write an essay on impact of covid 19 on the world economy import and export of pakistan
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Pakistan has been one of the countries worst affected by COVID-19, with the economic disruption caused by the pandemic exacerbating an already existing crisis. This paper discusses how the public health crisis has affected some of the most critical sectors of the Pakistani economy. While the government has implemented some mitigation measures, they are inadequate to counter the impact of the pandemic. The paper analyses the likely fallout of a near-meltdown of Pakistan’s economy on the nation’s hybrid political system that is dominated by the military. Finally, it examines the possible impact of Pakistan’s economic crisis on its strategic environment and strategic alignments, especially its relations with India.
Attribution: Sushant Sareen, “COVID-19 and Pakistan: The Economic Fallout,” ORF Occasional Paper No. 251, June 2020, Observer Research Foundation.
I. INTRODUCTION
Before the COVID-19 outbreak, Pakistan’s economy was struggling to stay afloat but was in no imminent danger of collapse.[1] However, the pandemic has severely impacted the nation’s economy and virtually pushed it to the brink of bankruptcy. While almost all nations have been substantially affected by the global health emergency, Pakistan’s economy does not have the capacity to absorb the massive disruption caused by the pandemic.
Months before the pandemic, in July 2019, Pakistan was forced to seek an Extended Fund Facility (EFF) programme with the International Monetary Fund (IMF) due to its twin deficit problem, i.e. fiscal and current account. With aggressive curbs on imports and massive devaluation, the country managed to reduce the current account deficit (CAD) by over 70 percent in the first seven months of Financial Year (FY) 2019-20. However, this came at the expense of economic growth, which fell from 5.6 percent in 2018 to 3.3 percent in 2019. In 2020, it was being projected to fall further to 2.4 percent, without accounting for the pandemic. Meanwhile, the fiscal deficit problem continued unchecked—partly because the revenue collections fell drastically short of the targets and because the government slashed developmental expenditure to demonstrate a positive primary balance, which was one of the conditionalities of the IMF programme.
Amidst the ongoing COVID-19 pandemic, both these deficits are likely to re-emerge, with a drastic decline in exports and foreign remittances. Pressure will also mount on the expenditure front. In 2019, Pakistan’s military had voluntarily foregone any increase in the defence budget. Now, it is likely to demand a substantial increase. Further, the government will be forced to reverse the trend of cutting expenditure on health, education and other social service sectors. These issues are compounded by Pakistan’s growing public debt, the servicing of which constitutes a substantial part of the government expenditure.
The pandemic has forced most countries to break with the past and initiate deep reforms, not only in the economy but also in politics and foreign and security policy. However, being a national security state, Pakistan continues to adhere to its existing model, since changing its foreign and security policy will require upending the power dynamics between the dominant military and the civilian political establishment. Consequently, Pakistan is treating COVID-19 as an opportunity to obtain concessions, bailouts and debt relief,[2] to avoid undertaking the reforms it had accepted as part of the 2019 IMF bailout.[3] The country is also seeking bailouts from China and Saudi Arabia. While helpful, these measures cannot replace the underlying need for deep structural reform in Pakistan.
II. PAKISTAN’S ECONOMY BEFORE COVID-19
On 2 January 2020, PM Imran Khan claimed that the government had stabilised the economy, declaring this to be the year of growth, development and wealth creation.[4] A week later, the finance ministry issued a press release asserting that the economy was moving “progressively along the adjustment path and stabilization process and economic recovery is expected towards the end of FY2020.” The statement noted several achievements in the first five months of FY2020: the CAD dropped by nearly 73 percent; the fiscal deficit was at 1.6 percent of GDP; the “primary balance” was positive, at 0.3 percent of the GDP; the credit rating had improved from negative to stable; and the country’s rank on the Ease of Doing Business Index had improved from 136 to 108.[5]
Foreign banks and ratings agencies, too, have endorsed Pakistan’s management of the economy. In December 2019, Moody’s upgraded Pakistan’s credit outlook from negative to stable,[6] and Citibank’s top management in Pakistan commended the Khan government’s economic policies.[7] As late as the last week of February 2020, Credit Suisse released a report titled “Pakistan: On the Path to Recovery,” noting that the “fundamentals” of the economy had improved significantly as a result of the IMF package, fiscal consolidation and the necessary