Challenges for our economy

The great lockdown had drastic effects on global economic activity and employment. In Pakistan, 75 percent of the labour force is seriously affected by the coronavirus pandemic. While Pakistan is already expecting over 18 million job losses, there will also be a massive loss to the economy as the spread of the virus is getting worst.

The remaining workforce working including the small business owners and restaurant staff are waiting for the lifting of lockdown and restarting their jobs. Based on the rate of spread and increasing economic losses and poverty, the government decided to partially lift the lockdown.

It was announced that the lockdown will be lifted for small markets and street shops with limited hours and ensuring social distancing. It is also stated that if the virus condition goes out of control and there is a second wave, the lockdown will be made stricter. Scientists and doctors opposed the decision due to fear that the spread of the virus will become a big challenge for the health system.

According to the report of the World Health Organisation, after lifting the lockdown 1764 cases along with 30 deaths were reported within 24 hours which was the highest since the start of pandemic in the country. The government has permitted small-medium economic activities but educational institutions will remain shut and online teaching services will be continued.

The World Bank has already released $500 billion loans to facilitate the social indicators and overcome economic losses. IMF has released a loan of US$1.39 billion to Pakistan to cope with the crises. Although uncertainty remains high, in short-term economic growth is projected to be substantially low, generating significant fiscal and international funding requirements. The support from IMF and World Bank would provide backup to Pakistan’s economy and will help the government in making strategies to overcome epidemic crises as well as economic crises.

COVID-19 epidemic has severely affected the economy of Pakistan. The combined policies for domestic and international economic activities have seriously affected the balance of economic growth. Therefore, Pakistan must implement policy to stabilise the balance of economic activities with certain measures.

In reaction to the outbreak, the government of Pakistan has taken decisive steps to prevent the spread of COVID-19. Considering the country’s poorest communities, daily wage workers, the government launched economic support for them. The State Bank of Pakistan introduced a timely package to improve the liquidity and credit conditions to preserve financial stability, along with a reduction of the policy rate and refinancing services. The policy should be implemented with a view that how to pay back the loan and if the COVID-19 situation goes worse how authorities can overcome the economic crises.

The State Bank of Pakistan has announced to increase the new currency circulation to replace the COVID-19 contaminated currency to reduce the spread of COVID-19 and meet the cash demand. Some economists and scholars argue that the new money will cause inflation as the price of commodities will increase.

In case the inflation rate increase to higher levels, the prices of commodities will fluctuate frequently and firms need to pay more. During Germany’s hyperinflation, prices were changing so quickly that people were paid twice in a day. When inflation increases, enterprises will hesitate to investigate and the results will significantly affect the economy of Pakistan.

 In addition, due to the high rate of inflation, it will become hard for the government to sell bonds. People buy bonds as they think it is safest to invest. Considering the country’s debt, printing new currency to pay the debt will result in inflation, thus the bond value will be clocked. People will not be interested in buying bonds because there will be a high probability of a decrease in actual value when the inflation rate is very high.

Considering the high inflation rate, debt and challenges to investors in buying and selling, the alternative solution can be soft/digital currency. Soft currency is an easier and safe payment method with lower transaction cost that can be paid at any time and cannot get contaminated by any virus.

If the government launch digital currency in Pakistan, it would help to reduce corruption. The same situation is in many other economic activities, such as other petroleum prices and commodities. Many developed and developing countries are now using soft currency for domestic use because of the reduced risk of inflation and printing cost.

Mansoor Ahmed Koondhar, from Northwest A&F University in Yangling (China), also contributed to this article.