The long-term effects of nearly two years of Covid-19 on the global economy have begun to unfold, biting governments, the elite, middle class and the poor. Governments are facing protests from the people hurt most, the middle class is struggling while the poor are moving below the poverty level.
In the midst of the extraordinary shock of Covid-19, the Asian region is exhibiting relatively good resilience. The Asian economy contracted by 1.5 percent in 2020, while the world’s economy shrank by 3.2 percent. Asia is expected to rebound faster.
The worst effect is emerging from the disruptions in the supply chain process for commodities, raw material, fuel and similar movers of economy and people’s needs. With globalisation, a large amount of manufacturing and supply channels moved from less cost-effective countries to more cost-effective countries, notably, from the West to Asia in general and China in particular. China is now the leading supplier of goods, raw material, commodities and components to the world. The West woke up to realise the hard fact that China now influences the global economy.
The disruption in supply of these inputs to the world market has slowed down production, giving rise to hoarding. It has also caused exponential rise in prices of commodities.
The turmoil in the energy sector and disruption in oil supplies have hit the developed nations by utter surprise. The UK witnessed its worst crisis of petrol shortage in its long history – except for the periods during the World War II and in the 1970s. Germany is now faced with the same dilemma. China is undergoing unimaginable power outages, affecting its industry and supply chain. Further, the European Power Markets have entered a period of unprecedented change. Power prices have risen enormously in a number of European countries. More uncertainty lies ahead.
Pakistan is not insulated from whatever is happening around the globe. High inflation, rising electricity tariffs and petrol prices are hitting the country and its people as never before.
As per September 2021 official figures, inflation in Pakistan is recorded at 8.6 percent - as against 5.8 percent in Bangladesh and 6 percent in India during the same period. The average inflation in Pakistan in the 1957-2021 period is noted at 7.8 percent with highest of 37.8 percent in December 1973 ( during a civilian regime of PPP) and lowest of -10.3 percent in 1959 (the military regime of General Ayub Khan).
As of 18 October 2021, the petrol price per litre in Pakistan is $ 0.805 - as against $ 1.420 in India, $1.039 in Bangladesh, $ 1.934 in the UK and $ 1.931 in Germany.
The electricity tariff in Pakistan for household users, as on March 2021, stood at US $ 0.053 per kWh as against $ 0.066 in Bangladesh, $ 0.077 in India and $ 0.086 in Turkey. In the meantime, it has increased further in Pakistan. The rise is largely driven by certain IMF dictates.
On the other hand, GDP per capita of Pakistan is around $ 1,200 as against $1,900 of India, $ 1,969 of Bangladesh,$2800 of Vietnam and $3,682 of Sri Lanka.
The foregoing analysis reveals that Pakistan’s levels of inflation, petrol price and electricity tariffs are largely in line with those in the region. What is not in line is the GDP per capita of Pakistan which is the lowest in the region. This limits the purchasing power of the people. More worrisome is that the income per capita in the country is on a declining trend, declining to $1200 from $1482 in 2018. With growing unemployment there is not much hope of catching up. This is a huge issue for Pakistan.
The incumbent government’s panic-driven strategy of doling out subsidies and incentives to specific segments of society and specific commodities may provide some momentary relief to a certain segment. The issue will bounce back at every shock arising out of turbulence in the economy.
The sustainable way forward for the leadership is to work on developing ways to increase the per capita income of people, notably of the lower segments through creation of new job opportunities, small businesses support and skill development. This is a difficult task and currently not attracting the attention of the leadership in a meaningful and effective manner. Within the government hierarchy there might be few, at best, who have the capacity to come forth, lock horns and deliver.
(The writer is a former President, Overseas Chamber of Commerce and Industry)
Copyright Business Recorder, 2021
The writer is a former President, Overseas Investors Chamber of Commerce and Industry
Comments
Comments are closed.