Calendar year 2020: Decrease in GDP rate led to net job loss of 0.7m: report

LAHORE: The Lahore School of Economics, macro model for the Pakistan economy estimated that GDP growth over the calendar year 2020, has been a contraction of -1.5 percentage points led to a net job loss of 0.7 million.

This was according to the Report on the State of the Pakistan Economy: Growth Jobs, Welfare and Macro Policy in Pakistan.

The report was written by Dr Moazam Mahmood, Professor Faculty of Economics, Lahore School of Economics, Dr Azam Amjad Chaudhry, Professor and Dean, Faculty of Economics, Aimal Tanvir Malik Teaching and Research Fellow, Faculty of Economics, Lahore School of Economics.

According to the report the annualized growth rate of GDP for the calendar year 2020, -1.5 percentage points, led to a net job loss of 0.7 million. The major part of this loss in jobs and livelihoods was in the informal economy, with 0.6 million. The lesser part of the job loss was in the formal economy with 0.1 million.

Professor of Economics at Lahore School of Economics, Dr Moazam Mahmood while talking to Business Recorder told that this estimate is based on observing four quarters of economic activity, from January to December 2020. As such this estimate of GDP growth is comparable to the IMF’s estimate for Pakistan, made mid 2020, of a contraction in GDP growth of -0.5 percentage points.

But for us at the Lahore School’s Modelling Lab, he said that the point of an estimate for the calendar year 2020, is not just that it makes Pakistan’s GDP growth estimates comparable to those of other countries, as standard global practice.

He also said that the that estimating GDP growth for the four quarters of 2020, gives a very good analysis of the evolution of the pandemic and its impact on the economy, on the jobs and welfare of the people.

While giving details of the estimated impact of the coronavirus pandemic on poverty headcount 2020, Dr Moazam Mahmood said that the Modeling Lab at the Lahore School’s Innovation and Technology Centre makes annual estimates of the poverty headcount ratio which measures the proportion of the total population living in extreme poverty i.e. per capita expenditures below the international $1.90 a day poverty line.

These poverty estimates are computed using various rounds of the Household Integrated Economic Survey (HIES) conducted by the Pakistan Bureau of Statistics (PBS). The internationally set $1.90/day poverty line helps to distinguish the poor from the non poor by comparing the daily per capita expenditure to the poverty line. Any person having a daily expenditure of greater than or equal to $1.90/day is considered non poor and any person failing to meet this daily requirement is deemed poor.

The Modeling Lab has computed three annual estimates of the poverty headcount ratio for Pakistan, given in Table 5, using the HIES datasets. The first is an estimate for 2016, the second is an estimate for 2019 and the third is an estimate for 2020 which incorporates the impact of the coronavirus pandemic i.e. the demand side and supply side shocks on the poverty headcount.

Moazam Mahmood also said that in 2016, the annual extreme poverty headcount ratio for 2016 is estimated at 4.04% of the total population i.e., more than 8 million people were trapped under extreme poverty in Pakistan.

In 2019, the annual extreme poverty headcount ratio is estimated at 4.43% of the total population; a surge in the percentage of extreme poverty from 2016. The poverty headcount has increased by 0.39% of the total population; an increase of approximately 1.2 million people over a span of three years.

In 2020, the annual extreme poverty headcount ratio is estimated at 5.49 % of the total population. This number is estimated by incorporating the impact of the pandemic induced supply side and demand side shocks to the incomes of the extreme poor in Pakistan. Our estimation shows that people faced a reduction of about 2% in their original incomes post Covid due to a drop in the value of GDP in 2019 from $276.11 billion to $271.95 billion in 2020.

This pandemic driven loss in income and employment pushed the most vulnerable individuals clustered around the international poverty line of $1.90 a day into extreme poverty. Thus, increasing the percentage of the extremely poor in Pakistan by 1.06% of the total population from the baseline pre shock value of 4.43% of the total population in 2019 i.e., close to 2.5 million people in Pakistan were driven into extreme poverty due to the pandemic alone.

So, in order to cushion the impact of the pandemic on the poor, the poor must be compensated for the loss in income with the help of Unconditional Cash Transfers (UCTs).

The target population of these cash transfers should not only be limited to the people that have been newly pushed into extreme poverty because of the pandemic i.e. 1.06% but should be targeted at the total poor population that is below the $1.90 a day poverty line i.e. 5.49% of the total population. Therefore, the recipients of the UCTs should consist of both the percentage of newly poor post-COVID (1.06%) plus the percentage of total population considered poor pre-Covid (4.43%).

Based on our estimation of the poverty gap, Moazam said that an annual transfer of $1.02 billion is needed to bring the total population of the extremely poor up to the poverty line.

Professor Moazam Mahmood said that Innovation and Technology Center (ITC) of LSE conducted annual business confidence and export surveys by collecting data through telephone surveys from firms in major cities of Pakistan. These surveys help to provide understanding of the sentiments of the Pakistani business community in regards to the ongoing economic conditions each year.

The business confidence survey conducted in 2020 provides important insights related to how the businesses in Pakistan are trying to cope with the ongoing pandemic and how it has impacted their revenues, along with investment and employment decisions so far.

The report highlights that more than 50% of the firms in the sample have experienced a contraction in their revenues and 53% of the firms confirmed a reduction in their levels of investment due to the pandemic induced demand side and supply side shocks. This loss in revenue and investment has led the firms to rethink their employment decisions for the year.

Thus causing them to use cost cutting strategies in order to curb their losses. Approximately 62% of the firms in the sample are planning to lay off close to one-fourth of their employees due to the pandemic-led financial distress.

On the other hand, the export survey conducted in 2020 highlights the situation of Pakistan’s export sector and in particular, how covid-19 impacted their export value, volume along with the price and demand of their exported product.

Moazam further said that the report highlighted that 75% of the exporting firms experienced a fall in their export volume but despite this fall, more than 50% of the sample firms reported stagnant export values. The exporting firms did not experience a change in their export values as falling export volumes were mostly compensated for by higher unit prices as approximately 26% of exporting firms reported an increase in the average price per unit of their exported good during the pandemic.

In addition to this, more than 80% of the exporting firms reported a loss in the global demand of their exported products due to the pandemic and this fall in demand impacted the sports goods sector the greatest, with almost 88% reporting a decrease in their product demand.

Decreased demand and decreased export volume are a concern, though at the moment this has been balanced by higher prices of exported goods. So, while the value of Pakistani exports has not changed dramatically during the pandemic so far, falling global demand has the potential to hurt future Pakistani exports. Overall, the business community is struggling to keep their heads above water during this difficult time but they still seem quite hopeful regarding what the future holds for them.

Copyright Business Recorder, 2021