Pakistan government is ‘between the devil and the deep blue sea’
Pakistan’s Prime Minister Imran Khan talks about continuously rising remittances the country has been receiving in the last two months. But the fact is Pakistan’s economic recovery is still a far cry. Fears associated with a second-wave of COVID-19 are significantly adding to the existing blocks on the road to economic recovery.
The Pakistan Democratic Movement (PDM), an alliance of opposition parties, has launched a movement against the incumbent government. The Pakistan Tehreek-i-Insaf (PTI)-led ruling coalition will remain pre-occupied with facing the movement rather than with the challenge posed by a second-wave of COVID-19 in addition to other blocks on the path of economic recovery.
Bitter relations between the PTI and the opposition parties, principally Pakistan Muslim League-N (PML-N) and Pakistan Peoples Party (PPP), have been one reason why Pakistan has not been able to come up with a coherent national strategy to tackle the coronavirus.
While Pakistan has survived the first wave and even ‘flattened the curve’, fears of a second-wave and the imperative of avoiding and/or surviving it would require much more than Pakistan has done so far.
Sind, currently being ruled by the PPP, is already taking steps and shutting down schools and imposing ‘smart’ and ‘micro smart lockdowns’ in its bid to combat the second-wave. Punjab, Pakistan’s largest province in terms of population, is inching towards a second wave.
Last Sunday, 203 people tested positive in Punjab, the highest number since August 15 when the province had recorded 210 confirmed cases.
The Punjab Government, as some reports show, is already moving towards the possibility of another province-wide lockdown, something that would certainly not bode well for the already ailing economy.
Last month, when Pakistan seemed to have ‘won’ the fight against the first wave of the virus, the Asian Development Bank issued an assessment, predicting Pakistan’s exit from negative growth and entry into positive growth at 2 per cent.
This assessment has, however, already begun to change. In its recently released World Economic Outlook 2020, the IMF has projected Pakistan’s growth rate at one per cent, average inflation rate at 8.8pc, current account deficit at 2.5pc of GDP (gross domestic product) and unemployment rising by 0.6pc to 5.1pc during the current fiscal year. This is in sharp contrast with targets of 2.1pc GDP growth rate, 6.5pc inflation, and 1.5pc current account deficit set by the government.
The assessment has changed precisely because prospects of fully opening the economy and the country remain uncertain.
Elsewhere, as in Europe, including the UK, the impact of the second wave is already being deeply felt. The UK government has begun to impose ‘lockdowns’ in certain parts of the country, with London again moving up to ‘Tier 2’ level of Covid threat. France, Italy and Spain are seeing a record high number of patients. For these countries, the challenge is to revive the economy and battle the virus at the same time.
An additional impediment for Pakistan is that economic recovery requires a lot more than control over the virus. Mere pumping of money into the economy would do no good. For instance, prospects of economic recovery remain grim despite the fact that from March to June, Pakistan received around US$2.6 billion worth of grants in cash and kind from the World Bank (WB), Asian Development Bank (ADB), International Monetary Fund (IMF), Islamic Development Bank (IDB) and the US government.
Unlike other countries, none of which is facing negative growth, Pakistan has some very specific circumstances to tackle.
The Asian Development Bank’s assessment about Pakistan’s return to positive growth assumed that the Covid-19 impact will subside by the end of 2020- the end of the second quarter of FY2021 - allowing conditions to normalise and economic sentiment to improve. It also assumed the resumption of structural reform under an ongoing IMF Extended Fund Facility to address macroeconomic imbalances. This was thought to be crucial for Pakistan’s post COVID-19 economic growth.
However, the demands that IMF program is making will have serious political implications for Imran Khan, who is already facing massive political mobilization of the opposition parties. Some officials of the State Bank of Pakistan have confirmed that tax rationalization and energy prices’ surge for the elimination of circular debt and new legislation are the key demands of IMF for the release of the next tranche.
SAM has learnt from senior officials that a price hike at a time when the economy is struggling and when the opposition is already mobile will add more fuel to the fire and give the opposition parties additional reasons for intensifying their street protests. The government certainly does not want this to happen. The PTI-led coalition government is, therefore, in a real fix, being ‘between the devil and the deep blue sea’.