COVID-19: Scenarios

& Implications for

Pakistan
8th April 2020

www.engro.com
 COVID-19 factpack

Contents Pakistan COVID-19 evolution and response

Expected Pakistan macro impact

2
COVID-19 Factpack

COVID-19 is a respiratory condition which results from a contagious virus, SARS-CoV2,

and in extreme cases can lead to death

Originated in Wuhan, China, in November 2019

− Transmitted via droplets taken in through mouth, nose or Infection

eyes

− Patients become infectious during incubation, reaching Incubation Period

(5 – 14 days)
maximum infectiousness just before symptom onset

− Symptoms First Symptoms

a. Stage 1: Recovery or
− Sore throat and dry cough Hospitalization (5 –
− Most cases are mild – flu like fever and fatigue 11 days)

b. Stage 2:
− Inflammation starts in the lungs
− In severe cases blood vessels in lungs leak and
fluid builds restricting oxygen intake
− A ventilator is required to breathe

c. Some critical cases or untreated severe cases result Recovery or Death

in death (10 – 20 days)

− There is currently no vaccine for COVID-19, and no certain

cure for extreme cases
3
COVID-19 Factpack

COVID-19 is less deadly but more contagious than previous outbreaks this century

Mortality rate Major 21st Century Pandemics

Percent • Reproductive Rate (R)
is the average number
60% of people infected by
Bird Flu each sick person
50% Ebola
• COVID-19 is more
40% widespread than other
MERS outbreaks because
Smallpox most infectees have
30%
mild or no symptoms,
Polio
and unknowingly
20% transmit the virus
Tuberclosis
SARS
10% Spanish Flu
COVID-19
1% Transmission:1.5–3.5
Rotavirus Fatality rate:0.4–1.3% Measles
0.1% Swine Flu
Seasonal Flu
Common cold Norovirus Chicken Pox
0
0 1 2 3 4 5 6 7 8 9 10
Avg. no. of people infected by each sick person (R)

Source: Centre for Disease Control, World Health Organization, New York Times, MRC Centre for Global Infectious Disease Analysis, Abdul Latif Jameel Institute for Disease and
Emergency Analytics, and Department of Infectious Disease Epidemiology, Imperial College London 4
 COVID-19 Factpack

Most cases are mild or asymptomatic; mortality rates are ~1% but can increase several-
fold if healthcare capabilities are overwhelmed
Distribution of cases by seriousness of symptoms1
Percent • COVID-19 testing kits
confirm presence of
virus Ribo Nucleic Acid
(RNA); they do not
80 confirm antibodies,
which would indicate
recovery
In the absence of
sufficient healthcare, • Thus it is difficult to
more critical cases estimate true global
are lost infections

15 • If a large number of
5 people have
~1
unknowingly recovered
Mild or Severe Critical Mortality rate (given from COVID-19, then
asymptomatic sufficient care) its true mortality rate
might be lower than
believed
Treatment: At home At hospital In ICU, with N/A
(no ICU) respirator • Rapid anti-body testing
is expected in a few
months

1 Based on sample size of ~50k confirmed cases

Source: China Centre for Disease Control & Prevention, Statista 5
COVID-19 Factpack

Mortality rates depend on the age of the population, which could be cause for optimism in
Pakistan, provided the healthcare system is not overwhelmed

Mortality rate1 Age demographics • Patients aged 70+ are

Percent % most vulnerable

Italy’s healthcare Italy • This is especially true

facilities were South Korea when COVID-19
overwhelmed by overwhelms the
COVID-19 unlike healthcare system
South Korea’s
16.4 0-19 yr 45 18 18 • Pakistan’s age
This, along with pyramid is cause for
other factors, optimism, provided
increased 20-49 yr 41 44 37 healthcare facilities are
mortality rates not overwhelmed
7.3
50-69 yr 11 28 28

2.3
0.2 0.1 0.9 70+ yr
0.0 0.0 3 10 17
0 to 19 20 to 49 50 to 69 over 70

1 Based on sample size of ~60k confirmed cases in South Korea and Italy
Source: China Centre for Disease Control & Prevention, Italian Portal of Epidemiology for Public Health, Italian Portal of Epidemiology for Public Health; World Bank 6
COVID-19 Factpack

Mortality rates also depend the extent of certain pre-existing health conditions, which are
rarer in Pakistan than in the rest of the world

Fraction of all COVID-191 mortalities Disease incidence

Percent Percent • COVID-19 mortality
rate depends on the
Includes active cancer, dementia, presence of pre-
heart disease, stroke, liver disease, Global Pakistan existing medical
hypertension, renal failure etc. conditions

100 23% • Pakistan has a lower

Hypertension incidence rate of most
18%
major pre-existing
48 7% health conditions,
Heart Disease which could be cause
3%
for optimism
Liver Disease 1%
26 / Hepatitis 5% • However, other factors
(malnutrition,
0.6% accessibility, health
25 Dementia care infrastructure,
0.1%
1 hygiene standards,
0 1 2 3+ All 0.2% etc) impacting
Cancer mortality rates may not
# of pre-existing 0.1%
be in Pakistan’s favour
health conditions

1 Based on sample size of ~400 deaths

Source: China Centre for Disease Control & Prevention, Italian Portal of Epidemiology for Public Health, Italian Portal of Epidemiology for Public Health 7
COVID-19 Factpack

Multiple paths to therapy and vaccine are being pursued, with estimated timelines of
12 to 18 months

Type of Therapy
(1) Antivirals
Drugs designed for
treatment of Ebola, HIV, flu
and malaria. They try to
stop the replication of
coronavirus
• Vaccine development
Pharma/Others Vaccine Development Pharma/Others
commenced on 10th
Jan 2020 when
AbbVie (1) Virus Based Clover Chinese scientists
Fujifilm Toyama Pharmaceuticals
Chemical A weakened live virus is GSK
published the genome
inject into the patient so of SARS-CoV-2, the
that the immune system is virus that causes the
primed to produce Covid-
condition COVID-191
19 antibodies.

