Economic shocks

As if the coronavirus was not enough to give a shaking jolt to the world economy, a price battle between the major oil producers has further intensified the shock. It has been three months since the discovery of the virus that has infected over a hundred thousand people worldwide. Initially the economic ramifications of the disease – Covid 19 – did not appear threatening to world finance and trade, as it was confined to China alone. But as the deadly virus crossed borders, economic activities the world over started showing signs of a slowdown. When South Korea and Italy became the second and third most infected countries, a panic was triggered. And now that panic has led to the worst financial crisis since the great recession of 2009. On March 9, dubbed as Black Monday, shares around the world displayed the worst performance in over a decade with the main financial indexes in the US dropping by seven per cent and in London by nearly eight per cent.

Similar drops have also been witnessed across Europe and Asia including Pakistan. The stock markets were already reeling from fears of the impact of coronavirus, but the row between Russia and Saudi Arabia has further aggravated the situation. The crash of oil prices in Asia on Monday saw a reduction of around 30 percent as a result of a price war between the two of the largest oil producers. First Saudi Arabia tried to convince Russia to slash its oil output to control prices but when Russia was not enthusiastic about it Saudi Arabia itself reacted over the weekend by offering reduced prices in the world oil market. Saudi Arabia had proposed that sharp production cuts were needed to maintain oil prices at a sustainable level. Though Russia is an ally of Opec and has previously worked with it on production curbs, this time around its reaction was different.

With the benchmark Brent oil futures plunging to as low as 31 dollars a barrel, the energy markets are volatile. So what does it all entail for Pakistan? There are two aspects to this situation. First, the coronavirus is affecting the world economy and seemingly nobody can do much about it unless the virus is nailed down. In Pakistan, the economic meltdown will be much worse if we are unable to control the spread of the virus. For the time being, it appears that the provincial government in Sindh has taken extraordinary measures to confine the virus. Other provinces should follow the example and be ready and vigilant to it. Second, the reduced oil prices are a bonanza for Pakistan and the government must reduce oil process in the domestic market so the people can get some much-needed relief. With some stock markets bouncing back on Tuesday, let’s hope that the impact is not as devastating as it appeared to be on Monday.