Pakistan will be having negative GDP growth of -1.5% in FY 2020.
No crisis before has made such drastic and devastating economic impact, as the current medical emergency that we face as the outbreak of corona virus.
If the threat persists, with the required precautionary measures we must all take, we are looking at another global recession.
Pakistani economy loses 1.3 Trillion Rupees due to corona virus. Pakistan has faced many crises, be it in the energy or water sectors, the Kashmir crisis. Or be it worsening relations with its neighbor India, or the on again off again political crisis. However, the corona virus has come up as one of the biggest crisis in country’s history.
One can only reach gloomy conclusions. Especially, when much advanced and prepared economies of west could not sustain the economic hit by this global pandemic. Pakistan, with its preexisting unfavorable conditions, cannot be hoped to survive this easily. With our limited resources, high external pressures, decreasing economic activity and social isolation, things can be worse. Moreover, the fear of death, rising number of causalities, and its burden on our already weak economy, we face the threat of capital flight and worse.
Situation Report on Economy
The UNCTAD presents these facts in a report titled “The COVID-19 Shock to Developing Countries”. The report says Pakistan and the Sub-Saharan African countries would be facing a “frightening combination”. It expects mounting debts, an expected deflationary spiral as well as a fatal impact on their health sectors. Our economy is to take a huge “enormous hit” from large capital outflows, lost export earnings due to decreasing commodity prices and currency depreciation. Things could get worse than the 2008 crisis. We might be facing an economic collapse if we do not change something in our current economic strategy.
As the Pakistani rupee depreciated against the US dollar, in 2019 we added the debt of over $13 billion. It makes up more than 40% of the total debt incurred in the last 10 years. Pakistan mainly owes its debt to the IMF, World Bank, Asian Development Bank, and CPEC among others.
If we asses this matter in terms of Pakistan’s GDP growth it is easy to understand our worsening condition. In 2018, we had the GDP growth of 5.5%. In the year 2019 we took a turn for the worse with a GDP growth of 3.3%. But we are seeing a catastrophic -1.5% in the fiscal year of 2020.
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National Inflation Rate
As we comply with the global social distancing protocols and shut down all non-essential businesses and services. The national inflation rate in Pakistan has gone up to 12.93 which is a strong cause for alarm. We can expect more price hikes in the near future. Yet, the income of our lower middle class and the poor remains stagnant.
So far the crisis has cost Pakistan an initial economic loss of a whopping Rs 1.3 trillion in multiple sectors. These include losses faced by Pakistan Railway, PIA, the hospitality and tourism sector, decline in imports, exports, retail businesses, FBR’s revenue loss, decreasing remittances, disruption in many essential items such as food, masks, and sanitizers.
FBR estimates show that just the lock-down of Karachi alone is going to cause major revenue losses. These loses can be up to Rs380 billion. They are expected to persist till June 2020.
The export orders are cancelling due to this pandemic. The exports may also face loss in the range of $2 to $4 billion, Commerce Ministry expects.
But the worst must be borne by the 47% daily wagers workforce in the service sectors. These include construction workers, taxi drivers, catering service, salons, hotel industry, and others belonging to this sector. The local businesses face a loss of at least Rs 40 billion. And this is only the beginning of losses. As we continue to lose precious lives, the government lacks resources to properly care and treat those who are corona positive.
What If Pandemic Prolongs
According to the Pakistan Institute of Development Economics (PIDE), an affiliate of the Planning Commission, the further the pandemic prolongs, could result in unemployment ranging from 12 to 20 million. The Pakistani Stock Market keeps spiraling down. The KSE-100 Index is showing a plunge of over 25% in March, and the rupee by over 6%.
The Official Website of Planning Commission: https://www.pc.gov.pk/
Pakistan has imported 80 billion barrels of POL products. Currently, there are the lowest ever prices of oil in the global market in the last two decades. Thus, the import bill would shrink having a negative impact for the FBR’s collection. Petroleum consumption will also see a decrease because of partial lock down in different parts of Pakistan.
In an attempt to minimize the economic damage on vulnerable segments of society, the Pakistani government has taken necessary steps. The State Bank of Pakistan has approved Rs 5 billion in order to aid medical hospitals all over Pakistan. These funds are for the acquisition of required equipment and safety gear to handle the outbreak of corona virus. Acting in response to these difficult circumstances, State Bank also cut the policy rate twice by 225 points. It leads to a cumulative 11% in March to allow some space to breathe for businesses facing cash-flow difficulties.
Moreover, the government has organized support funds of Rs 100 billion in the form of tax refunds. A further Rs 100 billion is in deferred interest payments for businesses. The government of Pakistan also promises direct cash support. This is given to 10 million households in the country.
Through the Benazir Income Support Program (BISP) and Ehsaas program, there will be an increase in the monthly transfer for beneficiaries by 50% to Rs. 3,000 per month for the next four months, giving relief to 4.5 million households. In addition, 3 million households will be identified through NSER and given a cash transfer of Rs. 3,000 per month for the next four months. Finally, the government will identify an additional 2.5 million households in need of aid and assistance. It will verify them through the local district administration setup. After verification, these households will be provided financial assistance from the federal government.
Provincial governments are also stepping up and offering their own financial packages. They have some additional monetary capacity to extend the federal government’s cash transfer measures. As this crisis continues, both the federal and provincial governments should further announce more measures to rescue the wounded economy. It should especially cover the already marginalized communities.
On its own, Pakistan’s resources and financial capabilities are limited. It is unable to bear the burden that this pandemic brings to our doorstep. This means that Pakistan will look towards the multilateral institutions like the IMF and the World Bank for assistance. It will also look for its strategic allies such as China and Turkey. The government also needs to renegotiate the IMF Program. As Pakistanis are no longer in a position to take the burden of a stabilization program as of now.
This is the time for all stakeholders to come together and employ creative and coordinated efforts into a strategy that will lift this economy back onto its feet. There are stringent actions required to mitigate the economic fall outs and form policies based around protecting the most vulnerable in our societies from what is about to be a great economic, social, and political disaster. Pakistan must learn to innovate and learn to help ourselves, as all others are busy helping themselves.
Pakistani economy loses 1.3 Trillion Rupees due to corona virus