Revitalizing the economics of ‘animal spirits’ in Pakistan
https://arab.news/jf474
From its very inception, enforcing a stringent lockdown for an extended period in response to COVID-19 was not sustainable. This is especially true for Pakistan with its limited resources to alleviate the plight of those worst affected by the economic disruption. Prime Minister Imran Khan rightly pointed out that the heavy burden of the lockdown would fall to the poorest sections of society.
The severe economic fallout of the pandemic has been global and it remains to be seen how soon economies revive as countries gradually open up again. In large part this will be driven by how much confidence citizens have in their country’s response to contain the spread and in the continual monitoring required to avoid exponential resurgence in new cases.
Governments across the globe have struggled with varying degrees of success in implementing strategies that minimize fatalities from COVID-19. This challenge becomes even more difficult when a country has to balance saving lives with the necessity of restoring business activity and livelihoods to pre-coronavirus levels. As has been argued by a group of Yale economists, in developing countries the choice lies not between lives and livelihoods, but rather lives lost by the virus and those lost as a result of an economic slump. It is therefore important that each country’s response is in line with its social context.
Pakistan has recorded fewer COVID-19 fatalities per million than many other countries. There is no conclusive explanation for this, and it would be unwise for policy makers to assume that this will remain the case going forward. The virus now appears to be here to stay with no vaccine likely to be available before 2021. It is therefore important that all measures are enforced to avert a sharp increase in the spread of infection. This is necessary not only to avoid overwhelming health facilities, but also to boost public confidence that has been damaged both globally and domestically.
Khan must continue to provide a vision of reform and renewal. This cannot be merely in terms of rhetoric, but has to be supported by concrete proposals and a timeline for action. And it will require him to regularly, directly and candidly communicate with the people of Pakistan in a manner that leaves behind the fears and ghosts of the past, and inspires them toward the future such that their animal spirits are revitalized.
Javed Hassan
The University of Michigan’s consumer sentiment for the US was at 73.7 in May 2020, which is the second-lowest reading since December 2011. Despite Coronavirus Aid, Relief, and Economic Security (CARES) relief cheques for the worst affected, the university’s survey indicates that personal financial prospects in the US for the year ahead continue to weaken, falling to the lowest level in almost six years.
Similarly, in Pakistan, the recently conducted Consumer Confidence Survey by the Institute of Business Administration in Karachi and the State Bank of Pakistan (SBP) show that Overall Consumer Confidence Index declined by 10.4 percent compared to the previous survey conducted in March 2020 and is at its lowest point in the past five years.
While sentiment and confidence indices do not directly measure underlying fundamental economic conditions, they are useful predictors of future economic activity. Conventional economics assumes people make decisions entirely on demonstrable and quantitative facts, but a wide body of research shows that they are also influenced by emotional and psychological factors, memorably described as “animal spirits” by the economist John Maynard Keynes.
Simply put, people live by stories. These stories are central to the way people think, consume, and invest. For confidence to be restored, people need to be reassured that the lifting of the lock down will not lead to a sharp spike in COVID-19 related fatalities. Should that happen and should there be reports of hospitals and medical personnel being overwhelmed, as was recently seen in Italy, it will once again raise the damaging prospect of a lockdown. This will severely dent already fragile sentiment.
It is therefore vital that the course the government has chosen to take is not forced into reversal due to a resurgence of the pandemic. It is also incumbent on the government to nudge people in the right direction so that easily enforceable protocols are strictly adhered to, like social distancing measures and the obligatory wearing of masks. The state has both the power of suasion and coercion. It must apply either or both as the situation demands. It must also expand testing such that it can effectively identify and isolate wherever pockets of infections emerge. That will help obviate the need to have an across the board lockdown again.
In terms of boosting public sentiment, few are better equipped for the task than Prime Minister Khan, given his self-belief and immense empathy with the people.
Khan must continue to provide a vision of reform and renewal. This cannot be merely in terms of rhetoric, but has to be supported by concrete proposals and a timeline for action. And it will require him to regularly, directly and candidly communicate with the people of Pakistan in a manner that leaves behind the fears and ghosts of the past, and inspires them toward the future such that their animal spirits are revitalized and a clear path of hope cut out.
*Javed Hassan is an investment banker who has worked in London, Hong Kong, and Karachi. He tweets at @javedhassan.
