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COVID-19: Strong case for giving greater role to State institutions in Pakistan

SUNDAY SPECIAL-ENG-19-04-2020 (1)

The spread of COVID-19 in Pakistan has put the country’s already weak and underdeveloped health system under a great amount of stress.

While even developed countries are under stress, Pakistan’s situation, which is similar to those in other under-developed and developing Third World countries, is compounded by a deteriorating economic situation. It has very limited capacity to deploy economic and financial resources to fight the virus and arrest its spread. 

The spread of this virus has not only created a health emergency, but has generated an economic crisis as well. That needs to be tackled to avoid further descent into economic and political chaos. 

Also Read: War on COVID-19 will shift balance of power from US to China and Russia

The fundamental question is: how can the incumbent government avert the impending crisis?

According to a recent World Bank report on the economic situation in South Asian countries, Pakistan’s economic growth is likely to be in the negative, down to almost minus 1.3 in the rest of 2020. 

According to the report, “The immediate challenge for the government is to contain the spread of the COVID-19 pandemic, while minimizing economic losses and protecting the poorest. In the medium-to-long term, the government should remain focused on implementing much needed structural reforms to boost private investment sustainably.”

Whereas the crucial challenge is to avert an economic breakdown, it is equally important to carefully consider the path to achieve the objective. For the World Bank, salvation lies in ‘structural reforms’, which means further privatization. 

While privatization and liberalization are not new to Pakistan, the present crisis has proved once again that countries, such as China, with a strong State structure and capacity were better able to tackle the crisis than countries with massively privatized institutions and services. 

As a matter of fact, even in the US, the State has been forced to directly intervene in the crisis and increase its own capacity to fight the virus. Countries like Pakistan, too, need to learn a lesson and need to unleash a ‘reform process’ wherein State institutions see their capacity being boosted instead of being reduced through privatization. 

Building State institutions and capacity are crucial for other reasons that have become apparent in the crisis. Chief amongst them, at least in the case of Pakistan, is the fast-shrinking job opportunities for Pakistanis in the Gulf/Arab countries. 

Thousands of them have flown out and thousands of others were forced to leave their host countries. With remittances being Pakistan’s biggest source of foreign exchange, lessening job opportunities for Pakistanis in these countries means less foreign remittances and led foreign exchange in the kitty. 

Also, the fact that jobless people are coming back, implies that the unemployment rate will surge, making the need for an enhanced focus on building State institutions to provide employment for all. 

In other words, the liberalized ‘free market economy’, which has been the norm since the 1990s ever since the fall of the Soviet Union and ‘End of History’, will no longer be sufficient—or even conducive---to tackle the grave economic challenges lying ahead. 

It is perhaps for this reason that even the mainstream Western media is calling for reform, seeing its utter inappropriateness under the circumstances. 

The Financial Times, otherwise a champion of free market economy, recently wrote in an editorial: “Radical reforms — reversing the prevailing policy direction of the last four decades — will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labor markets less insecure. Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income and wealth taxes, will have to be in the mix.”

As a matter of fact, even some notable policy steps that the Imran Khan government has taken in Pakistan point to the utmost necessity of increasing the State’s role in managing the crisis and helping the most vulnerable segments of society i.e., the daily wagers and the working classes. 

In this regard, the ruling Pakistan Tehreek e Insaf’s policy of dolling out cash transfers to these classes directly indicates what needs to be done on a much bigger scale. The need is to revitalize the direct role of the State in running and managing the economy and not go for so-called ‘structural reforms’ and privatization steps that have historically failed on a number of occasions in Pakistan. 

Also Read: India’s bid to isolate Pakistan fails

Even globally, the fact that free market economies quickly went into ‘recession’ after the outbreak of COVID-19 pandemic shows that these forces do not actually have enough shock-absorbing capacity, nor can they protect the most vulnerable. 

It is, therefore, imperative for Third World countries like Pakistan to re-think the concept of ‘structural reforms’ as advocated by the World Bank and the IMF. 

This, of course, will have to be combined with an internal review of critical sectors, such as health, where resources will have to channelized on a priority basis in order to build the capacity to fight such crises in a word constantly under pressure from the fast degrading environment.