The coronavirus pandemic is a public health crisis and until it’s addressed, there will most likely be economic hardships ahead, Pakistan’s central bank governor told CNBC.
Pakistan has reported more than 213,000 cases of infection and nearly 4,400 people have died.
“We are very concerned. First and foremost, this is a public health crisis — we have to remind ourselves of that,” Reza Baqir said on CNBC’s “Street Signs Asia” on Wednesday.
“And, only on a secondary basis, then it becomes an economic crisis. Until the public health crisis is addressed, we should continue to expect challenges on the economic front,” he added.
Prime Minister Imran Khan’s government lifted a two-month-long lockdown in early May, a few weeks before an important festival.
As millions were struggling with starvation during that time of drastically reduced economic activity, the country’s Covid-19 cases surged once the lockdown was eased, Reuters reported.
Lockdowns are a ‘luxury’
At the moment, the government is targeting coronavirus hotspots in the country and locking those areas down.
Baqir explained that prolonged national lockdowns are a “luxury of the rich.”
“For countries like Pakistan, the trade-off between lives and livelihood is a very real trade-off,” he said. The country has many day laborers who earn daily wages and lockdown would abruptly cut off their source of income. Without having a savings pool to dip into, many of those people would be looking at starvation, according to Baqir.
Pakistan has limited fiscal policy options to help the economy weather the coronavirus crisis. Considering the country’s relatively large public debt, excessive government spending to boost the economy will be difficult.
On the monetary policy side, Baqir said the central bank injected so far about USD 7 billion, or 2.5 percent of GDP, in terms of liquidity support to households and businesses.
The central bank last week slashed its monetary policy rate by 100 basis points to 7 percent — State Bank of Pakistan has cut interest rates by 625 basis points since March when the coronavirus infection began spreading through the country. Baqir told CNBC the move was in tandem with the fall in inflation, from above 14 percent in January to around 8 percent currently.
“There is no doubt that we face grave challenges,” Baqir said.
He outlined the three considerations in Pakistan’s response to the crisis.
First, he highlighted that before the virus struck, the country’s economic fundamentals was improving – such as bringing down its current account deficit, which was a core part of its economic problems. Second, its fiscal and monetary policies are “prudent,” and finally, Pakistan is working with international financial organizations like the IMF and World Bank to keep its economy afloat.
“I think the smart lockdown strategy of locking down hot spots in cities so far is working reasonably well, and we are confident that with the combination of measures – for us on the economic side, we should come out of this crisis largely unscathed,” Baqir said.
First Published: Jul 2, 2020 3:56 PM IST