(2) Anti-inflammatories
Designed for conditions
such as arthritis. They are
most useful when some
patients suffer from acute
respiratory distress.
• Vaccine/Cure testing
Regeneron (2) Molecular Clamp The University of on humans has
Sanofi Queensland
Only surface proteins are commenced;
Roche Sanofi
injected into the patient estimated time to
using a ‘molecular clamp’ market is 12 - 18
to produce Covid-19
months at a cost of
antibodies
US$2 bn

(3) Antibodies Eli Lilly (3) Nuclei Acid Moderna

Drugs derived from Covid-
19 patients’ immune
response.
AbCellera • Industry standard
Genetic code (RNA) are
Takeda timelines are 2 to 4
introduced to a patient so
Covid-19 antibodies can
years for mass
be produced. availability

1 SARS-CoV-2 is the virus which causes the disease COVID 19

8
Source: Financial Times March 26 2020 The global hunt for a coronavirus drug
 COVID-19 factpack

Contents Pakistan COVID-19 evolution and response

Expected Pakistan macro impact

9
 Pakistan COVID-19 evolution and response

Pakistan has taken the only available action by ‘suppressing’ COVID-19 through
lockdowns, and thereafter must ‘sustain’ infections at manageable levels until vaccine
Example R (No. infected Infections in Deaths for
Policy Countries (as by each sick Pakistan over Mortality Pakistan over ‘Do nothing’ and
Response Description of April 1st) person1) 12-18 months rate 12-18 months ‘Mitigate’ not viable
Do nothing No measures to n/a 2.0 – 3.0 > 100m 0.8 - 2% A few as they lead to
mitigate spread of million millions of deaths
Covid-19
Pakistan authorities
have therefore
chosen a Supress
Mitigate Social distancing, 1.3 – 2.0 > 100m 0.8 - 2% A few & Sustain policy
quarantine, million
testing, public
education, limited
travel restrictions

Suppress • 6-8 weeks of • 0.8 > 100k 0.5 - 1% A few

& Sustain lockdown (suppress) thousand
• Further 10-16
months of all • 0.99
means (sustain)
necessary to
sustain R < 1

1 An R of 0.3 was achieved by Wuhan in the lockdown, and a normal R for Covid-19 is estimated to be 2 - 3
Source : Imperial College of London, World Bank, Github – Epidemic Calculator, Pakistan Bureau of Statistics 10
Pakistan COVID-19 evolution and response

However, after the lockdown, the margin for error will be tiny - if R rises above 1 even
by a bit, the number of deaths and infections increase by a factor of ~100

Assumptions
# of people infected & dead When R
− ~6-8 week increases from
lockdown to 1 to 1.15,
suppress virus in R=1.00 R=1.15 infections and
Pakistan deaths over a
Infections 12-18 month
100,000,000 horizon
− Authorities aim to
sustain infections 37,000,000 increase by a
10,000,000 factor of 100
at manageable
levels until 1,000,000 350,000 Deaths
vaccination in a
further 10-16 100,000 300,000
months
10,000 3,200

1,000 R during sustain

period (9-15 months)
100
0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7

Wuhan during lockdown Unconstrained R

(estimated) – 0.3 (estimated) 2.0 – 3.0

Source: Imperial College of London, World Bank, Github – Epidemic Calculator, Pakistan Bureau of Statistics 11
Pakistan COVID-19 evolution and response

South Korea was able to control a full blown outbreak with economically non-disruptive
measures, but those measures may be challenging to implement in Pakistan…
Economically non-disruptive measures taken Level of challenge
Rationale
by South Korea for Pakistan

South Korea was able to draw on its experience with previous

Mobilizing all govt units before
1 High pandemics, and activate existing structures and capabilities;
Corona emerged as a pandemic
Pakistan must contain the outbreak after the lockdowns end

2 Mass temperature and health Pakistan can apply temperature and health screening at airports,
High
screening bus and train stations; public markets may remain a challenge

Mass testing of 0.52% of population Pakistan will need to test over a million people; Pakistan must focus
3 Manageable
(e.g. drive-through testing) on developing indigenous, low-cost test kits

Mass public education (e.g. Severe

4 Relatively low literacy rates present a challenge
non-pharmaceutical interventions)

Strict contact tracing Given large population, Pakistan may find it challenging to track
5 Severe
exposed individuals through continuous tracing and tracking

Isolation and govt subsidy for: suspected Pakistan has imposed self isolation for suspects and has
6 cases, people in contact with known cases, High
implemented forced quarantine for confirmed cases; compliance
and vulnerable populations and fiscal capability for subsidy present challenges

7 Apps to inform citizens of known Severe ~35% smartphone penetration in Pakistan vs. 95% for South
cases within 100 meters Korea; app’s reliability will be severely limited

8 Discourage mass gatherings High Uncertain propensity to comply, given dense population

12
Pakistan COVID-19 evolution and response

…and therefore if Pakistan aims to keep R below 1, some economically intrusive

measures may be required, even after the lockdown
Stage 1: Stage 2:
Suppress virus spread Sustain R below 1
Category Measures 6-8 weeks 10-16 months
Aggressive screening public places & mass testing for COVID
 
Detection &
Isolation
Isolation of identified cases / Contact tracing
 
Decontamination of transport/streets etc..
 
Mass Disinfection
Hazardous waste management
 
 
/information Mass education for non pharmaceutical interventions
Surge in critical care/hospital bed capacity & mobile gov. units
 
 
Healthcare Expand health workforce/medical supplies/PPEs
Facilities
Social distancing of elderly/most at risk
 
 
Social Quarantine of high-risk areas
Economically Distancing
less intrusive Encourage home quarantine of exposed people
 
Economically
more intrusive Mass
Ban on public gatherings

Gatherings
Citywide curfew
 
Travel &
Suspend air travel
 Details in
Logistics
Limit domestic mass transit / inbound-outbound logistics
 back-up

Shut education, worship, shopping malls etc..

