The challenge thrown up by Covid-19 to lives and livelihoods is among the most serious facing Pakistan in recent times. While the country experienced a massive earthquake in 2005 and a biblical flood in 2010, large parts of the country and the economy remained fairly insulated from the after-effects of those events.

The health as well as economic shock from Covid-19 is of a different order of magnitude. How does the policy response so far measure up to the scale of the challenge? While governments around the world have faltered in fashioning a timely and symmetric response, the federal government has had a head start given the relatively late outbreak of Covid-19 cases in the country. However, this time does not appear to have been invested in crafting a strategic response, especially with regard to the economy.

A ‘whole-of-government’ approach has been woefully missing till recently, leading to uncoordinated and even divergent responses at different tiers of government. Policymakers still appear to be grappling with a recognition of the nature and scale of the economic impact. As a result, the government has been unable to protect jobs even in the easier-to-reach formal sector, where some of the country’s largest firms in the export sector have shed jobs barely a month into the crisis. This means a complete failure to protect livelihoods across the length and breadth of the country in millions of small informal businesses.

This failure is now creating the pressure to ease the lockdown and other restrictions — which will feed back into worsening the health situation. That, in turn, will feed back within a few weeks into worsening the economic situation, in an unending negative feedback loop. The unfortunate bottom line of this muddled approach? We will end up needlessly losing both lives as well as livelihoods.

The policy response so far has been misplaced and piecemeal in two key areas.

What the government has done, and what it should have done, on the health as well as economy fronts are briefly reviewed below.

Health: The federal government’s health response to the evolving threat posed by Covid-19 has been characterised by muddled maths as well as confused messaging. Lulled into thinking that the small number of cases initially has been some sort of Providence-gifted ‘protection’, the prime minister and his team have displayed a lack of understanding of the power of exponential numbers. In addition, they appear to be making a false choice of economy over health.

A key lesson from the Spanish influenza epidemic of 1918-19 was that US cities that undertook aggressive, up-front mitigation measures saw an earlier and stronger rebound in their economies, compared to those that did not.

Economy: Unfortunately, the government’s response to even the economic crisis unleashed by the Covid-19 outbreak has displayed a lack of recognition of the nature of the problem. The near-existential challenge on the economic front is not about creating new jobs but retaining existing jobsand businesses. This is a fundamental difference of objectives that will lead to adoption of widely different policies. And yet, the government is adopting ‘stimulus’ measures that will not be meaningful till the health situation has stabilised.

The three key axes government policy should be oriented towards at this stage are: (1) protecting household incomes to the extent possible; (2) protecting businesses from bankruptcy and insolvency to the extent possible; and (3) protecting the health of the financial system.

The State Bank’s actions viz the last objective have been decisive and proactive, and lend confidence that it is ‘ahead-of-the curve’ generally on this front. The ministry of finance, on the other hand, has largely been ‘behind-the-curve’ in its policy responses so far. Take the flagship Rs1.2 trillion ‘stimulus’ package announced. While it contains useful elements, such as the upfront distribution of Rs12,000 per eligible household under the Ehsaas Kifalat programme, it is not injecting enough ‘fresh’ money into the economy.

With the economy expected to contract around 1.5-2 per cent in FY21, the loss of output from the pre-crisis baseline is approximately 5pc of GDP. In exceptional circumstances as these, the government should step in and cover this loss of output, if not completely then to the extent of 50pc at least. That means the size of the government emergency package should be at least 2.5pc to-3pc of GDP.

To protect household incomes, the government should provide not just ‘helicopter drops’ or direct cash transfers, but simultaneously reduce vulnerable households’ monthly expenditure. This can be achieved by waiving or lowering monthly utility payments, reducing GST and making a larger pass-through of the petroleum price windfall.

To be able to afford making weekly/monthly payroll payments, businesses will need a wage subsidy. This can be in the form of a long-term interest- and collateral-free loan. The State Bank has announced a slew of measures, but it has not provided a credit backstop or guarantee to allow banks to lend unhindered to SMEs. Businesses will require far more in terms of liquidity support than the announced release of Rs105 billion in held-up tax and duty drawback refunds. (Talking about State Bank’s measures, one bizarre move in terms of timing and relevance is the move towards inflation-targeting when the economy needs a growth prop more than ever.)

All told, against a requirement at the minimum of 2.5pc to 3pc of GDP, the new money committed by the finance minister, stripped of its accounting gimmickry such as the bunching of payments under the Ehsaas programme or the procurement of wheat, is less than 1.5pc. This is far short of what will be required to keep livelihoods and businesses afloat. (I have detailed in my previous two op-eds where the additional money can come from.)

In summary, while some good measures have been announced, they do not go far enough in terms of protecting jobs and incomes or providing liquidity support to small businesses especially in the informal sector. In addition, while aligning fiscal and monetary measures with the actual requirements of businesses is an important element, speed is also of the essence.

The writer is a former member of the prime minister’s economic advisory council, and heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, April 24th, 2020