Who wins and who loses?
The fifth most populous country in the world, Pakistan has witnessed four waves of Covid, yet deaths to date – while high – have not amounted to the numbers seen in some less populous countries.
Pakistan is used to macroeconomic shocks and crises. The boom and bust cycle of economic growth in Pakistan has continued since independence and is closely linked to the country’s electoral cycle – towards the end of each government’s five-year term, the fiscal and external account deficits tend to increase, leading the country towards financial crisis and an approach to the International Monetary Fund (IMF) and other creditors for support.
Inevitably the pandemic struck against this backdrop, and at a point in the cycle where the Government was gearing up to raise revenues and cut back on spending in a bid to restore some financial stability within the country.
Interestingly, the response to the pandemic called for an almost opposite approach and the Government responded with tax exemption and price support policies to help stimulate the economy: quite an easy political option in the short term. Broadly this expansionary policy has been successful at stimulating a strong recovery – there are winners and losers needless to say. But coming on the back of pre-election fiscal expansion, the policy also leaves Pakistan with a severe debt burden and inflationary pressures, even though another election is just over the horizon.
In the third episode of the new series of the Policy in Pandemics podcast, Stevan Lee talks to public finance expert Nohman Ishtiaq, about the story of Covid-19 in Pakistan and the complex route to a position where the government’s policy options might be rather limited.