Closure of offices & industries according to criticality and


Closure propagation potential (details in appendix)
13
Pakistan COVID-19 evolution and response

GoP’s actions immediately after the lockdown ends, will be of the utmost importance

If the lockdown is successful, it will In Wuhan, following the lock down on 23rd Jan, the new
have the effect of reducing infections cases which increased to over 10K/day, have now declined
dramatically to nearly 0, after two months

Restarting the economy is expected to Even the non-containment of a handful of cases has the
bring new cases potential to restart the outbreak

However, right after the lockdown, when
there are relatively few cases, it may be
possible to identify and contain all
infections
Measures required to contain small number of cases:
• Aggressive Testing
• Contact Tracing
• Home isolation of suspected cases, known cases, and
those in contact with known cases
• Quarantine and decontamination of localities with cases

If the initial cases are not contained, then a further outbreak is possible, which may
necessitate another period of lockdown

14
Pakistan COVID-19 evolution and response
Therefore we believe the GoP should take active steps to contain cases after the
lockdown ends, but simultaneously also prepare to deal with another outbreak
6-8 weeks
Suppress Phase (i.e. lockdown)
- Enforce lockdown rigorously
- Develop local tests. with turn-
around times in hours
- Mass produce healthcare
equipment (e.g. masks & low-
cost, single-use, plastic
ventilators)
- Actively lobby international &
multilateral donors for access to
already committed development
funds (e.g. $160b committed by
World Bank)
- Continue to effect fiscal and
monetary stimuli to mitigate
economic impact of COVID-19
- Continue to provide citizen
welfare, and prepare to handle
imminent crises of food security,
health, and social unrest
9-15 months
Sustain Suppress (repeat)
- Aggressively identify & contain - Be prepared to go
known cases back into lockdown if a
- contact tracing severe outbreak
threatens to
- subsidy & quarantine for
overwhelm health care
known cases & those in
infrastructure
contact with known cases
- decontamination of affected
neighborhoods
- Test aggressively
- Open up sectors based on criticality
& propagation potential
- Limit exposure of the vulnerable
(60+ & people with existing medical
conditions)
- Enforce social distancing
- Restrict number of participants in
gatherings to <50
15
 COVID-19 factpack
Pakistan COVID-19 evolution and response
Contents
Expected Pakistan macro impact

16
Expected Pakistan Macro Impact

Measures taken to control virus spread are likely to negatively impact the economy in a
range of ways
Impact Approach taken to understand impact

GDP GDP Contraction of 10 - 15 p.p.
relative to 2020 forecast
Negative impact of ~Rs 1.9 - 2.2
Fiscal Deficit Tn; deficit increases from 8% to
14% of GDP
Disaggregated GDP into respective sectors & discussed major sectors
with industry experts, operating subsidiaries and economists in asset
management & brokerage industry
Dissected components of fiscal deficit and analysed the impact of each
based on prevailing data/news items, extrapolation with GDP and views
from economic experts

Balance of Ranges from $1bn in outflow to Conducted detailed analysis on components of BoP and conducted
Payments $3 bn in inflows calculations to account for changes in commodity prices, impact of aid
package announced and reflected in PM package

Unemployment for 15-20mn during Sliced employment of workers into respective sectors & calculated impact
Unemployment suppress phase (i.e.lockdown) and on employment based on GDP impact and operational status of the sector
10-12mn during sustain phase (details in appendix)

Food Food security threatened for ~45- Estimated affectees by closed industry, and estimated govt spend required
Security 50m during suppress and ~15- to ensure food security, net of private donations, to be ~Rs 350-450 b in
20m during sustain 2020 (details in appendix)

Health Crisis Economic shock will lead to health Analyzed academic articles to understand relationship between exogenous
impact on low income groups economic shocks & medium term health outcomes (details in appendix)

Social Unrest Economic shock will lead to crime Analyzed academic articles to understand relationship between
& Crime and social unrest exogenous economic shocks & crime and social unrest (details in
appendix)
17
 Expected Pakistan Macro Impact

GDP impact from containing COVID-19 is estimated to be 10-15 p.p. relative to 2020
forecasts
GDP Projection 2020F GDP Impact COVID-19
$ bn Major Sector $ bn % Impact $b Rationale
Approach: -15% Citizen Expected GoP spend on healthcare &
- - 4–5
welfare provision food, with GDP multiplier 1
293
• Bottom up estimate of
GDP impact on each GoP Stimulus Package 19 Industry Expected GoP industry stimulus ($3
- - 4–5
industry, based on the Real Estate & Housing Support bn), with GDP multiplier 1.3 – 1.5
actions which we 249 Weak economic outlook and investor
believe will be Wholesale & retail 56 Real Estate
10 19 (40-50%) (8) - (10) sentiment; recent govt. incentives
required to sustain R 10 (ex. materials)
only support the sector in 12+ months
<1 over the next 12
months 10% reduction on necessities (70% of
45 Wholesale &
Manufacturing 38 56 (15-20%) (8) - (11) total) and 30-40% reduction on
retail
• Govt intervention discretionary spending (30% of total)
calculated based on 30 Food & pharma, 40% of total, taken
overall need (i.e. Transport 38 as inelastic; Textile, 30% of total, is ↓
existing fiscal package Manufacturing 38 (15-20%) (6) - (8)
5-10% despite stimulus; cyclicals
plus further Rs. 0.8 Tn 30
(cement, autos etc.) are ↓ ~40-50%
of fiscal spend, and
rate cut of further Agriculture 57 Goods transport, 45% of total, is ↓ 5-
150bps – details in 53 Transport & 10% in line with mfg; ppl transport
38 (15-20%) (6) - (8)
appendix) Comms (40%) is ↓ ~35%; comms, 15% of
Education 6
total, is taken as inelastic
4
• We would like to thank
Compromised sowing in May 20 and
Prof. Jawaid Ghani of Agriculture 57 (2-7%) (1) - (4)
reduction in commodity prices
KSBL for his Others 79
67
invaluable guidance in Fee reduction due to shutdown, drop-
Education 6 (20-30%) (1) - (2)
these calculations outs to increase with income decline

Pre Post Others 79 (10-15%) (8) – (12) Details in appendix

COVID-19 COVID-19
Source: Economic Survey of Pakistan, Planning Commission Annual Plan 2019-20, Interviews, External reports 18
 Expected Pakistan Macro Impact

As a result of containing COVID-19, we expect GoP’s fiscal deficit to increase

by Rs 1.9 – 2.2 tn, i.e. from 8% to 14% of GDP
Fiscal Deficit impact of actions needed to sustain R <1
Rs. bn Assumptions

Interest Servicing 450-550 Outstanding local debt ~ Rs. 22 trillion (13 trillion is long term). Decline in domestic interest rate by
375 bp (225 to-date) and foreign interest rate by 75 bp (foreign debt of $87 bn)
Public Sector
150-175 20% Reduction in PSDP spending as capacity to implement these projects will be curtailed
Development Program

