LAHORE: Pakistan’s economy contracted by 1.5 per cent during CY2020 as the Covid-19 pandemic took its toll through the year, leading to net loss of over 715,000 jobs and pushing close to 2.5 million people into extreme poverty.

A new study — Growth, Jobs, Welfare and Macro Policy in Pakistan 2020 — by the Lahore School of Economics has estimated the GDP growth/contraction on the basis of economic activity during the four quarters of 2020, and thus is comparable to the IMF’s much lower projection of 0.5pc for the entire calendar year published last summer.

The government has estimated GDP contraction of 0.4pc in FY20, which took into account the economic impact of the pandemic during the period between the latter half of March to June only.

Estimating GDP growth for the four quarters of 2020 gives a good analysis of the evolution of the pandemic: its impact on the economy, on jobs and public welfare, as well as the government’s policies to counter these impacts, contends the study authored jointly by LSE’s Moazam Mahmood, Azam Amjad Chaudhry and Aimal Tanvir Malik.

The study shows the economy had started to shrink from the first quarter for 2020 to March with the GDP contracting by -5.5pc. The next quarter bore the brunt of the shutdown because of the outbreak with the economy contracting by -9.3pc. The shutdowns eased and tapered off in the third quarter and the economy recovered rapidly. It was the only quarter during which the economic growth expanded — and that too by 27.4pc — to contract again by 2.4pc in the last quarter.

According to Moazam Mahmood, the lead author of the study, the coronavirus lockdown in the second quarter (April-June) put at least 4m people out of work. But the majority of them went back to work after the lockdown curbs were lifted and the economy started to rebound in the third quarter (July-September). Therefore, the net job loss is estimated to be nearly 0.7m, with almost 0.6m or 83pc of the total employment loss witnessed in the informal sectors of the economy.

The study estimates that the pandemic sharply increased the annual extreme poverty headcount ratio to 5.49pc of the total population in 2020 from 4.4pc in 2019 and 4pc in 2016 as around 2.5m people were driven into extreme poverty owing to the pandemic alone. The study says an annual cash transfer of $1.02bn is required to bring the total population of the extremely poor up to the poverty line.

Policy impact

Mr Mahmood told Dawn that the government’s policy interventions to counter the impacts of the pandemic had produced mixed results. He is of the view that the measures like a reduction in the interest rates did help prevent the economy from greater contraction and put it back on a growth path, but the government policies proved quite deficient in controlling high price inflation.

“It is mainly because of the adoption of market based exchange rate mechanism, which has proved disastrous for inflation as it let the rupee slide sharply against the dollar. The heavy depreciation in turn fed into energy prices, pushing inflation in the country.”

Published in Dawn, May 18th, 2021