With the travails of the health emergency far from over even with vaccines and dark clouds of uncertainty shrouding the future, one hopes and prays that this generation has already seen the worst of their lifetime in 2020, a year defined by the pandemic.
Covid-19 shook the world economy at its very foundation. It played the ruthless might of nature and mocked the limits of much-celebrated human advancements.
Beyond fear and tears, Covid-19–induced disruptions changed the world in more basic ways than we may realise. Markets that were imagined self-sufficient to deliver on the economy were left gasping. Governments took the charge to save lives and livelihoods. The isolationist/nationalistic ideologies were defeated and interdependence of nation states was reinforced.
The world was reminded of centrality of human survival in science and research as opposed to its commercial value. Any pockets of resistance to ICT melted away. Governments/businesses leveraged digitised solutions for sustenance. It was widely used to implement the policy of social distancing and disperse health warnings. The common threat drew arch-rivals to cooperate and coordinate.
The ruling party’s narrative of economic revival is not taken well by the people in financial distress whose family incomes shrank and the cost of living escalated during 2020
The health crisis within months propelled into a global recession that reversed the gains on the hunger/poverty agenda as shrinking economies dropped many millions out of payrolls. Global trade dropped to new lows disturbing supply chains. Donors voluntarily rescheduled debt repayments to free up resources in developing nations for dealing with health and economic crisis.
Pakistan surprised itself and others as it fared better than neighbours and most advanced nations in terms of containing the loss to life and the economy. The count of 9,816 Covid 19 deaths in Pakistan since the outbreak of the pandemic pales in comparison to 1,740,390 (WHO Covid-19 Dashboard) lives lost to the virus the world over till filing of this report.
As the global recession deepened, the World Bank projected shrinkage of 5.2 per cent in the world economy, largest since the Second World War with the starkest decline in the per-capita output in the past century and a half (since 1870).
Pakistan’s economy is assessed to have contracted by about 3.5pc if we accept the government’s narrative that it was on track to grow by 3pc before the pandemic but closed 2019-20 with a negative 0.4pc GDP growth rate.
Pakistan received global support of multibillion dollars to stay afloat. Collectively, the International Monetary Fund (IMF), World Bank, China, Saudi Arabia and others poured in over $4bn to ease financial pressure. G20 rescheduled debt repayment and the world shared medical expertise and supplies to blunt the impact.
The government’s Rs1.2 trillion ‘relief and revival package’ did shield the poorest from hunger during the lockdown period and energised certain growth drivers. An incentive package, loaded with tax cuts, subsidies and duty breaks was announced to restore investor’s confidence. A lucrative plan was offered for the construction industry that included a subsidy of Rs30bn for small housing schemes and an amnesty till Dec 31 on undeclared resources to housing investors. A scheme of soft loans was offered for covering the wage bill in return for retaining the workforce.
Experts believe the incentive package should have been tied to job creation and revenue generation
Besides tax breaks, duty concessions and soft credit schemes, the State Bank of Pakistan (SBP) slashed the interest rate from 13.25pc in February to 7pc currently and permitted a one-year extension in principal payments along with the rescheduling and restructuring of loans to private borrowers worth $3bn, according to SBP Governor Reza Baqir. To incentivise digital service providers, the SBP allowed banks to remit up to $200,000 per annum.
Experts believe the costly incentive package for the private sector could have worked better for the country had the government cared to tie concessions to job creation, pay increase for workers and revenue generation.
Timing the rightsizing in state-owned enterprises (SOEs) by the government in 2020 when unemployment is already high is hard to explain. It can probably be attributed to the commanding positions of the unelected wizards in the PTI economic team. An elected leader, irrespective of party affiliation, would instinctively detest politically costly moves in an already difficult year.
The Pakistan Institute of Development Economics (PIDE) team under the stewardship of Dr Nadeem Ul Haque produced a valuable baseline document projecting sectoral fallouts and suggestions to support distressed segments through the rough patch.
PIDE projected a deeper blow to small businesses in the informal sector. Background research reconfirmed that many small enterprises collapsed completely. These include service providers, PR agents, groomers, beauticians, designers, caterers, tuition centres, career counsellors, travel service providers, guest houses, restaurants and ride-hailing companies. The survival rate was better in businesses that adapted and moved swiftly towards digitisation and remote working arrangement.
The stifling of the vibrant informal economy of Pakistan during the lockdown left deep scars and could be one of the major reasons why 2020 felt harsher than projected officially. In the past, the shadow economy provided the buffer during politically turbulent periods or when terrorist strikes virtually paralysed the system.
The ruling party’s narrative of economic revival, peddled by the prime minister and colleagues, is not received well by the distressed people. The proclamations of Finance Minister Abdul Hafeez Shaikh about the upward trend in remittances, capital market, foreign direct investment and exports along with 6.7pc growth in the large-scale manufacturing sector fail to impress common people.
Ordinary Pakistanis, like their counterparts elsewhere, care more about their household economy. Family incomes shrank and the cost of living escalated during 2020. From kitchen to basic amenities and rent, everything became costlier as earnings declined.
Any song and dance about the gains of bankers, brokers and barons mount frustration in masses grinding to provide for the health and wellbeing of their families. The situation provided enough fodder for the opposition parties to pile pressure on the government. All in all, the concluding year was extremely hard for people but could have been much worse.
Published in Dawn, The Business and Finance Weekly, December 28th, 2020