Foreign Aid 500-550 Total aid of $ ~3 bn (IMF: $ 1.4bn, ADB: $1.25bn, WB: $0.6bn, Others $ 05mn)

Tax Revenue 1,500-1,600 Assumes reduction in tax by ~30% from tax-base of Rs. 5,200 bn for 2020; this results from GDP
contraction of 13%, & 150 bps reduction in tax-to-GDP ratio from 11.6%, amid crisis

Petroleum Levy 60-80 Levy declines 30%; due to 10% lower fuel consumption, and 20% levy reduction to manage inflation

Food Support 310-400 Food support cost for the affected population (Rs. 150-170b in Suppress, & Rs. 200-280b in
Sustain) net of private donations of Rs. 40 bn (Sec A: 0.25%, & Sec B: 0.1% of annual income)

Health expenditure 250 Health expenditure estimated at 0.5% of GDP, based on stimulus packages in Russia and Mexico

GDP Support 500 Additional 1% of GDP stimulus expected going forward

PM Response1 Rs. 140 bn for wheat procurement (~50% subsidy assumed), net Rs. 10 bn for export package
475-525
(excl. food and health) (concessionary loan impact), Rs. 100 bn SME, Rs. 100 bn emergency fund, Rs. 150 bn others
Increased For PIA & Railways, 25% reduction in revenues, & decline in oil prices passed through; for profitable
75-80
SOE funding
SOEs, Rs.10 bn reduction in dividends (15% of total)
Net Impact 1,900 – 2,200 Fiscal deficit grows to ~14% of GDP, vs 8% now
1. PM response lays out fiscal spend of Rs. 1.3tn; Rs. 0.4tn are timing adjustments, wheat price support and loans; the remaining Rs. 0.9tn consists of Rs. 350b on food, Rs. 75b on health and ~Rs. 0.5tn
on various GDP stimuli; we estimate GoP will have to spend a further Rs. 0.3tn on food and health, and a further Rs. 0.5 on GDP stimulus; the fiscal calculations on this page assume the extra payments 19
Expected Pakistan Macro Impact

Balance of payments declines because of exports and remittances, and improves from
lower imports, and foreign aid
Impact on Balance of Payments of COVID-19
$ bn

Reduction in imports is driven by (i) petroleum ↓ 30-40% (volume ↓ 10-20%; price ↓ 20%),
Import 11-14 (ii) Machinery ↓ 50%, due to capex incurred by on-going projects and low new investments,
(iii) Agri & other chemicals ↓15%-20% (volume ↓ 5-10%; price ↓10%) (details in appendix)

Changes Export 2-4 10-20% lower textile export volume; services exports unaffected; wheat, sugar, vegetables
in exports eliminated (details in appendix)
Current Remittances 3-4 Middle East remittances (50% of total) decline by 25-30% driven by low oil prices; other
Account remittances unaffected because of reduced household costs and increased charity
Interest saving
1 75 bps reduction on $87b foreign debt
Foreign Loans
Foreign Direct No impact - in 2008 & 2009 FDIs were $5bn & $3.7bn, well above 10 year average of $2b
0
Investment
Changes Foreign Portfolio
2 Outflow of hot money post decline in interest rate and rupee devaluation
in Investment
Financial COVID-19
Account 3-4 $3.25bn committed1 for COVID-19 support
related aid
Other Net
4-6 As a result of COVID-19, GoP can reduce external borrowing by $4 – 6bn
Financing

Total impact -1 to +3

1 Based on best available information about timing of committed aid 20

We are a resilient nation, and InshAllah we can defeat this virus if we all adhere to the
wisdoms of the time

…stay at home as directed by the authorities, and practice social

distancing, especially from people who are not well

…wash hands regularly, and avoid touching our eyes, nose, and
mouths with unwashed hands

We are a …ensure we cough or sneeze in tissues or in our elbows; not in our

resilient nation hands, in the air, on surfaces, or near others

InshAllah we …try to keep our homes as clean as possible

can defeat
COVID-19 if we …donate within our capabilities to NGO’s, charities, and government
all… funds

…stay calm and report to the authorities if we display symptoms of

COVID-19 (e.g. fever, cough, body aches, shortness of breath)

…try our best to remain positive, kind, compassionate, and resilient in

this difficult time
21
Critical takeaways

People over age 70, and those with pre-existing health conditions are especially vulnerable to COVID-19; a vaccine is
1
expected in 12-18 months

There is almost no margin for error in containing the virus; if the average number of infections per sick person rises
2
above 1 by even a tiny amount, the expected number of infections and deaths over 12-18 months grow by 100X

GoP’s actions at the end of the lockdown period are of critical importance – it must try and contain future outbreaks
3
through aggressive testing, contact tracing, and quarantine

After the current lockdown, Pakistan will most likely require economically intrusive measures to keep the virus from
4
spreading; these will include curtailments on travel, gathering, and working

We expect these measures to reduce GDP by 10-15 p.p. vs. 2020 forecasts; to increase fiscal deficit by ~Rs. 2 tn
5 (going from 8% to 14% of GDP); to create unemployment of 10-12 mn over the year; and to create food insecurity for
15-20 mn people over the next 12-18 months

There is some cause for cautious optimism from Pakistan’s young age pyramid, and lower incidence of some pre-
6
existing conditions which increase COVID-19 related mortality (however, other factors may increase mortality)

7 We are a resilient nation, and inshAllah we can defeat this virus if we all adhere to the wisdoms of the time
22
APPENDIX

23
 COVID-19 factpack

APPENDIX Pakistan COVID-19 evolution and response

Expected Pakistan macro impact
GoP relief package

24
 COVID-19 has affected 1,000,000 people as off April 6th, and cases are increasing
exponentially

Evolution of confirmed cases, beginning from 100 infections, select countries, as off 6th April • Covid-19 cases have
grown exponentially in
10,000,000 Pakistan and
internationally – mostly
doubling every 2 to 3
days
1,000,000 World
Pakistan1 • South Korea, Japan,
China and Singapore have
100,000 Singapore been successful in
stopping the growth of
South Korea
infections
Italy
10,000 Iran • The city of Wuhan in
USA China had to go under
Spain complete lock down to
1,000 contain the outbreak of
Covid-19

