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Coronavirus outbreak affects Pakistan’s economy

The analysis of economic survey of Pakistan FY2019 showed that the growth momentum of the Pakistani economy, at 5.5 percent in FY2018, became unsustainable because of growing macroeconomic imbalances i.e. high and rising fiscal and current account deficits. In Pakistan’s economy the twin deficits always persisted, however, in FY2018 trade deficit was historically high both in monetary value ($ 32 billion) and as a percent of GDP (10.1 percent), while the fiscal deficit stood 6.5 percent of GDP. The analysis also showed that the contained inflation and maintained exchange rate accelerated the growth in local demand. High consumption expenditure and government spending in turn led to massive surge in imports. Some of required adjustments on fiscal accounts and exchange rate were delayed during FY2018 being an election year, that resulted in depletion of foreign reserves and increase in monetary borrowing. As such, there was an urgent need to address these rising imbalances, mainly in external accounts, by taking strong initiatives to curb the growth of money supply and realign exchange rate to market situations. These Initiatives will have an adverse short term effect on the fiscal imbalances and there would be a need to address them in upcoming eras. No doubt, the global outbreak of coronavirus including in Pakistan, which has affected the operation of industrial units, business activities mainly educational system, will certainly affect the economic performance of Pakistan in future.

FDI In Pakistan (MN US $)
Country Jul- Jun FY19 (R) Jul-Feb FY20 (P)
China 462.2 696.5
UK 185 90.9
USA 88.1 60.5
Hong Kong 144.4 105.8
Switzerland 21.2 41.2
U.A.E. 103.7 -14.1
Italy 51.9 36.6
Netherlands 69 73.5
Austria 7.6 1
Japan 117.3 47.3
Turkey 73.8 21.4
Others 343.8 692.1
Total 1,668.00 1,852.70

The experts showed that Pakistan’s initial economic losses in dissimilar sectors of the country’s economy have been predicted at Rs1.3 trillion. These Losses are going to be incurred on account of drop in the GDP growth due to reduction in services sector, counting airline business and others, FBR’s revenue loss, massive fall in imports, exports, reduction in remittances, disruption in food supplies and other fronts. However, the preliminary assessment of losses done through the Asian Development Bank (ADB) and shared with Pakistan’s concerned authorities reached at $5 billion but the country’s top official stated that these estimates were less than the predicted actual losses because there was no basis for it.

Different sources recorded that work is under progress and the exact losses going to be faced through the national economy due to eruption of this virus would be firmed up in present days. Statistics identified that the Planning Commission predicted that the size of Pakistan’s GDP reached at Rs44 trillion and one/fourth reached at Rs11 trillion, so the disruption caused by coronavirus was predicted to cause at least 10 percent losses in the last quarter (April-June) that will reach at Rs1.1 trillion at least. It is also said that the lockdown of Karachi was going to reason main revenue losses and they were assessing that if it persisted till June 2020, then the tax losses will go up to Rs380 billion. The Federal Board of Revenue (FBR) has already been facing huge revenue shortfall before the virus despite slashing down the FBR’s yearly target from Rs5.555 trillion to Rs5.238 trillion. FBR is assessing more reduction in attaining the target by Rs380 billion, so it is estimating collection of just Rs4.4 trillion till June 2020. The Exports might face loss in the range of $2 to $4 billion as export orders had got canceled. The Imports would be reduced in the shape of declined POL prices as well as in quantity. Statistics showed that Pakistan imported 80 billion barrels of POL products and keeping in view the lowest-ever prices in foreign market in the previous 2-decade, the import bill would shrink having pessimistic influence for the FBR’s collection and Petroleum Levy might also be reduced if the consumption declined due to possible lockdown in different parts of Pakistan. Sources recorded the worst effects that would have to be borne through the daily wagers as 47 percent workforce in service sector like marriage halls, hotel industry and others belonged to this sector.

It is recommended to the Government of Pakistan to raise the allocation of Ehsaas program and ensure utilization of allocated funds. The Utilization of Public Sector Development Program (PSDP) might slow down, so it could be diverted into small schemes through SDGs accelerated program. The Present situation may impact on remittances in Pakistan. Source identified that because of the closure of major port operations and retailers globally, reduced global demand was likely to lead to a reduced global economic growth. Efforts are being made to ensure uninterrupted port operations for continued supply of essential commodities. Pakistan will not face any food shortages as the country has sufficient stocks of essential items to meet the immediate needs.

The Government of Pakistan was assessing the socio-economic impact of coronavirus on the national economy with the aim to undertake timely interventions to safeguard the economy against the impending effects of coronavirus. The Experts said that there will undoubtedly be an important and tragic human cost if Covid-19 takes hold in the Pakistan population as much of the population lives in close proximity to each other. That said, there are factors that may slow spread of the disease into Pakistan. Despite the uncertainties ahead, in present eras Pakistan’s economy has stabilised greatly. Until a few years ago, the security condition and lack of reliable energy supplies had discouraged foreign direct investment (FDI) and local investment. Both of these are much improved.

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