Coronavirus and Pakistan’s response
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At the time of writing this text, Coronavirus has been declared as a pandemic by the United Nation’s World Health Organization (WHO). According to the WHO, there are over 234,000 cases in more than 150 countries. Over 9,800 people have lost their lives. Countries are struggling with capacity and resource constraints to battle this threat. In turn these weaknesses are hampering preparedness of communities; readiness of medical staff to detect, protect, and treat those in need; reduce transmission of the pandemic; and learn from mistakes currently being committed.
Most countries have responded with great resolve and determination despite these constraints. We see Pakistan’s active response on three fronts, namely: enabling existing hospitals and medical facilities to provide the best possible response; testing measures at Pakistan’s land route entry points and airports; and managing closure of public and private institutions in regions where threat is highest.
The measures required for ensuring social distancing and self-isolation will impact the society and the economy. To take the latter, we are referring to a period of low economic expansion, job losses, and even a prolonged recession. However, to mitigate the economic loss and pain for the poorest of the poor, it is important to understand the various channels through which macro-level policy decisions are impacting the welfare of citizens.
We are already witnessing temporary closure of large scale manufacturing units in Pakistan. Countries which demand Pakistani exports are experiencing a slowdown, ultimately triggering a reduction in supply orders. The State Bank of Pakistan has announced measures in the recent monetary policy which bring down the policy rate. However, the private sector informs us that they would be reluctant to borrow in the absence of secure orders from abroad. Difficulties are also being witnessed in importing raw material and inputs from Asian countries.
The remittances from abroad are also under threat and will put further pressure on Pakistan’s balance of payments. A large concentration of Pakistani workers resides in countries which are worst hit by Coronavirus. Pakistani workers who were set to go abroad for work, several of them under government-to-government arrangements with Qatar and Malaysia, also find themselves stranded for an unknown period of time.
While Pakistan has seen in recent months some gains in foreign direct investment (FDI) from abroad, hopes of a continuing rally have diminished. This year a large part of FDI was being expected in Pakistan’s newly established special economic zones. The Coronavirus has come in at a time when global concerns of growing private sector debt were at their highest. Now with expected foreclosures and bankruptcies abroad, FDI inflows will see a dent. This also begs a serious introspection in to which Pakistani sub-sectors in agriculture, manufacturing and services could be gainers and losers. The possibility of some sectors gaining cannot be ruled out given the large demand for health products and services, testing labs, and pharmaceutical items. However, for those large productive sectors who lose, a sector-specific stimulus package may be required.
Effective social safety nets are important to make social distancing and a possible lockdown successful, making a temporary increase in the amount of stipend issued under the Benazir Income Support Program essential.
Dr. Vaqar Ahmed
These evolving demands are going to impact government’s budget and fiscal deficit. I would therefore suggest a three-pronged approach. First, allow government borrowing to expand and channel resources toward: a) improving capabilities of health care systems, and b) ensuring that essential consumption items remain on the shelf. An expansion in fiscal deficit can be absorbed given the deceleration in prices and falling policy rate. Additionally, make use of these circumstances to reschedule debt obligations. The International Monetary Fund and other multilateral institutions at this point seem sympathetic.
Second, an emergency fund may be established to incentivize private hospitals and clinics to adopt government hospitals and basic health units which lack capacity. A public-private partnership approach could lessen the burden on provincial governments.
Third, in regions which see market failure, the government will need to supply necessary health care and essential consumption items. In this regard, the National Database Registration Authority (NADRA), Benazir Income Support Plan (BISP), and Utility Stores Corporation (USC) will need to coordinate efforts. As the USC lacks universal coverage, the supplies to some regions will have to be channeled through municipal administrations.
Finally, effective social safety nets are important to make social distancing and a possible lockdown successful. A temporary increase in the amount of BISP stipend is essential. Furthermore, if difficulties arising from COVID-19 prolong then even this enhanced transfer may only provide a temporary relief. This is where the role of donors and philanthropists will have to be explored. A forum comprising of development partners, private sector foundations, and civil society organizations may be proposed by the government. Based on this forum’s recommendations, a crowdfunding window may be established (similar to the dam fund) to augment the resources available with the BISP, Bait-ul-Mal, Workers Welfare Fund and other social safety programs.
Dr. Vaqar Ahmed is an economist and former civil servant. He is author of ‘Pakistan’s Agenda for Economic Reforms’ published by the Oxford University Press.
witter: @vaqarahmed
