By Farrukh Karamat
Senior Research Coordinator, Spearhead Research
The dreaded Coronavirus (COVID-19) is wreaking havoc on Global economies, as it rapidly spreads across the World. Much more than anything else there is a sense of panic amongst most countries as they try to grapple with an unprecedented situation, with instances of mass quarantines, travel restrictions, social isolation and other containment measures. While the fatality rates remain extremely low, especially amongst the young, a sense of doom has been created due to a mass hysteria fanned by the incessant media hype around the issue. Naturally, this has led to ‘panic’ amongst the people as we witness empty shelves in retail stores, restaurants shutting down, travel being restricted and price hikes for essential items such as face masks and hand sanitizers. Employees are being sent on forced leave with or without pay and businesses are gradually coming to a grinding halt. Especially hard hit is the travel and airline industry as countries restrict entry across their borders. On a macro level we see a downward revision in growth targets for most economies as the multilateral agencies issue warnings on the back of expected slower growth in China and other leading economies. Most developed countries are working on Quantitative Easing for providing funding to sustain economies, businesses and people. In a word, the world is entering a panic mode, which may very likely be the start of another recessionary period as the sentiment turns negative.
The people in Pakistan initially appeared to be immune to the Coronavirus crisis, and we continued to see the much touted PSL 2020 making great strides with stadiums full to capacity. The Punjab Government held a large Food Mela in Jilaini Park. The religious congregation at Raiwind gathered around two hundred and fifty thousand zealots. The educational institutions were open and holding events as planned with no let down, with the exception of Sind. Offices continued to operate and in general life was going on pretty much as normal. As one Pakistani stated, “No one can escape the destined night in the Grave, so why worry”. It is this fatalistic attitude that leads most Pakistanis to superficially discuss the viral issue but not really take any constructive preventive measures. The Government has finally woken up to the magnitude of the problem, but there is still limited meaningful debate on the issue and the sense of urgency on their part to plan out contingency measures if the infection spreads remain limited and confusing at best. Sind had put restrictions in place much earlier and now Section 144 has been imposed in Punjab but the Friday prayer congregations have not been restricted. The PSL matches have finally been cancelled and educational institutions have been closed. Screening methods remain poor with untrained staff; the healthcare system is grossly inadequate to deal with a large-scale catastrophe; and there is hardly any precautions being taken let alone developing effective and adequate quarantine measures. As the Coronavirus spreads in Pakistan, with a population of 220 Million, one can only imagine the catastrophic damage that it could inflict. The Prime Minister in his recent address has categorically stated that it would spread and Pakistan is not in a position to restrict internal travel and isolation as Pakistan is a country with a large population around the poverty line.
The State Bank of Pakistan in its recent policy decision has cut the key policy rate by 0.75 per cent to 12.5 per cent. This decision has been negatively received by the market as there was an expectation that the rate cut would be 200-300 bps. On the other hand the Government continues business as usual while trying to get Nawaz Sharif extradited (which by the way is not going to happen); losing the third BOI Chairman; harping on about corruption; debating the price of electricity and gas; and in general maintaining the environment of fear and uncertainty, which has become its hallmark. The slogan of the Prime Minister “Ghabrana Nahin Hai” (Do not Panic) is now perceived as more of a joke, rather than being a reassuring and serious piece of advice. However, Imran Khan is right in proposing that US sanctions on Iran need to be eased to allow the country to fight the current crisis. He is also not wrong when he has states that the multi-lateral lending agencies should consider easing the financial burden on economies by restructuring and writing off debt. It is time that the World realizes that collective wisdom and concerted efforts are required to pull through to avoid prolonged recessionary trends in the coming years, in the aftermath of COVID 19.
The fact is that the Pakistan Stock Exchange (PSX) continues to witness nothing short of a bloodbath as the KSE-100 continues to decline and the Market is being halted on a daily basis as the triggers are being tripped. Close to Rs.400 Billion has been wiped off in value – the biggest decline in 10 years. The Rupee continues to fall against the USD and has lost close to Rs.4.00 and fallen to Rs.159 in the interbank market. Gold continues to rise. The Growth rate has been revised by Moody’s to around 2.5 per cent, which is also starting to appear optimistic. Utter mayhem. Yet, this is not an isolated event for Pakistan, but something that is being witnessed on a global scale. Other economies have been more proactive and put in place measures to try and reduce the fallout from the current situation. The Government has stated that NDMA (National Disaster Management Agency) would take charge and manage the situation. This organization is geared more towards managing events such as floods and earthquakes and needs to be better equipped to handle a catastrophe such as the current one, with experts in field inducted to devise a cohesive strategy to combat the alarming situation. Screening at airports remains extremely poor and ineffective. The Quarantine centers are mismanaged and if anything are facilitating the spread of the virus. An acceptance that the disease would spread is likely to fuel further panic in the markets. The financial measures adopted appear inadequate at best and unlikely to have a meaningful impact. People are continuing to see their wealth wiped out on the stock exchanges and exports are likely to be negatively impacted, having much larger ramifications for an already beleaguered economy. In a word, perhaps it is time to evolve a rational national response to ease the panic that could be unleashed as the reported cases continue to rise. While the World Health Organisation (WHO) has praised efforts in combating Coronavirus, the real test for Pakistan is coming now as the disease starts to spread.