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March 26, 2020

Though in limbo, Pak corona numbers are better than developed economies

Peshawar

March 26, 2020

LAHORE: At a juncture when the country's economy is probably passing through its darkest hour in the wake of corona's global fall-out, Premier Imran Khan is faced with toughest questions by media personnel in his pressers, though the head of Pakistani government is quite justified in repeatedly saying that his critics were comparing apples to oranges by giving examples of developed economies like the United States, England and Italy etc.

Imran Khan and his team are hence under immense pressure to slash down bank interest rates and announce generous relief packages for both public and the businesses, as the United States, Italy and England have done to keep the social and economic wheel moving, but those posing pinching queries may not know that country's economic wizards are already differing with each other over the mode of inflation haunting the country currently.

While a section of monetary experts thinks it is demand-pull inflation, a few other economists are of the view that it is cost-push inflation actually that has made the prices of daily-use items surge, arguing that high interest rates might not arrest the price hike.

Demand-pull inflation, as economists describe it, is a situation where too much money is chasing too few goods. This phenomenon results due to an imbalance in aggregate supply and demand of goods.

On the other hand, cost-push inflation is a type of inflation caused by substantial increases in the cost of important goods or services where no suitable alternative is available. It stands in contrast to demand-pull inflation.

By the way, Pakistani consumer price inflation had decreased to 12.40 per cent in February 2020 as compared to January 2020, when it was resting at 14.56 per cent.

According to the Pakistan Bureau of Statistics, the inflation reading for February was 2.16 per cent lower than January's figures. But still, hoarding, failure to check regular price hike in markets and visible shortage of supplies are making inflation look much higher than what it actually might be! The government of Pakistan has now reduced the interest rate by another 1.5 per cent to bring it down to 11 per cent. It thus means the government has revisited its monetary policy to bring down the interest rate in a bid to ward off its critics in media, business chambers and other trade bodies, although many neutral Economics students are wondering how would reduced interest rates help the already-halted business activities when a good number of export orders have already been reportedly cancelled.

A few days ago, Pakistan had lowered its interest rates by 0.75 percentage points, from 13.25 per cent to an annual rate of 12.5 per cent.

It should also be kept in view that more than $800 million has flown out of Pakistan recently from the much talked-about hot money inflows and foreign equity investments, leading to warnings against a reduction in interest rates, though State Bank Governor Reza Baqir and his men were reviewing the issue on Tuesday till the filing of this report.

Money, as we all know, gets parked in safe havens whenever there is a crisis.

During Imran Khan's press conference on Tuesday evening, he was reminded that the United States, United Kingdom and Italy etc were giving massive financial reliefs to their businesses.

The economy of Pakistan is 24th largest in the world in terms of Purchasing Power Parity, and 42nd largest in terms of Nominal Gross Domestic Product.

Pakistan has a nominal GDP of $284.214 billion only, whereas its GDP per capita rests at $1,357 only in 2019.

Pakistani exports rest at $24.217 billion, while its imports stand at $52.436 billion.

The death toll from novel coronavirus in Pakistan is just seven currently and there are 918 positive cases of this disease, as we speak.

Let us see, what United States, United Kingdom and Italy have done to provide breathers and relief to their businesses, and let us also analyze the sizes of their economies. The "Al-Jazeera Television" has reported, partisan battles in the United States Senate have stopped a $1 trillion-plus coronavirus response bill from advancing.

The measure faltered after it failed to get the necessary 60 votes in the 100-member chamber to clear a procedural hurdle after days of negotiations, with 47 senators voting in favour and 47 against it.

The bill includes financial aid for regular Americans, small businesses and critically affected industries, including airlines.

The "Al-Jazeera" reports: "Treasury Secretary Steven Mnuchin told Fox News Sunday the package would include loans for small businesses, direct deposits that could give an average family of four an amount of $3,000 and up to $4 trillion in liquidity for the US Federal Reserve to help businesses get through the next 90 to 120 days. A Republican-drafted bill seen by Reuters news agency gives the US Treasury the authority to provide up to $500b in loans, loan guarantees and other investments in eligible businesses, states and municipalities during the crisis. Of this, up to $50b could provide loans and loan guarantees for passenger airlines, $8bn for cargo air carriers and $17b for businesses critical to national security. The remaining $425b would be available for loans, loan guarantees and other investments for the Federal Reserve to provide liquidity to help the financial system lend to businesses, states and municipalities."

It is imperative to note that when the Federal Reserve Bank of United States had cut the interest rates to zero, reputed media houses like the "Financial Times" had expressed reservations and were pessimistic about the move's positive impact on the US economy.

However, US stocks had soared 1,100 points on Tuesday as hopes grew for $2 trillion aid package, but American economists have feared corona could destroy 10 million jobs in the country.

The $21.439 trillion American economy is the world's largest economy by Nominal GDP and net wealth and the second-largest by Purchasing Power Parity.

In 2018, it also had the world's eighth-highest per capita GDP (Nominal) and the Tenth-highest per capita GDP by Purchasing Power Parity.

American exports rest at $1.66 trillion, while its imports stand at $2.54 trillion.

Despite all its financial prowess and scientific advancement, there have been 46,168 confirmed cases and 582 deaths due to coronavirus in the United States.

In Britain, Finance Minister Rishi Sunak has already announced £330 billion ($398 billion) of government-backed loans and guarantees as relief.

The $2.744 trillion British economy is the world's sixth largest economy by Nominal GDP and the Ninth-largest by Purchasing Power Parity.

It is world's 22nd largest economy by GDP per capita.

British exports rest at $795 billion, while its imports stand at $876.6 billion. There have been 6,650 confirmed cases and 335 deaths due to coronavirus in the United Kingdom.

On March 16, Italy had adopted an emergency decree worth 25 billion euros ($28 billion) to support an already weak economy battered by the worst outbreak of coronavirus in Europe.

The "Reuters" had reported: "The decree is immediately effective and provides 3.5 billion euros ($3.9 billion) to help the hard-pressed health service and 10 billion to support families and workers."

The $1.935 trillion economy of Italy is the third largest national economy in the European Union, the eighth largest by Nominal GDP in the world, and 12th largest by GDP. Its GDP per capita stands at $ 31,952.98.

Italian exports rest at $532.7 billion, while its imports stand at $473.5 billion. However, Italy has recorded most number of corona-related deaths in the world till date, surpassing China. There have been 63,927 confirmed cases and 6,077 deaths till date in Italy due to coronavirus.