A family of 7 live in a one-bedroom home in machar (mosquito) colony, a slum in Karachi during a 3-day lockdown on March 22, 2020. Saiyna Bashir for The New York Times.
Pakistan’s first Covid-19 case was confirmed in late February. Over the next four months, and amidst varying responses to the virus, Pakistan has emerged amongst the countries most affected by the pandemic. Classified as a lower middle income country by the World Bank, it faces an exacerbated impact of the virus due to various factors, including poor infrastructure, limited resources, as well as bureaucratic inefficiencies and political instability.
In addition to a public health crisis, Covid-19 has created interrelateddemand and supply shocks for the economy where various sectors are witnessing declining production and consumption, leading to negative impacts on income and employment. Coupled with disruptions in global supply chains and failures in the healthcare system, these shocks have devastating economic and social consequences. Such consequences have contributed significantly to Pakistan’s lockdown debate, where proponents argue that lockdowns reduce transmission and consequently prevent a surge in infections and possible deaths while opponents assert that the loss of livelihoods resulting from these measures starve the poor and have far worse economic outcomes.
However, in examining the pandemic’s effects on private consumption of the Pakistani population in general, and for lower-income households in particular, this blog shows that Pakistan’s poor are likely to lose out irrespective of a lockdown as incomes and health are both compromised. Pakistan needs to divert focus away from the incorrect dichotomy pitting lives against livelihoods and towards evidence-based policies in order to effectively combat the virus while also protecting its most vulnerable population.
Changes in Consumption
Covid-19 has caused significant changes in consumer behavior, which are both a catalyst as well as an outcome of the aforementioned market shocks. As income sources become precarious or lost, demand falls in turn putting further strains on income. In a recent article, John Mullbauer predicts that the United States’ quarterly consumption is likely to fall faster than income, by approximately 20%, due to Covid-19. A similar impact can be anticipated for Pakistan’s economy given the Federal Government’s perplexed Covid-19 response and the continuing surge in infections. Pakistan’s poverty rate is estimated to rise up to 33.5% and falls in private consumption are expected, particularly for more vulnerable sectors such as recreation and restaurants. Overall spending will also suffer since online shopping is unlikely to compensate the fall in demand due to lockdowns, at least in the short run. On the other hand, spending on food eaten at home and healthcare is anticipated to rise. Some analyses have reported a 66% decline in the amount spent on eating out while a 70% increase in the amount spent on groceries in Pakistan. With the shift to working from home in partial or complete lockdowns, spending on transportation and fuel is likely to go down as well while there will be potential rise in demand for better telecommunication services and online shopping.
As consumer behavior adjusts to the changing circumstances in Pakistan, the poorer households become the worst hit by the pandemic, where consumption decisions are also influenced by larger realities such as the absence of adequate social safety nets. Carolina Sánchez-Páramo, a World Bank economist, explains that the poor suffer more owing to greater vulnerability arising from factors such as location, with many of the urban poor living in close quarters where social distancing is difficult if not impossible to achieve. In Pakistan, this is evidenced by the high number of cases from such areas, particularly Karachi’s informal settlements and slums, where residents have spoken about the impossibility of social distancing owing to living arrangements. For lower-income groups, this vulnerability is further aggravated by a greater dependency on public services, where the exponential growth of the virus further encumbers the healthcare system and many poor households find themselves with limited or no access to quality healthcare. For Pakistan, the health risks magnify as a majority of the lower income population depends on public transport, where several people cram in one vehicle and following ‘standard operating procedures’ becomes impossible.
Perhaps the greatest cause of vulnerability for lower-income households arises from their sources of income. Low-income workers are often employed in informal, vulnerable and non-permanent jobs. The Labor Force Survey 2017-18 reports that 72% of non-agricultural employment is in the informal sector in Pakistan. Workers in these sectors are not covered by the state’s social and legal security and can be easily laid off. Reports claim that massive layoffs are already occurring in Pakistan and, according to the Ministry of Planning and Development, estimates suggest up to 18 million Pakistanis could lose their jobs as a result of coronavirus shocks to the economy.
These circumstances are not restricted to informal employment alone. According to the Pakistan Bureau of Statistics, 55% of the labor force across sectors is engaged in vulnerable employment. With declining demand, these workers are prone to job losses and unstable incomes. Restaurants and Hotels, a sector gravely impacted by Covid-19, has a vulnerable employment share of 48%. The Pakistan Tourism Development Corporation has recently fired all regular employees of three of its companies due to continual losses and the ongoing pandemic’s effects. Data from the Labor Force Survey 2017-18 shows that a majority of Pakistan’s labor force is employed in Skilled Agricultural & Fishery, Services and Sales, Elementary Occupations and Craft and Related trades. The same occupational groups are also the ones with the lowest average monthly wages, with the lowest recorded for Elementary Occupations. These jobs are largely constituted of daily wage workers such as street vendors, domestic helpers, waiters, textile and garment workers, etc. who are unable to earn in case of a lockdown. Even without the lockdown, incomes continue to suffer due to the threat of contagion with most markets deserted and demand compromised. These workers also face greater health hazards due to the nature of their jobs and are more susceptible to contracting the virus.
Commanding a greater vulnerability, Pakistan’s poor adjust consumption in significantly different ways that have serious consequences. Using expenditure data from the Household Integrated Economic Survey (HIES) 2015-16, we calculated that food constituted almost half of total expenditure for households belonging to the lowest percentile groups of income in Pakistan. Other major expenditure groups included imputed rent, clothing, electricity and fuel. The expenditure groups that faced an automatic decline in spending due to the virus, such as Restaurants and Hotels, Recreation and Culture and Transportation, constitute a minor proportion of the expenditures of lower-income households (between 2 to 4%). Thus, falls in income could mean these households adjust consumption with reductions in spending on food and other necessities, which has significant implications for their nutrition and long-term human capital development. In Pakistan, where already 38% of the children under five are stunted and 23% of all children are underweight, these ramifications will likely be worse.
The government has attempted to redress this alarming situation with cash-transfers through the Ehsaas program and income generation through paid ecosystem nourishment of the “Green Stimulus” program. At the same time, several non-governmental organizations are also providing assistance to the vulnerable during the pandemic. However, an adequate response requires concerted efforts by the state beyond short-term relief mechanisms. Some important factors to consider include the recognition of the need for substantial fiscal resources, timely delivery of support packages and cognizance of the new poor that are absent in existing programs. Moreover, an efficient and well-designed welfare system becomes crucial to mitigate the long-term impact of Covid-19. Unfortunately, such a creative effort seems missing from the recently announced Federal budget for 2020-21.
As Pakistan falters in formulating a coherent and effective response to the virus, several Pakistanis go to bed hungry and several others struggle to receive healthcare while the debate on lives or livelihoods persists. However, an examination of the situation demonstrates that Covid-19 has serious effects with and without the lockdown. A response that constructs a binary between lives and livelihoods is faulty. Life necessitates livelihoods and livelihoods sustain lives. An effective response to Covid-19 must address these in conjunction and not separately. The state needs to prepare for both short and long-term consequences of the virus and concentrate efforts on saving both lives and livelihoods, especially for its most vulnerable people that are, unfortunately, the ultimate losers in this pandemic.