Covidonomics for Pakistan.

Byline: Ahmad Mukhtar

IMAGINE a 200 per cent increase in outstanding foreign debt, 60pc decrease in inward remittances, 50pc decrease in exports, 30pc decrease in industrial activity, 25pc decrease in revenue collection, 20pc increase in unemployment and 20pc decrease in food security.

Sounds like fiction? Not exactly. It could be just a few months away from becoming a reality. The socioeconomic cost of Covid-19 will be far higher than health costs. Are economic managers ready for such a scenario? Probably not. Thus far, the economic policy has not indicated anything other than business as usual.

A paradigm shift in the economic policy and management is warranted. A special three-year development plan for post-Covid-19 economic management may be a good anchor for such efforts, which may include the following elements.

One, the focus should be on the internal/domestic economic sectors since the external sector will be volatile and risky in the near future. The International Monetary Fund (IMF) has already warned about the possibility of a recession or even depression in coming months. The World Trade Organisation (WTO) anticipates a sharp decline in international trade until 2021 at least. It will, therefore, be unrealistic to rely on export growth and inward remittances in coming months or even years. Pakistan should rather brace for a decline in these earnings.

The policy focus should shift to the agriculture and SME sectors

Two, the policy focus should shift, immediately and concretely, to the agriculture and SME sectors. Focusing on agriculture will increase food security and, owing to its potential for growth particularly in value-added and agri-business segments, absorb some of the forthcoming unemployment surge. The potential for growth and job creation is also high in SMEs.

Most incentive schemes in the past were tailored for large-scale manufacturers or service providers although the returns of fiscal and monetary incentives are much higher in the case of SMEs. A careful assessment must be made on the incentive structures. It will certainly lead to the reallocation of resources (subsidies).

Three, the increased availability of capital, particularly for SMEs and the agriculture sector, is the key. Concessional finance is available to mostly the export-oriented and large-scale economic operators. High interest rates and scarce private equity have hindered entrepreneurship.

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