100
0 10 20 30 40 50 60

1 Pakistan cases as off 6th April – 3,424 total (+142 in last 24 hours); Punjab 1,627, Sindh 881, KP 405, Balochistan 202, GB 211, ICT 82, AJK 16
Source: Ourworldindata.org 25
 COVID-19 factpack

APPENDIX Pakistan COVID-19 evolution and response

Expected Pakistan macro impact
GoP relief package

26
Details of measures, based on best available info, without which we
do not think R can be sustained below 1
Measure Measures without which R cannot be sustained below 1 Detailed Ahead

Ban of Public • All 50+ people gatherings banned

Gatherings • Social distancing of 6+ feet between people encouraged
Restrictions on Air • Capability for mass fever screening created at airports, all travellers checked for symptoms; rapid anti-
Travel body mass-testing deployed when available
• Travellers with symptoms banned from boarding aircraft, and heavy fines levied on airlines allowing
travellers with symptoms to travel
• All international travellers quarantined with COVID-19 symptoms, upon entry
• Alternate seat configurations enforced on all domestic and international flights, inbound and outbound
Limit domestic mass • Capability for mass fever-screening created at max possible number of rail and bus hubs; intercity
transit / inbound- travel banned from all other hubs
outbound logistics • Travel of passengers with symptoms banned, and heavy fines levied on operators who violate;
compliance ensured through random checking
• Minimum distance enforced between passengers for inter-city mass transport
• Free movement for goods allowed for inbound and outbound logistics
Shut education, • Educational institutes only allowed to operate virtually
worship, shopping • Mass-fever screening, shorter operating hours, closure of public food-courts & play areas enforced at
malls etc.. mega-shopping malls
• Distance of 6+ feet strictly enforced at religious gatherings
Closure of offices & • Essential industries kept open
industries (according • Industries that are not critical for day-to-day operation of economy, and with high propagation potential,
to criticality and kept closed
propagation potential) • Other industries kept open on a case-by-case basis
27
 Within closure of industries, to sustain R below 1, industries will have to be prioritized
based on their criticality to daily functioning of society, and virus propagation potential…
Importance for daily Business as usual Partial ramp down Full ramp down GDP contribution
functioning of society
Public Admin & Defence
Agriculture, forestry and fishing

Information and communication 5 Utilities

Waste & sewerage
Critical
Human health and social work activities

Transportation and storage

Financial and insurance activities5

Mining and quarrying1

Manufacturing2
Medium
Wholesale & Retail trade3
Accommodation and food service activities6
Professional, scientific and technical activities
Real estate activities4 Construction4

Low
Priority Education

Administrative and support service activities

Arts, entertainment and recreation

Low Medium High Virus propagation

1. Not for ramp down : Gas / petroleum / coal and Industry feedstock mining
3. Not for ramp down : Essentials items (Kiryana stores, pharmacies, etc)
5. Work from home where possible
Source: McKinsey & Co
potential
2. Not for ramp down : Manufacture of food products, beverages, healthcare, refined petroleum products, chemical & pharmaceuticals, packaging
4. Not for ramp down : On going projects and essential infrastructure
6 Not for ramp down : Delivery service & major hotels
28
Details of partial industry closures, based on best available info,
without which we do not believe R can be sustained below 1
Industry
Manufacturing
Transportation and storage
Wholesale and Retail Trade
Construction & Real Estate
Accommodation and food
service activities
Financial and insurance
activities
Mining and quarrying
Professional, scientific and
technical activities
Partial Industry closures detail, without which R cannot be sustained below 1
• In addition to industries open in suppress phase, export-oriented business, textile feedstock industries,
construction plays and industries with low virus propagation potential kept operational; for cyclical
businesses, case to case basis approval given
• Free movement for goods allowed for inbound and outbound logistics
• Protective gear mandatory for drivers/loading staff; all drivers checked for symptoms at toll plazas; and
heavy fines levied on operators who violate; compliance ensured through random checking
• Wholesale & retail of essential items (e.g. grocery shops, Kiryana stores, pharmacies etc.) remain
operational, Social distancing of 6+ feet between people strongly encouraged
• Mass-fever screening, shorter operating hours, closure of public food-courts & play areas enforced at
mega-shopping malls
• Protective gear mandated for construction workers; workers checked for symptoms upon arrival to
site; and heavy fines levied on contractors who violate; compliance ensured through random checking
• Dining-out discouraged; take out and deliveries remain operational
• Hotels/Restaurants ensure cleaning/disinfecting protocols are followed, compliance ensured through
random checks
• Bank branches remain open, Headoffice staff encouraged to work from home to the extent possible
• Oil & gas exploration, coal mining, and mining of industry feedstock operational
• Essential services like audit etc. remain operational
• Virtual operations promoted
29
 COVID-19 factpack
Pakistan COVID-19 evolution and response
APPENDIX Expected Pakistan macro impact
GoP relief package

30
Impact on smaller GDP pools due to Suppress & Sustain Policy
2020 GDP Covid
Covid Impact
Sector Budget Impact Rationale
%
$ bn $ bn
• Interviews with market analysts suggest that construction proxies (cement &
steel) will suffer downturn by 50% for Q4, and 20% for FY20
Construction 7 (20-30%) (1) – (2) • Expected Public Sector Dev. Program (PSDP) will curtail by ~ Rs. 140 bn
(20%)
• However, construction package impact on the sector is unknown

• Mining is primarily driven by cement demand which is expected to decline by

Mining 8 (15-25%) (1) – (2) 20% in FY20; however some areas (e.g. Loralai in Balochistan) are purely
dependent on mining for livelihood and will likely continue production

• Limited decrease due to low borrowing by private sector as govt & related
Finance 11 (0-5%) 0 – (1)
entities are ~70% of total borrowing

Govt. Service 25 0% 0 • Government services will continue as before

Others 28 (10-15%) (3) – (4) • In line with decrease in economic activity

Source: Economic Survey of Pakistan, Planning Commission Annual Plan 2019-20, PBS, SBP 31
Our GDP forecast is not out of line with external GDP assessments for other
parts of the world

