Pakistan’s inflation rate in April has dropped from 10% in March to 9.5% in April. Pakistan had the highest inflation rate of 14% in January but it has slowly declined.
Pakistan had been suffering from demand pull inflation ever since the start of the corona pandemic. Production has been low and demand for goods has been high. The panic especially in the cases of soaps, hand sanitizers, food items and other necessary items like medicine has created a major gap in production. Crimes have also increased such that selling hand sanitizers and soap at unusually high prices and stealing soaps and handwashes.
Now the lockdown is easing and production will increase, but Pakistan is reaching towards its peak, so far the highest number of cases are reported to be 2300 according to worldometers, and it is a high possibility for cases to increase. Researchers from Singapore and China have suggested that coronavirus in Pakistan will be finished by June, Although it is possible but the daily figures show that Pakistan has not reached its peak yet.
It was estimated that Inflation will more likely increase in the coming weeks as need for goods will increase and so will the fear of coronavirus forcing people to hoard goods. The government has taken good steps to control inflation such as reducing the policy rate and preventing the possibility of hyper inflation and poverty by launching a nation wide relief package in which every needy person is given pkr 12000 to fulfill his needs and demands.
Even though inflation has dropped a little but the fear of coronavirus still forces consumers to buy unnecessarily and hoarding of goods is still going on.
Due to daily increase in cases a lot of businesses are still reluctant upon opening and production is also likely to be less. Unemployment has risen sharply.
According to a report published by IMF, Unemployment in Pakistan may shoot up to 4.5% which is expected as a huge population of Pakistan are daily wage workers like construction workers, street food sellers, road side sellers who cannot survive if they don’t earn everyday. The threat of dying from during the corona pandemic is less than the threat of dying from hunger in developing countries like Pakistan, India, Bangladesh and African countries. Recently the government has tried to control inflation by launching an environmentally friendly program in which people will get paid for planting trees which is a very good initiative to help the unemployed and the environment.
According to economics, After Effects of inflation usually include a decrease in purchasing power, decrease in buying, investing and an increase in borrowing. Pakistan was going to suffer from all of these aftershocks but due to good efforts by SBP, inflation dropped a little in Pakistan, investors gained a little confidence and stock market recovered a bit, also the decision of easing the lockdown also made people optimistic about trading. Otherwise high unemployment, low production and rising prices was moving the economy towards stagflation. According to a report by IMF, there would be a -1.5 percent decrease in growth in the coming months so a decrease in the overall GDP is more likely to cause stagflation.
The State bank of Pakistan is doing its best and cut policy rate to facilitate businesses and people suffering from the lockdown. One ray of hope for Pakistan is the sudden decrease in oil prices, as Pakistan was a major importer of oil, the fall in oil and petroleum prices will give a little bit of breathing space to the economy. Imports are also very likely to fall because supply chains are disrupted and because of decrease in oil prices, according to commerce advisor Dawood imports will fall by 42 percent.
According to Dawood, Pakistan’s major export is textile, while it increased in February, it declined in March and is expected to fall. Exports are likely to be cut by fifty percent.
In order to boost up exports which are the only chance for survival, necessary precautions should be taken by the government to ensure that trade is done while following the measures given by WHO and health professionals to stop the spread of covid19. Without trade and exports, which are already very less as compared to imports, Pakistan will suffer a lot.
Think tanks and research bodies like the world bank, IMF, World Bank and planning commission have given their views about how badly Pakistan will get affected by covid19. The planning commission has advised the government to provide new monetary and fiscal policies and give the economy a boost by giving fiscal stimulus to small enterprises. The World bank has stated that if the current situation of coronavirus continues, Pakistan is more likely to have negative exports and it although had a slow growth rate in previous years will enter into recession. It will contract upto 2.2%, the report said.
According to the planning commission there is to be a reduction of 10 percent in gdp. The major sectors which are most likely to get affected in the next 6 months are manufacturing and services sectors.
No doubt that the issue of controlling price hikes during a major economic lockdown will prove to be a huge challenge for the present government especially during ramadan.