Worst recession looms over Pakistan, South Asia

ISLAMABAD: The World Bank on Sunday said Pakistan and other South Asian countries were likely to record their worst growth performance in four decades this year due to the coronavirus outbreak.

The South Asian region, comprising eight countries, is likely to show economic growth of 1.8% to 2.8% this year, the World Bank said in its South Asia Economic Focus report, well down from the 6.3% it projected six months ago.

India’s economy, the region’s biggest, is expected to grow 1.5% to 2.8% in the fiscal year that started on April 1. The World Bank has estimated it will grow 4.8% to 5% in the fiscal year that ended on March 31.

“The green shoots of a rebound that were observable at the end of 2019 have been overtaken by the negative impacts of the global crisis,” the World Bank report said. Other than India, the World Bank forecast that Sri Lanka, Nepal, Bhutan and Bangladesh will also see sharp falls in economic growth.

Three other countries — Pakistan, Afghanistan and the Maldives — are expected to fall into recession, the World Bank said in the report, which was based on country-level data available as of April 7.

Measures taken to counter the coronavirus have disrupted supply chains across South Asia, which has recorded more than 13,000 cases so far — still lower than many parts of the world. India’s lockdown of 1.3 billion people has also left millions out of work, disrupted big and small businesses and forced an exodus of migrant workers from the cities to their homes in villages.

In the event of prolonged and broad national lockdowns, the report warned of a worst-case scenario in which the entire region would experience an economic contraction this year.

To minimize short-term economic pain, the Bank called for countries in the region to announce more fiscal and monetary steps to support unemployed migrant workers, as well as debt relief for businesses and individuals.

India has so far unveiled a $23 billion economic plan to offer direct cash transfers to millions of poor people hit by its lockdown.

In Pakistan, the government has announced a $6 billion plan to support the economy. “The priority for all South Asian governments is to contain the virus spread and protect their people, especially the poorest who face considerable worse health and economic outcomes,” said senior World Bank official Hartwig Schafer.

It assessed that Pakistan’s GDP growth rate might shrink and fall into negative -2.2 to -1.3 percent for the current fiscal year, indicating that the Bank had further lowered its growth projection last week from positive 1 percent to now negative 2.2 percent in worst case scenario and negative 1.3 percent in moderate scenario.

The WB also made forecast that remittances would face major blow for South Asian region because Pakistan’s remittances were largely dependent upon Gulf Region, US, UK and others where there was negative impact of coronavirus and there was complete lockdown.

Meanwhile, Prime Minister Imran Khan Sunday appealed to the world leaders, the leading financial institutions and the United Nations Secretary General for launching a global debt relief initiative to provide the much-needed relief to the developing countries, currently faced with the worsening financial meltdown due to the COVID-19 pandemic.

In a brief televised appeal to the international community, he juxtaposed the financial health of the developing countries, especially of Pakistan where the government had been striving simultaneously to avoid spread of the deadly COVID-19 through clamping of lockdowns and saving the people from death due to hunger.

The prime minister cautioned that the pandemic’s socio-economic impacts would be more consequential in the developing countries.

He said while the United States, Germany, and Japan had come up with relief packages of $2.2 trillion, €1 trillion, and $1 trillion respectively, the maximum stimulus the government of Pakistan could afford for a population of 220 million was $8 billion.

The proposed global initiative is aimed at laying the ground for urgent debt relief to the developing countries, at their request, and without onerous conditionalities.

The initiative was built on the prime minister’s belief that enhanced fiscal capacity was fundamental to recovery from the ongoing crisis.

Noting the UN Secretary General’s call for action, Prime minister Khan also urged the world leaders to step up measures to help developing countries to overcome the disastrous impacts of COVID-19.

He proposed that the developing countries should be provided with fiscal space and financial relief through enhanced debt relief and restructuring and other additional measures that could help them manage the unfolding crisis.

The prime minister observed that in the context of unprecedented challenge from the COVID-19, the global response had two different aspects emerging in the developing world and the developed countries.

He noted that the developing countries like Pakistan faced the dilemma of containing the novel coronavirus as well as dealing with the impacts of economic crisis leading to hunger and poverty.

He cautioned that the greatest worry in the developing countries was now of people dying from hunger as a result of the lockdowns.

The prime minister also noted the huge discrepancies in the financial resources available with the two groups of countries.

Imran said his government had announced a maximum relief package which it could afford to combat the challenge.

Most of the developing countries have high debts of GDP ratio and they do not have money to spend on overstretched health services and to save people from dying.

In this regard, the prime minister mentioned the response of developed countries i.e. the US government’s announcement of a stimulus relief package of 2.2 trillion dollars, Germany 1 trillion Euros and Japan 1 trillion dollars to face the coronavirus challenge.

He said the COVID-19 pandemic posed unprecedented health and economic challenges. He also underlined that global recession was certain, one worse than the Great Depression. ”A global pandemic cannot be contained without strong, coordinated and well-crafted global response,” he stressed.

The global initiative on debt relief would bring together stakeholders on a platform to promote coordinated health and economic response, he added. The prime minister also invited the UN Secretary General to work with him in advancing the objectives of a coordinated response.

According to a press release of the PM Office media wing, as part of his diplomatic outreach, Prime Minister Imran Khan would be approaching Heads of State/Government from a wide range of countries notably from the Paris Club, Highly Indebted Poor Countries (HIPC), heads of international organizations and others concerned to join him in this endeavor.

He has entrusted the foreign minister and his adviser on finance to reach out to their respective counterparts to work for the ‘Global Initiative on Debt Relief’ with the objectives of relieving developing countries of the financial challenge from the COVID-19 pandemic and realizing sustainable development.

During the past week, various announcements had been made by the multilateral actors such as the UN, the IMF, and the World Bank. The announcements included initial relief packages of $1.4 billion by the IMF, and $1 billion by the World Bank.