Reduction in GDP - Global Pandemic Scenario with Economic Slowdown

%

5% 10% 8% 3%

6-7% 8-9% 8% 6%

3-5% 4-5% 2-5% 6-7%

Morgan Stanley forecasts

US GDP decline of 30 p.p.
in Q2 2020

Source: McKinsey research, Australian National University Research Paper, Oxford Economics Report on World GDP 32
We believe that imports will decline by 20 to 24% (i.e. 11 to 14bn dollars) due to low
consumption and decline in commodity prices
Import ($bn) 2019 Base Case High Import Range Low Import Range Rationale
Import of Goods (46.87) (36.54) (34.28)

• Food imports decline by 10% - 15% where volume is expected to

Food (4.46) (4.02) (3.79)
decline by 5-10% and price expected to decline by 5%
• Machinery imports will decline by 50%, since on-going projects are
Machinery (6.64) (3.32) (3.32)
expected to only continue capex
• We expect transport sector to witness a decline in car volumetric
Transport (1.82) (1.36) (1.18)
imports by 25-35%
• Petroleum imports decline by 30-40%, where volume is down by 10-
Petroleum (11.21) (7.84) (6.72)
20% and price is down by 20%
• Textile imports will be down by 8%, due to reduction in cotton imports
Textile (3.48) (3.20) (3.20)
which will be used for value added exports
• This segment will be down by 15-20%, where volume is expected to
Agri. & Other Chemical (7.60) (6.46) (6.08)
go down by 5-10% and price by 10%
• Metal group will witness a fall of 25-35% due to 10% reduction in
Metal (3.52) (2.64) (2.29)
prices and 15-25% reduction in volumes
Miscellaneous (0.88) (0.80) (0.80) • Decline by 10% volumetric imports

All Others (7.26) (6.90) (6.90) • Other imports are expected to witness a volumetric decline of 5%

• Low domestic economic activity will reduce requirement of service

Import of Services (9.30) (8.37) (8.37)
imports by 10%
Total Imports (56.17) (44.91) (42.65)

Delta (11.3) (13.5) 33

We believe that exports will decline from 8 to 13% (i.e. 2.3 to 3.5bn dollars) due to global
slowdown
Exports ($bn) 2019 Base Case High Export Range Low Export Range Rationale
Export of Goods 24.78 22.33 20.78
GoP will discourage exports of wheat, sugar and vegetables, which
Food
4.98 4.38 4.18 contribute 0.6-0.8bn dollars, to ensure domestic food security
Majority of Textile is export to Europe & US, slowdown in these
Textile
13.49 12.14 10.79 economies will impact our export demand by 10-20%
Other Manufacturing Global demand slowdown will have an adverse impact on almost all
Groups 3.79 3.41 3.41 categories by 5%
Decline in exports by 5% is expected due to global slowdown in
All Others
2.52 2.40 2.40 economic activities

Export of Services 5.42 5.42 5.42 Long term contracts & IT exports will remain robust

Total Exports 30.20 27.95 26.40

Delta (2.3) (3.5)

34
1 Based on best available information about timing of committed aid
 We expect unemployment of 15-20m during Suppress phase (i.e.
lockdown), and 10-12m during Sustain phase
Industry Status Employment & Food Impact1, during Suppress phase, Mn

No Operations Partial Operations Full Operations • Low wage

15-20
30-35 unemployment of
Industry remains open? 1-2
Normal 15-17 mn leads to
Suppress Sustain 10
wage 15-17 food insecurity for
~15 45-50 mn people3
Agriculture, forestry & fishing Low
20-25 • During initial
Wholesale and Retail Trade wage2
lockdown greater
Manufacturing Total Jobs Lost Remaining displacement of
Transportation and storage employment of Employed low-wage workers
impacted sectors (i.e. daily wage)
Public Admin and Defense employees
Prof., Sci., Tech Activities
Real estate activities
Financial & insurance activities Employment & Food Impact1, during Sustain phase, Mn
Mining & quarrying • Low wage
30-35 10-12
Construction unemployment of
Normal 3-4 5-7 mn leads to
Education 10 5-7 ~20
wage food insecurity for
Accommodation & food service 15-20 mn people3
Information & communication Low
20-25 • After initial
wage2
Human health & social work activities lockdown,
expensive
Utilities Total Jobs Lost Remaining permanent
Sewerage & Waste Management employment of Employed employees lose
impacted sectors jobs, & cheaper,
Arts, entertainment & recreation
more versatile daily
Administrative & support services1
wagers find work

1 Includes impact on employment on agriculture sector as well due to slowdown of economy even though it is under full operations for both scenarios
35
2 Low wage defined as minimum wage (Rs. 17,500 / month) 3. Assumes 6 people per family, and 2 workers per family
 Measures to control COVID-19 could create 15-20mn unemployment during
suppress phase
No Operations Partial Operations Full Operations

Industry remains GDP contribution,

Total Employees, Mn Emp. Impacted, Mn
open? $ Mn
Approach: Agriculture, forestry & fishing 57,120 24 1
Wholesale and Retail Trade 55,767 10 2
• Countries with 4
Manufacturing 38,499 10
population
Transportation and storage 32,000 4 1
• greater
Impact on low
than
Public Admin and Defense 22,073 2 0
wage
50 Mnemployees
and
Prof., Sci., Tech Activities 18,855 0 0
calculated
GDP greater by
McKinsey Real estate activities 19,130 0 0
than $ 100 Bn
selected1 Financial & insurance activities 10,500 0 0
• For remaining Mining & quarrying 7,650 0 0
• employees,
Only those we Construction 6,521 5 5
have used GDP
countries Education 6,000 3 2
impact
includedtothat Accommodation & food service 5,888 1 1
estimate
have Information & communication 5,657 0 0
unemployment
announced a Human health & social work activities 0
4,385 1
as suggested
fiscal packageby Utilities 0
3,207 0
economists
Sewerage & Waste Management 2,000 0 0
Arts, entertainment & recreation 1,731 0 0
Administrative & support services1 1,439 0 0
Total 293,000 60-65 15-20

Source: Data from McKinsey & Co 36

 Measures to control COVID-19 could impact 15-17 mn low wage workers during
the suppress phase resulting in 45-50 mn people requiring food support
No Operations Partial Operations Full Operations

