Topic: “Covid-19 perspective on Inflation.

”
Pakistan’s economy struggled to attain good position with
reference to the economy positioning but the wave of covid-19
destroyed all the efforts made, to gain the stability. The
pandemic adversely effected economies of all countries but
economy of Pakistan does not have the stamina to absorb the
destruction caused by the outburst of the virus.
The spread of this virus started in the end of 2019 and cases
were reported in Pakistan in last weeks of February 2020. PM
Imran was confident to announce that this year will boost the
economy of the country as it is attaining stability but the spread
of coronavirus spread like a fire in the country. Pakistan is a
developing country under a mountain of debt and already part of
an IMF bailout plan, the situation presented an almost
impossible task.
Governments struggled to deal with the economic blowout
from the pandemic which literally brought business activity to a
grinding halt for years on end. They have to impose lockdown to
break the chain of spread of virus which has taken many lives
till date. Towards the end of February, the possibility emerged
of the pandemic leading to negative growth in Pakistan. CPEC
was under construction but to reduce the cases government
closed the construction and closed China border.
It was being analyzed that after the completion of CPEC, the
economy of Pakistan will be standing at a better position.
Unemployment, inflation, poverty and other economic problems
will be solved. Further disruption in raw material supplies from
China prompted alternative sources to increase prices, and
Pakistani manufacturers started to feel the pinch. Pakistan deals
in exports of textiles which is 60% of total exports which is 70%
dependent on China’s input requirement.
“Pakistan witnessed highest inflation not only in comparison
with the developed economies but also with emerging
economies,” said the Inflation Monitor for April issued by the
State Bank of Pakistan (SBP). [ CITATION 20 \l 1033 ]
The Pakistan Planning Commission declared that the virus
would lead to a 0.8–1.3 percent loss in the GDP, which would
bring the growth down from 3.3 percent to around 2.5 percent.
The State Bank of Pakistan took the possible measure by
increasing the interest rate to cool down the adverse impact of
Covid-19 on inflation rate but that resulted in counterproductive
as they followed further increment in inflation.
The inflation gave rise to unemployment and poverty, as the
rates increased people were confined at homes. They were not
able to go out and earn. The economy was disturbed and for the
second time after the establishment of Pakistan, the GDP got
negatively sloped. Agriculture, industrial, service, health and
other sectors faced a downfall and they have to fire their
employees which created tension for the government.
It expects the SBP to loosen its stance, to provide liquidity to the
banking sector during the crisis. The central bank will have
more space to loosen monetary policy later in the year as
inflationary pressures abate, amid weakening consumption and
global fuel prices. It will maintain an accommodative stance in
2021 as the economy recovers and inflation continues to ease.
The SBP's aggressive reduction of interest rates has also led to
an outflow of foreign investment. The currency will depreciate
from an annual average of PRs160.8: US$1 in 2020 to
PRs178.5: US$1 in 2024.
Reference:
https://www.orfonline.org/research/covid19-and-pakistan-the-
economic-fallout-67296/
https://www.thenews.com.pk/print/656244-impact-of-covid-19-
pandemic-pak-gdp-to-contract-by-1-6pc-in-current-fiscal-
economist-intelligence-unit
https://www.dawn.com/news/1561860