Coronavirus epidemic’s economic implications for Pakistan
Dr. Mehreen Mujtaba
The World Health Organization (WHO) has upgraded the global risk from the novel coronavirus to its highest alert as new cases of the disease were diagnosed in recent weeks around the world at astounding speed. While the human cost of the outbreak continues to rise and cannot be undermined, it is also pertinent to discuss the global economic impacts of this contagious infection.
Coronavirus has closed down China-- the world’s second largest economy-- to the rest of the world.
Stock markets everywhere are experiencing major declines amid investor fears. There’s a prolonged economic slowdown around the world as the infection continues to spread. Since its outbreak in December 2019, the trickledown effect of chaos in the Chinese economy is affecting equity markets, production lines and supply chains around the world. Pakistan has been no exception.
Last week, the Karachi Stock Exchange took a plunge of 1,100 points following a slump in international stock markets.
In a report published in a local newspaper last month, the IMF mission expressed concerns over the negative impacts of coronavirus on Pakistan’s economy as a spillover from the slowing down of the Chinese economy. IMF projected Pakistan’s GDP growth at 2.4 percent and inflation at around 11-12 percent for the current fiscal year. The outbreak has already had an impact on the $62 billion Chinese Pakistan Economic Corridor, with construction work delayed during the second phase of the project.
According to economic experts in Pakistan, the impact on Pakistan’s economy is dependent on the time duration of curtailing the intensity and spread of the disease in China as well as globally. However, the slowdown in the Chinese economy, the halt on production in China as well as the closure of trade routes have led many to believe the economic impacts of the coronavirus infection could potentially be among the worst for neighbouring Pakistan.
As part of the Pak-China free trade deal agreement, more than half of the products available in Pakistan’s local market are imported from China-- to the tune of around $17 billion-- and account for around one fourth of the country’s overall imports. Meanwhile, we export goods worth roughly $2 billion per annum to China. Given these statistics, one can only predict the vast potential economic impacts of the infection in Pakistan.
On a positive note however, there could be some silver linings. According to economic projections, the Chinese Yuan is expected to depreciate by 3-5 percent, resulting in some decline in Pakistan’s import bills.
It is also possible that our textile industry and exports increase since global textile producers are anticipating a long disruption in supply chains from China. It is possible, that by actually playing the cards right and strategically, and converting threats into opportunities, Pakistan’s government could infuse much needed impetus into its struggling textile industry. However, for that to work, the government will have to incentivize the textile industry by reducing power tariffs and establishing proper supply chains for raw materials required by the industry.
Infectious diseases constitute a tenacious stumbling block in public health all over the world. The impacts of these diseases are immense and felt across the globe. They not only affect the health of individuals directly, but also have an impact on societies, economies and political systems-- sometimes for years. It is therefore not only a matter of public health, but also of economic interest to invest in and organize an internationally coordinated strategy to combat infectious diseases and to bring them under control.
While it’s a fuzzy math of extrapolating the coronavirus economic impacts for Pakistan, if global trends are anything to go by, at this time the situation doesn’t bode well for the country’s struggling economy.