Industry remains GDP contribution,

$ Mn Low wage emp.2, Mn Emp. Impacted2, Mn
open?
Agriculture, forestry & fishing 57,120 6 0
Wholesale and Retail Trade 55,767 4 2
Manufacturing 38,499 8 3
Transportation and storage 32,000 2 1
Approach: Public Admin and Defense 22,073 0 0
Prof., Sci., Tech Activities 18,855 0 0
• Impact on low Real estate activities 19,130 0 0
wage Financial & insurance activities 10,500 0 0
employees Mining & quarrying 7,650 0 0
calculated by Construction 6,521 5 5
McKinsey Education 6,000 2 2
Accommodation & food service 5,888 1 1
Information & communication 5,657 0 0
Human health & social work activities 4,385 1 0
Utilities 3,207 0 0
Sewerage & Waste Management 2,000 0 0
Arts, entertainment & recreation 1,731 0 0
Administrative & support services1 1,439 0 0
Total 293,000 33 15-17

45-50 mn people impacted based on average household size of 6 people and 2 workers in a household
Source: Data from McKinsey & Co 37
 Measures to control COVID-19 could create 10-12mn unemployment during
sustain phase
No Operations Partial Operations Full Operations

Industry remains GDP contribution,

Approach: Total Employees, Mn Emp. Impacted, Mn
open? $ Mn
Agriculture, forestry & fishing 57,120 24 2
Wholesale and Retail Trade 55,767 10 2
• Impact on low Manufacturing 38,499 10 2
wage employees Transportation and storage 32,000 4 1
calculated by Public Admin and Defense 22,073 2 0
McKinsey Prof., Sci., Tech Activities 18,855 0 0
Real estate activities 19,130 0 0
• For remaining
Financial & insurance activities 10,500 0 0
employees, we
Mining & quarrying 7,650 0 0
have used GDP
Construction 6,521 5 1
impact to
Education 6,000 3 2
estimate
unemployment Accommodation & food service 5,888 1 0
as suggested by Information & communication 5,657 0 0
economisists Human health & social work activities 4,385 1 0
Utilities 3,207 0 0
Sewerage & Waste Management 2,000 0 0
Arts, entertainment & recreation 1,731 0 0
Administrative & support services1 1,439 0 0
Total 293,000 55-60 10-12

Source: Data from McKinsey & Co 38

 Measures to control COVID-19 could impact 5-7 mn low wage workers during
the sustain phase resulting in 15-21 mn families requiring food support
No Operations Partial Operations Full Operations

Industry remains GDP contribution,

$ Mn Low wage emp.2, Mn Emp. Impacted2, Mn
open?
Agriculture, forestry & fishing 57,120 6 0
Wholesale and Retail Trade 55,767 4 1
Approach:
Manufacturing 38,499 8 2
• All workers Transportation and storage 32,000 2 0
impacted for Public Admin and Defense 22,073 0 0
sectors shut Prof., Sci., Tech Activities 18,855 0 0
down Real estate activities 19,130 0 0
Financial & insurance activities 10,500 0 0
• For others, Mining & quarrying 7,650 0 0
impact based
Construction 6,521 5 2
on GDP
Education 6,000 2 2
impact as
Accommodation & food service 5,888 1 0
suggested by
Information & communication 5,657 0 0
economists
Human health & social work activities 4,385 1 0
Utilities 3,207 0 0
Sewerage & Waste Management 2,000 0 0
Arts, entertainment & recreation 1,731 0 0
Administrative & support services1 1,439 0 0
Total 293,000 33 5-7

15-21 mn people impacted based on average household size of 6 people and 2 workers in a household
Source: Data from McKinsey & Co 39
 Estimated food expense of Rs. ~350 bn over a year

Food Cost Calculation Donations Working

Item Assumption/Calculation
Class A 15%
Period of suppression 10 weeks
Class B 15%
Population provided food in closedown 45-50 Mn
Monthly food cost for 1 family Rs. 8,400 Class C 21%
Average family size 6 Class D 22%
Total Food Cost for suppression period Rs. 150-170 bn
Period of sustained measures 42 weeks
Class E 27%
Population provided food in closedown 15-21 Mn % of Population
Food cost for 42 Weeks Rs. 200-280 bn
Donation Annual Income Donation %
Calculation
Class A Rs. 12,600 bn 0.25%
Class B + C Rs. 7,560 bn 0.1%

Total Food Cost for 12 months: Rs. 350-450 bn Donations of Rs. 40 bn collected

Source: Tribune 40
 Allocation of $ 0.5 bn to fight COVID will not be sufficient, COVID 19 is
expected to exert additional burden of $ 0.8 – 1 bn on fiscal deficit
Expected Heath Care Spending – $ bn
Assumptions
Testing, equipment and containment spend
− Estimated Pakistan allocated $ 0.5
Treatment Spend
infections in 156 bn for COVID, which
Pakistan will includes equipment for
range from 0.6 – 58 protecting, testing and
1 mn people containing the infection

− Cost of severe Considering the

60 numbers, it will require
pneumonia
treatment on 25 98 Paid by additional health
0.5 28 insurance & spending of ~ $ 1-1.5 bn
avg. is $1,500 in
1.5 16 35 patient for the treatment of
Pakistan 12 infectious patients
Pakistan Italy China United
− Pakistan 49% States
population is in China has allocated ~$
SEC D & E, 35 bn and Italy has
220 60 1,386 327 allocated $ 12 bn for
expense would Population (mn)
have to be borne 0.3 – 0.5% 5.5% 0.8% 1.5% treatment of COVID
Est. infections (%) patients
by government 1,500 2,500 3,300 20,000
Treatment Cost ($)
Amount needed 1.5 - 2 12 60 156

Additional GoP Support 0.8 - 1

Source: Press and Articles 41

With the decline in interest rate, Pakistan has seen an outflow of $1.6bn in hot money
which reduced the total investments in Tbills and PIBs from $3bn to $1.5bn
Rs./$
Hot Money Debt Flow vs. Policy Rate Hot Money stock vs. Rs./ $ parity Tbills
$mn Policy Rate Tbill PIB $mn; $Rs. PIBs

1,500 1,438 14 3,500 170

13 3,051
1,000 12 3,000 165
713 2,789
11
160
500 303 10 2,500
250 261
9
0 0 0 0 0 0 15 71 0 155
0 8 2,000
7 150
2,991 1,510
-500 6 1,500 2,754
5 145
-1,000 4 1,000
140
3 1,490
-1,500 2 500 135
-1,542 1
-2,000 0 0 35 60 20 130
Apr-19

