Echo of the Cannons ? Economic Impact of the Ukraine War on Pakistan -A macro-Micro Simulation Analysis

The 2022 Ukraine conflict has contributed to a major spike in international commodity prices. In this study, we design a top-down, macro-micro simulation analysis to focus on the price shock due to four major commodities, namely wheat, vegetable oil, petroleum, and fertilizers. We combine Computable General Equilibrium simulations with household survey data from the Pakistan Household Integrated Economic Survey (HIES) 2018-19 to estimate macro-and microeconomic impact of the global commodity crisis. We come up with evidence for a significant, non-negligible negative impact of the price shock, both at the aggregate and the household level. The real GDP shrinks and households real consumption and income decrease. The drop in consumption and income is more visible among farm households, with the two falling by 5% and 3.48% respectively. In the same vein, the $3.2 headcount poverty rate at the 2018 purchasing power parity increases by 1.15%. This is much higher than the 0.21% increase in the $1.9 poverty rate. The drop in consumption and income appears to be proportionally greater among the lower and middle-income households than those at the bottom of the income distribution. This is reflected in a slight drop in overall income inequality. Besides, while the increase in headcount poverty is greater among farm households, it is the urban households which show the worst decline in food security, both in terms of incidence and intensity of food insecurity. This set of results underscores the vulnerability of Pakistani households to surge in commodity prices. The role of petrol prices in driving poverty among rural farm households and that of food stuff (wheat and vegetable oil prices) in aggravating urban food security is particularly evident.