakistan. However, when Khan took power in 2018, Pakistan GDP growth was around 5.8%, but due to the shutdown of all economic activity it shrunk to -0.4 % in the FY20 and the country’s fiscal deficit widen to almost 10%. According to world tourism and travel council’s annual report in 2019 Pakistan tourism industry had risen to 7.4% of the GDP, about 10 million jobs created and attracted 410 million rupees of capital investment. Due to the lockdown of the COVID-19 the tourism industry faced an overall decline. Foreign investors pulled $83 billion from developing markets. According to World Bank the current account deficit shrunk from 4.8% of GDP in FY19 to 1.1% of GDP in FY20. Also, it has been reported that 60% of the companies in the stock market ceasing their work affected millions of labors. Number of jobless people slightly increasing since last four years reached to 6.65 million people during the FY20, compared to 5.80m of the last financial year. Due to the COVID-19 lockdown exports of Pakistan dropped by 50% because Pakistan’s manufacturing exports mainly consist of beverages, food, tobacco and textile which amounts almost 54% of the total manufacturing exports. The agriculture sector also suffered as the wheat crops harvesting usually began in Sindh and Punjab in April until late June, however, due to the lack of labor and transport availability it severely affected.
Micro-small and medium sized enterprises are the backbone of economy in many countries. In Pakistan, these enterprises contribute 40% to the GDP. However, the operation of these businesses badly hampered by the COVID-19 because these enterprises are dependent on the cash economy; which is adversely affected by the pandemic. Moreover, due to the virus 2.45 million people suffered from food insecurity. According to the Asian Development Bank 24% population of Pakistan lives below the poverty line while 65% of the population living in poverty. Despite the government’s claim that these people were helped under Ehsaas program, it’s generally viewed, that the government failed in accessing the bulk of the people. On the other hand building of infrastructure and other developmental activities were banned. Educational institutions were closed for almost six months. People’s religious and social gatherings were forbidden. Wearing masks and SOPs were directed to be followed. Although the impact of the pandemic was large and severe, the incumbent government  hailed for fairly tackling the crisis by the international community. The government simultaneously protecting both economy and the pandemic through “smart lockdown”, perhaps, triumphed to a conspicuous degree but the plague is not over yet. The Chinese economy after falling to -0.6 now bounces back into 4.9% rate of growth between July and September. The US economy also showing a remarkable resurge, however, the economic situation of Pakistan is still lagging at a growth rate less than 1 percent. Although there are several reasons of this drawback like more than 30% of the GDP goes away as loan repayments and 18% is allocated to the defense purposes. Thus, more than half of the total GDP is spent in the non-developmental areas. Besides, the latest FATF report declares that Pakistan will continue to be on FATF’s grey list. Imran Khan’s government needs to bring major economic reforms along with taking effective measures against the terrorist activities to get out of the FATF’s grey list. Because being economically interdependent the modern state can be adversely affected by the economic and political institutions— such as FATF and UNO.
Undoubtedly the COVID-19 crisis has crippled worldwide economies and is staging a revival of the second wave that might affect again the already weak economies. Governments and the international institutions along with the effective drugs, that proved beneficial, might prevent its spread and control the situation from extremely deteriorating the overall economic situation in future. However, the Imran Khan’s government must take effective measures in promoting medium and small enterprises, ending corruption and governmental interruption in the private sector may also attract FDIs. Besides the economic reforms the political stability in the country is also a perquisite for the general economic growth and development. Given the increasing cases and the mortality rate of the patients the resurgence of the COVID-19 is inevitable. However, the need of the time is to cope and prepare beforehand for the uncertainty looming large.
Author Usman Torwali, student of masters political science at the University of Peshawar, you can reach him with torwaliusman@gmail.com