Searching for economic normalization amid a deadly virus run amok is like riding the back of a tiger and hoping not to end up inside. And yet, taxation and spending targets in the latest federal budget seem to have placed a huge bet on restoration of economic activities in the next fiscal. Without taxes, there can be no government. But without a healthy workforce, can there be economic growth, or even an economy?
The benign narrative of return to GDP growth started last month, when the Finance Advisor declared in a webinar that he expected growth of 2 percent in the next fiscal. Then earlier this month, the Planning Commission reportedly outlined a 2.3 percent growth projection for pre-budget discussions. Along came FinMin’s Economic Survey, declaring “a strong likelihood of a fast V-type recovery”. Even the lender in chief, the IMF, is expectant of “a gradual recovery” in FY 2021 “as the economy reopens”.
However, a GDP growth target of around 2 percent should be credited more to the 5 million+ newborns that are expected to make it to this part of the world (during a pandemic!) than to purely economic factors. While this highlights the need to arrest population growth rate, the pertinent point here is that only a growth rate in excess of the population growth rate will have something to do with the real economy.
In short, a 2 percent growth projection is akin to resigning to fate. Moreover, being too wedded to a single macroeconomic indicator is imprudent in these times, for economic projections cannot be divorced from ongoing health crisis that has a varied impact on different activities and sectors. The need is to capture a range of activities in the agro, industrial and services sectors through real-time, high-frequency economic indicators. ‘Fast Data’ can help in rapid response.
With the house on fire, the need is to, first, put out the fire; next stabilize the situation and count the losses; and then make both mass and targeted fiscal and non-fiscal interventions to rebuild, grow and sustain. Healthy economic growth, therefore, looks like a medium-term bet, at best. It is not what anyone wanted, but it is the way it is. So why poke the tiger without a weapon instead of hiding in the bushes?
At this stage, criticism (including by the World Health Organization) over the manner in which government went about reopening the country in May, is rather stale. It has now gone beyond the rulers in Islamabad peddling a false choice between lives and livelihoods. There is now a real risk that the growing number of fatalities will sap the spirit of vulnerable workers to go out and inevitably become fuel for the economic engine. What happens then? Will shoppers be comfortable stepping into what feels like active gunfire?
What Pakistan has going for itself is its highly consumption-oriented economy. But it needs handholding, so that aggregate demand can stay at sustainable levels. The daily-wagers and the eligible households will need even more cash support to stay afloat, especially in case the hotspot-based lockdowns envelope the country. But it is unclear if more help is coming; the budget has suggested the public to do more but not to expect more. In that case, what is the plan to make people feel safe out in the open?