Recession looms large

The World Bank's report on Sunday didn't really say anything that wasn't already written on the wall as it warned of the worst economic performance in 40 years in South Asia and a sharp recession in Pakistan because of the global coronavirus pandemic. Since the country is pretty much shutdown and the economy in something of a self-induced coma, and the government must still scramble to finance all kinds of relief packages, it is only natural for the fiscal deficit to skyrocket as we go along. In one of its flagship publications, South Asia Economic Focus, the World Bank has warned that a steep rise in the deficit, along with a significant fall in remittances and continued portfolio investment outflow, could well contract Pakistan's economy and push the GDP growth rate down to negative 2.2 percent in the worst case scenario. All this implies yet higher unemployment and poverty numbers down the road. And since there's still no way of knowing just how long the coronavirus-triggered emergency will last, countries with small economies like Pakistan suddenly find themselves in a very precarious situation. If the lockdown has to last another few months, where is the money for additional government support going to come from?

It's not that governments don't know what their problems are or even what to do about them. The issue is how to do the right thing. The World Bank's Chief Economist for South Asia Region Hans Timmer said, for example, that Pakistan's priorities now should be providing healthcare for everybody, ensuring smooth food supply, creating temporary jobs (especially for migrant workers), preventing bankruptcy of small and medium enterprises, and a lot of other common sense things that will no doubt help weather the storm. But it's not like these things can be done simply by ticking some boxes on a priority list. Important as these steps are, none of them will be implemented properly unless the government has the required amount of money to inject into the economy. The economy was pretty much on its knees even before the coronavirus pandemic stood everything on its head. Islamabad had to practically bend over backwards for a $6 billion programme with the IMF just to avoid a possible sovereign default. Now it has had to offer a $8 billion stimulus package just to survive in the immediate term; and a lot more would be needed soon enough. Even the simplest mathematics confirms, then, that Pakistan has very little if any fiscal space left to continue to fight against the coronavirus. Timmer also said, "South Asian countries should keep their sovereign debt sustainable through fiscal prudence and debt relief measures." But that, again, is easier said than done for countries with severe liquidity problems.

The fact is that developing countries will make it through this crisis with their economies intact only if richer and more developed countries as well as international financial institutions (IFIs) help them. That is why Prime Minister Imran Khan's repeated appeals to the international community to give debt relief to countries in trouble like Pakistan make a lot of sense. Pakistan's total debt and liabilities stood at approximately 94 percent of GDP by end of December last year. Now, with annual growth shrinking rapidly, this percentage is only going to rise. And it is pretty clear that unless this burden is eased immediately in some way - meaningful concessions if not a write-off - and a lot more financial support is provided, Pakistan's response to the coronavirus spectre will be cramped at best. And nobody needs any reminding that the country's healthcare infrastructure is in no shape to withstand an out-of-control situation. So if timely help is not provided and the situation does spiral out of control, the economy might even take a worse hit than the WB's grim predictions. The government is trying to reopen the economy in bits and pieces, starting with incentives for the construction sector. But, understandable and necessary as it is to restore growth and employment, the initiative is still a role of the dice at best, really, because there's no guarantee it will deliver what is needed.