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Jumping the gap — how to undo inequality?

The rent-seeking and unproductive usage of resources has exacerbated inequality in Pakistan. Even in times of higher growth, pervasive inequality had made it difficult for people with low incomes to survive. The Covid-19 pandemic has furthered the inequality with economic slow-down, manufacturing halt, and a massive chunk of the labor force getting unemployed.

UNDP’s latest Pakistan National Human Development Report 2020 provides significant insights into Pakistan’s inequality challenges and how Covid-19 has affected the country’s growth and fostered further inequality. However, the growth episodes have an inconclusive relation with inequality, assuring that the wealthiest quintile is always getting more than the poorest quintiles.

It is even more important to measure inequality in Pakistan since demands of essential goods and services are highly sensitive to inequality. Unlike developed countries where inequality affects the disposable income of individuals, basic goods and food (wheat, sugar, oil, rice) prices are sensitive to the incidence of inequality.

The massive shock and global economic slow-down that COVID-19 is leaving on the global economic footprint will hugely impact Pakistan. There is an initial reduction of over 30 percent in the volume of world trade resulting in ongoing shortages of various goods that are reliant on global supply chains.

Covid-19 primarily affected three major economic sectors— cotton ginning, construction, transportation and communication. Collectively, these sectors along with agriculture account for almost two-thirds of Pakistan’s national value added, along with 80 percent of the total employment. However, the Prime Minister announced his Rs 30 billion construction package to provide subsidies to the construction supply chain and resume economic activity. This construction package increased property prices, and several projects were initiated under this package aided by the Amnesty scheme administered by the Federal Board of Revenue.

The NHDR2020 indicates the inflationary pressures resulting from ‘panic buying,’ supply chain issues, and other inadequate supplies. A v-shape recovery for Pakistan’s economy through macroeconomic model simulations has also been predicted. However, the report indicates that the outflow of investments, or divestments, will cause pressure on Rupee valuation.

Covid-19 has also orchestrated the ‘disappearance’ of hot money and reversed ‘cash inflows’ because of uncertainty and unreliable business opportunities for companies and individuals. This has primarily made it difficult for Pakistan to float bonds and other certificates in financial markets. Thus, the State Bank of Pakistan is launching other schemes, including Roshan Digital Account, Dollar accounts, and other incentives for overseas Pakistanis to invest in the country and increase foreign exchange reserves.

On the monetary side, Pakistan has assisted the borrowing for small and medium enterprises, reduced the policy rate from 13.75% to 7%, and maintained it. The other measures included delaying payment deadlines of utility bills and rapid financing for SMEs to keep manufacturing going.

Covid-19 has affected the richest quintiles with a dent of 15% in market capitalization in the stock market but recovered quickly. On the other hand, labor income continues to fall because of a decrease in the production and manufacturing sectors. It has been indicated that inequality would also take a V-shape and decline marginally only to rise again, widening the gap between the richest and poorest quintiles.

Covid-19 has affected other measures of human development, including in the education sector. Initial estimates of closures of schools for 6-7 months have been prolonged. Therefore, the initial estimated loss per student of $140 was understated. The NHDR 2020 valued the future loss of current closures of school at $7.7 billion, which in the given circumstances is many times more and needs recalculations.

Similarly, the pandemic has adversely affected the population; however, several sectors of the economy have been affected worse than others. The food industry has taken a sharp decline in real wages, and because of repeated closures and a ban on dine-in, employment in this sector has witnessed a severe downfall. Cumulatively, the industrial sector has seen the highest number of lay-offs as per Labor Force Survey conducted by PBS (Pakistan Bureau of Statistics).

To tackle it all, numerous strategies need to be implemented including social protection plans (for example Ehsaas Programme) to be more effective with emergency cash transfers, subsidies through utility stores, provision of soft loans, shock-absorption in petroleum products, and tax reliefs in several areas including private hospitals to facilitate intensive care. Additionally, NHDR 2020 also advocates for an enhanced budget allocation for the health sector and enhanced personal income tax exemption limit. There is an urgent need to increase expenditure on social sector development by 0.3percent of the GDP every year to ensure better and more equitable development.

(The writer is a freelance writer/human development researcher)

Mashal Hassan, "Jumping the gap — how to undo inequality?," Business Recorder. 2021-11-11.
Keywords: Social sciences , Covid-19 pandemic , Human development , Market capitalization , Ehsaas programme , Global economic , Federal Board , Pakistan , NHDRS , ME , GDP , PBS

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