Economic crisis

The devastating impact of Covid-19 is becoming increasingly clear as the world is about to enter the second half of 2020. Who would have thought in the beginning of this year that within months, all economic forecasts would go topsy-turvy? Now the latest world economic outlook is much worse than anyone would have expected. With global growth projected to slide down to nearly minus five percent in 2020, it is almost two percentage points below the forecast issued less than three months back in April 2020. The first half of this calendar year has experienced the worst negative impact on economic activity in more than a generation. Even more disappointing is the projected recovery that will be more gradual and much slower than all previous forecasts. Overall, Covid-19 will leave 2021 GDP more than six percentage points lower than in pre-Covid-19 projections of January 2020. The worst hit will be lower-income households across the world, especially in countries where extreme poverty was already rampant.

Even those countries and regions where some progress was made in the past couple of decades in reducing extreme poverty, all gains are likely to be reversed. This scenario has been emerging in the past three months or so but now the IMF has confirmed it by putting its stamp on this gloomy outlook. The recently released forecast by the IMF validates the fears that the uncertainty will continue to grow for some time to come and businesses around the world will keep struggling to operate amid the virus. The IMF has also highlighted the challenges for policymakers in the worst economic and financial crisis since the Great Depression nearly a century ago. In all these doomsday predictions, what lessons are there for countries such as Pakistan? First, for the capitalist world – which is pretty much the whole world barring a couple of countries – the message is loud and clear; and that is that an unbridled free-market economy with minimum economic protection or social security for common people is a bad idea.

Time and again it has been proven that even if you bail out big banks and businesses in the time of economic crisis, it is the common people who suffer. Tall claims about poverty reduction fall flat when a crisis strikes and people are left destitute once again. Unless the fundamentals of capitalist economy are aligned to benefit the people rather than banks and big business, the world will be at the mercy of unexpected crises such as Covid-19. Second, for developing countries Covid-19 and its aftermath should serve as a wakeup call to build their economies on sound footing so that they can withstand unexpected shocks that may not be unexpected in near future as more pandemics may be in the offing as mutations of viruses come to the fore. Finally, for both developed and developing countries education and health services are the key to contain future virus spread, and combat newly emerging diseases.