As the COVID-19 engulfs the world in its wrath, alarm bells have started ringing indicating the start of a major recession in the global economy. The huge losses incurred in form of the human capital are not the only tragic outcomes of the deadly pandemic. But also, the virus has taken its toll on the global economy. As the world is shutting down economic activity gradually it is causing sharp decline in demand, slacking output and disruption of supply chains.
The disruption in supply chains, especially from china as it is the worlds largest exporter is causing uncertainty and economic turmoil around the globe. Chinas manufacturing sector has seen massive decline and its economic growth has nearly halved in this quarter.Additionally the slackened demand for goods, in the wake of the virus, globally is another major impediment in the way of economic activity. The air business has led to massive monetary losses as the ban on international flights rises.Further countries like Thailand where tourism Industry is the major source of revenue have also suffered immense losses as tourism slumps.
Additionally countries in their panicked states have being taking decisions which have further aggravated the economic situation worldwide. For instance Saudis sudden decision to dramatically reduce oil prices in order to preserve their market share in response toRussia’s refusal to cut down oil supplies, has led to a crash in the global financial markets.
On the monetary policy side, a cut in the policy rate is much needed as it will help lift the confidence of the financial markets
In response to the oil price slump Pakistan’s stock markets have gone down as well, the rupee has devalued further after been stable for some months now. According to the recent reports its predicted that Pakistan will incur a decline of up to 1.5% in its GDP growth rate, which is tremendous keeping in mind our already meager growth rate.
Yet there are some opportunities that have risen because of the global economic environment, like the fall in oil prices will help reduce our oil import bill resulting into lower current account deficit, improved macro economic stability and ultimately lower inflation. Further some textile export orders have been diverted from China to Pakistan which will slightly help increase the exports.
But by weighing down the costs and benefits it is evident that the costs are much heavier. The performance of the financial and capital markets is unsatisfactory due to the rising fear and uncertainty. Even though Pakistan’s economy hasn’t directly been hurt by the virus yet, we must remain vigilant because due to the spillover effect the global recession will harm our economy ultimately due to demand and supply shocks.
The need of the hour is to implement targeted policies for supporting the economy through this pandemic or else we’ll be sending our already frail economy back on the ventilator. On the fiscal policy side the first and the foremost step is to expand expenditure on health in order to combat the virus effectively and save human capital. Further strict actions must be taken against public gatherings in order to control the spread of the virus. Recently despite governments warnings scores of people have gathered in ‘Raiwand’ which is a direct threat to all. Similarly due to the surging uncertainty the consumers will be spending less and in response to the lower domestic and international demand the producers will cut down spending and investment thus tax cuts or extending tax deadlines for businesses ( as china , Italy and Iran have done ) might come as a relief. As it will keep businesses afloat and prevent unemployment.
On the monetary policy side, a cut in the policy rate is much needed as it will help lift the confidence of the financial markets. Recently it has been stated that the policy rate will soon come down which is a good sign for the smooth running of business activity and will also help lower the inflation and unemployment issues.
Implementation of such targeted policies immediately is very crucial for weak economies like ours as we are not well suited to deal with last minute emergency situations. As it has been rightly written that ”we must hope for the best, but be prepared for the worst.”
The writer is Economist, environmentalist, a feminist, an animal rights activist and a poet