Oct-19
Aug-19

Sep-19

Nov-19

Dec-19
Jan-19

May-19

Jun-19

Jan-20
Jul-19
Feb-19

Mar-19

Feb-20

Mar-20

Jan-20 Feb-20 Mar-20

42
Research indicates that mortality rates, spread of infectious diseases, and
malnourishment increases during periods of economic downturns

Change in Death per 1,000 Health care • Total healthcare expenditure falls in absolute
spending terms and as a % of income during downturns
Economic Growth
Economic Downturn

45 44 Mortality Rate • Mortality rate increases with decrease in GDP

40
35 Malnourishment • Shift of consumption from nutritious to less
30 nutritious items in times of economic crisis
25 24
• In Asian countries after the Asian financial crisis,
20 maternal & child malnourishment increased
15
Infectious • Marked increase in spread of infectious diseases
10
5
Diseases during economic crisis & downturns e.g.
0
tuberculosis spread & mortality increased in EU
-5
states during 1990s economic crisis. HIV also
-10
increased, outbreaks of diphtheria and tick-borne
-8
-10 encephalitis, and leptospirosis also occurred
Infant Mortality Child Mortality <5yrs
(per 1,000) (per 1,000)

Source: Jstor, Research articles, World Bank Global Monitoring Report published in 2010 43
Research suggests that economic downturns are accompanied by increase in
crime
Impact of Economic • Economic downturns lead to higher unemployment rates and entices a breadwinner to resort to
Downturns to crime to meet basic needs of the family
Findings • Empirical evidence concludes that crime (robbery, burglary etc.) increase during economic
downturns, out of the 15 countries analyzed by UN, link between crime & GDP was statistically
significant for 12 countries

Examples of Jamaica & Mexico

Source: UN Report, Net Effect of Business Cycle on Crime & Violence; Impact of Economic Conditions on Robbery & Property Crime; 44
 COVID-19 factpack
Pakistan COVID-19 evolution and response
APPENDIX Expected Pakistan macro impact
GoP relief package

45
 GoP Relief Package

GoP has announced a fiscal stimulus of Rs. 1,330bn, while SBP has provided monetary
stimulus which includes rate cut by 225 bps to support the ailing economy
Fiscal (PM Package)
Monetary Support Policy Relief
Rs. bn

Timing difference/ Interest rates Slashed by 2.25%

Labor Support 200 Not actual fiscal cost
to GoP
COVID related health Hospitals can avail loans at 0% KIBOR for COVID
Wheat Procurement1 140 140 280 care equipment related equipment

Monthly Stipend 150 SME credit limits SME credit limits enhanced by Rs. 55 mn

Export/SME Package2 20 280 300

Debt Burden Ratio for Relaxed from 50% to 60%, this would enable
individual consumers additional 2.3mn individual to borrow from banks
Health Support 75
Banks to rollover principal payments of business due
Principal Deferment
(~ Rs. 4.7 trillion) for 2020.
Emergency Fund 100
Capital Conservation Reduced from 2.5% to 1.5%. This will enable banks to
Buffer lend an additional amount of Rs. 800bn
Others 225

ATRF to support Credit of upto Rs. 5 bn at discounted rate of 7%, for

Total 910 420 1,330 manufacturing sector investments in new manufacturing units.

1. Total wheat procurement of Rs. 280 bn announced as part of package. As wheat procurement was planned irrespective of covid, we have only incorporated 50% of the total impact as we have
assumed this amount to be over and above the initial set target.
2. Export/SME package includes Rs. 100 bn of refunds that were already due and are not extra stimulus. The remaining Rs. 200 bn is concessionary loans at subsidized rates with fiscal stimulus being
only the concessionary rate which is assumed to be Rs. 20 bn 46
 Pakistan’s existing stimulus package is in line with packages announced by
other countries

Approach: Fiscal Package

% of GDP
• Countries with
population 20.0%
greater than
50 Mn and
GDP greater
than $ 100 bn
selected1
10.0%
• Only those
countries 6.1%2
included that 4.5%
Sample average 3.6%
have 3.0% 2.7% 2.5% 2.0% 2.0% 2.0% 1.5%
announced a 1.4% 1.2% 1.0% 0.7%3 0.3%3 0.2%
fiscal package
Japan USA Korea Germany Thailand Pakistan Brazil Egypt France Turkey UK Italy China India Mexico Russia Indonesia

Policy 150bp 50bp - - 50bp 225bp 50bp 300bp - 100bp 65bp - 100bp 75bp 50bp - 50bp
Rate
Reduction

1. Only includes countries that have announced packages;

2. Includes 5.3% of GDP for financial stabilization plan
3. Healthcare fund; package to be announced
Source: IMF
47
 GoP Relief Package

In order to combat COVID-19, we expect GoP will need further food & health spend of
~Rs. 235 bn, GDP stimulus of ~Rs. 520 bn, and some monetary measures
Incremental Fiscal Expenditure Monetary Policy Relief
Approach: Rs. bn Support
• Additional welfare Further cut of
spend is difference Incremental 150bps, will support
welfare Health1 175 Interest
between calculated private offtake of
rates
requirement and spend (Rs. credit and reduce
Food2 60
committed amount 235 bn) fiscal pressure
Textile 150 Capital
• Incremental GDP Reduction of CAR by
Adequacy
stimulus is ~1% of IT export 50 1% enhances lending
Ratio
GDP, bringing total capacity by Rs. 93 bn
SEZ Incentives 50 (CAR)
stimulus in line with
global average Incremental Entrepreneurship Fund 50
GDP
• Sectors for GDP
stimulus Cottage Industry Loans 50
stimulus forecasted
(Rs. 520 bn)
based on
Agriculture value add loan 20
unemployment
impact, GDP Digital platform package 50
multiplier, and
criticality to COVID- TCP Food safety stock 100
19 recovery
Total 755

1. Based on benchmarks of health expenditure of other countries, Pakistan will required a total of ~Rs. 250 bn on health. Only Rs. 75 bn has been budgeted
2. Food support cost for the affected population of low wage workers (Rs. 150-170 bn in Suppress, & Rs. 200-280 bn in Sustain) estimated to be higher than budgeted amount 48