Coping with Covid-19 pandemic

The disease has resulted in what some economists called the “pandemic depression”

Shahid Javed Burki August 16, 2020
The writer is a former caretaker finance minister and has served as vice president of the World Bank

I am writing this at a time when the world has been hit by a pandemic of exceptional virulence. On January 30 when the World Health Organization called Covid-19 a pandemic and hence declared a public health emergency, there were 9,439 reported cases of the disease worldwide. The disease was caused by a new version of coronavirus. The previous versions had caused the Severe Acute Respiratory Syndrome (SARS) and the Middle East Respiratory Syndrome (MERS). These diseases were nowhere as severe as Covid-19. The number of deaths attributed to them did not approach that already reached by Covid-19.

Covid-19 was first identified in the industrial city of Wuhan on the left bank of the Yangtze River in central China. The city has attracted a lot of foreign investment which has gone mostly into large-scale manufacturing. Hundreds of people travel ever day between Wuhan and the west. The city also has a modern, state-of-the-art laboratory that carries out research on viruses. Early on there was a suspicion that the coronavirus had been developed at the institute for research purposes and had escaped and entered the city’s food-chain. Later the virus’ origin was traced to bats, an animal known to carry coronavirus in its body.

Most of the early cases of Covid-19 were in China while only six cases were reported to be in the United States. Only six months later the pandemic had affected close to 20 million people in the world. Of these 730,000 had died, which meant a mortality rate of 3.7% of those who were hit by the virus. The US was by far the most seriously hurt country. It had affected more than half a million people in the country and killed 163,000. This meant a mortality rate 3.26%.

From China the virus travelled to other parts of the world, transported by travellers. Italy, with close links with China, was the most affected European country which was to become the source for the spread of the disease in the US. South Asia was also seriously impacted. For both India and Pakistan, religion played a role. Shiite pilgrims to Iran picked up the disease from members of the small Shiite community in south China, not far from Wuhan. Like the Shiite pilgrims from China, the South Asians were also visiting holy sites in Iran and Iraq. Also, the large Tableeghi Jamaat active around the globe with membership of millions held a large meeting in Malaysia which was attended by people from both India and Pakistan. They brought back the disease with them from Malaysia. Both Pakistan and India were badly hit. By August 12, Pakistan had 205,655 cases. The number of people who had died from the disease was estimated at 6,120. The mortality rate was 2.14%. India had 2.33 million cases and 46,091 deaths with a mortality rate of 2%.

India and Pakistan adopted very different approaches to deal with the pandemic. Prime Minister Narendra Modi ordered a complete lockdown in the country shutting down all economic and social activities that required the presence of more than a score of people. Also, trains and long-distance buses and trucks were stopped. This way of dealing with the pandemic created enormous problems for the poor especially those who had travelled long distances to work in large cities. The lockdown stranded these people without jobs, food and shelter. Tens of thousands of them walked back to their villages. Pakistan did not follow India and ordered a national lockdown. Prime Minister Imran Khan was right in saying that such an approach would hurt the poor and result in large-scale unemployment for people with low incomes.

The disease has resulted in what some economists called the “pandemic depression”. The qualifier pandemic is meant to distinguish it from the Great Depression of the 1930s. The causes and cures for the two severe downturns are different. Economists agree that the trigger of the 1930s depression was the sharp decline in stock prices in 1929 that led to the depression. However, economists are still debating about what contributed to the deterioration in economic health following the 1929 stock-market meltdown. Keynesians believe that the economic disaster was caused by a sharp reduction in demand. However, some thought that expensive money had reduced the amount of investment people and firms were making. For Keynesians the cure was to have the state increase investment and create jobs. For the rival group — the monetarists — the cure was to have central banks lower interest rates. Which of these approaches should be adopted by policymakers in South Asia including Pakistan? The region is expected to see a significant decline in its GDP. It will probably be sharper in India than in Pakistan.

People with medical backgrounds — mostly epidemiologists and virologists — did most of the policy work in the US and Europe relating to Covid-19. Economists and financial people stayed in the background. There was obvious reason for this. Non-medical professionals had correctly determined that the spread of the disease had to be brought under control before economic and financial measures could be applied to address the slowdown in the economy. Medical experts came to the conclusion that a three-pronged policy response was needed. Masks had to be used outside homes; social distancing had to be observed, which meant staying at least six feet apart in all places; and testing and tracing of those who were found to be infected.

While not participating in policymaking, economists had begun to focus on some unusual aspects of the disease and how these will need to be incorporated. “This pandemic is deeply unfair,” wrote Michael T Osterholm, director of the Centre for Infectious Disease Research, and Nell Kashkari, president of the Federal Reserve Bank of Minneapolis. They co-authored an article published in The New York Times. “Millions of low-wage workers have lost their jobs or put in harm’s way, while most white-collar workers have been spared. But it is even more unfair than that; those of us who have kept our jobs are actually saving more money because we aren’t going to restaurants or movies, or on vacations. Unlike in prior recessions, remarkably, the personal savings rate has soared to 20% from around 8% in January.” These savings can — in fact, should be — used for creating jobs the low-income learners have lost. “That’s why traditional concerns about racking too much government debt do not apply in this situation.”

Policymakers in Pakistan should look at the conditionality associated with the IMF programme they are implementing which would compress the rate of GDP growth over the short term. Instead this may the time to undertake public investment aimed at creating jobs. The tree-plantation programme inaugurated by the Prime Minister is one example of the type of activity the government needs to undertake. At the same time an ambitious effort should be made to improve healthcare, especially for the poorer segments of the population.

Published in The Express Tribune, August 17th, 2020.

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