Assignment

Issues in Pakistan Economy

Name: Rehan Abdul Hameed Balghari

Class: BS Economics 3-A
Enrollment No: 01-114192-022
Teacher: Madam Aleena Khan

Impact of Covid-19 Pandemic on Micro, Small, and Medium Sized

enterprises in Pakistan

Introduction

The paper on the topic written by Mohsin Shafi, Junrong Liu and Wenju Ren aims to discuss what the
impact the Covid-19 Pandemic has had on Micro, Small, and Medium Sized enterprises in Pakistan. It
discusses the impact of similar disasters that occurred in the past, the current pandemic’s impact on the
economy (world and Pakistan’s) and also gives some policy suggestions based on its findings that aim to
facilitate policy makers to make decisions to properly deal with the crisis on hand

MSME’s

MSMEs according to The State Bank of Pakistan are enterprises that employ workers ranging from less
than 10 (micro) through 50 (small) to 50-250 (medium) and annual sales turnover ranging from 150
Million Rupees (Small) up to 800 Million Rupees (Medium). These firms are essential and often a
backbone for developing economies like Pakistan. They are also more vulnerable, compared to larger
enterprises, to environmental volatility.

MSMEs are involved in a significant portion of agriculture, manufacturing, retail, wholesale, trade, and
service sectors.

Importance of MSMEs

MSMEs are crucial for economies, especially developing ones. In Pakistan there are around 3.6 Million
business enterprises which contribute 40% of the GDP and over 40% of export earnings. Out of these 3.6
million enterprises, over 90% are MSMEs. Thus, they are a backbone for the country’s economy.

MSMEs compared to large enterprises are smaller in size, have less resources, are more fragile and
hence are more sensitive and vulnerable to external conditions like environmental crises. They can
suffer in different ways. Directly they can suffer from cash flow problems, supply chain disruptions and
(but not limited to) loss of inventories
Research Methodology

The research methodology employed is of an exploratory type which depends heavily on reviewing
various types of literature (policy papers, research papers etc.)

Other than the secondary data from existing literature, primary data has been derived from online
questionnaires. The reason given for this is limitations imposed by time and financial constraints and ass
well as the current pandemic which restricts other more in person methods of data collection. Steps
have been taken, like utilizing professional networks and providing complete anonymity to participants,
to increase responses and participation.

A snowball sampling technique has been used. The time period for the data is 12 days (9-21st April 2020)
with the number of participants amounting to 184. Of these 184, 10 participants were excluded later on
the basis that they reported no impact or were not sure about the ibmpact on their enterprises.

The participants are from all areas with the highest number from Sindh (46%) followed by Punjab, KPK,
ICT, Gilgit Baltistan, Azad Kashmir and Balochistan at 6.5% at the end.

Majority of the Participating enterprises have employees ranging in number from 10 to 100. 62% of
these employ daily wagers ranging from 10 to 29 whereas 38% employ no daily wage employees. This
suggests that majority of the participating firms are MSMEs

Literature Review

The study references various pieces of literature about topics ranging from past crises and their impact,
impact of Covid-19 on the world economy and the Pakistani economy as well as MSME’s.

Some of the referenced literature are listed below:

• Prasad et al. (2015) which suggests that environmental crises disrupt the supply chain and this
impacts MSMEs negatively even indirectly
• The WTO in 2019 showed that the between 1998 and 2017 the world has lost 2.9$ trillion USD
to environmental disasters with the USA being impacted the most incurring losses of over 940
Billion USD.
• Asgary et al., 2020 showed that the 1999 earthquake that hit turkey resulted in MSMEs losing
1.1 to 4.5 Billion USD to damages.
• Bennets and Philipsons 2004, showed that MSMEs in Britain lost over 5 Billion Pounds during
the FMD outbreak in 2001
• WTO 2019, shows that Pakistan lost 4.5 Billion USD to floods in 2010
• Samantha 2018 showed that MSMEs are more likely to not reach the post-disaster stage due to
constraints and their small size
• Hussain 2020 showed that less than 50 factories (out of 2700) were operating on day one in
Karachi.
• Various studies like Naqvi 2020 and the World Bank warned that the country may go into
recession

Findings

Backdrop
 • The Covid-19 outbreak was given Pandemic status in March
• Lockdown enforcement and announcements were all done in a short period of one day.
• During the same month, pilgrims had arrived from Iran through the Taftan Border and the
sudden announcements put them in a rush which made social distancing next to impossible and
further contributed towards deteriorating the situation.
• By 20th July 265,083 people were confirmed to be infected with the virus having claimed over
5599 lives.
• Sindh Reported the most Infected with Punjab following close behind

Impact

• Pakistan lost 1/3rd if its revenue

• Exports dropped by 50%
• Real GDP growth is expected to shrink by 1.3%
• Pakistan's currency had already been devalued by 7.3% which further added to the problems
• Unemployment is projected to rise from 5.8% to 8.1%
• 94% enterprises indicated significant ramification with 38% claiming to have been impacted
severely
• Firms expressed several concerns with Financial problems (68%), supply chain disruptions (47%),
demand decrease (44%) and reduced profits (41%) and sales (38%)
• 31% firms have shut down while 19% have partially shutdown while 12% are operating.
• Most firms are likely to survive at most around 2 months if the situation does not improve
• 4% firms plan to switch business lines
• 43% firms have laid off employees, 12% reduced staff salaries whereas 13% shutdown

Suggestions

Based on the findings the study gives several suggestions to deal with the pandemic. Some of these are:

• Ensuring safety of employees. Firms should ensure their employees' safety by ensuring that
necessary SOPs are followed
• Accurate information and communication. False information dispersion through social media
should be curbed and firms and responsible bodies should provide accurate and reliable data
regarding the pandemic to their employees and the general public.
• Allowing Trade to continue with precautions. Borders should be open for goods.
• Firms, that are able to, should provide services online to minimize impact.
• Banking should be done online to minimize in person contact so firms can maintain their
cashflows.
• Government should provide long period loans at lower interest rates to struggling firms to help
them cope with the pandemic by reducing the cost of Production.
• Payroll overdrafts, concession and suspension of rents and subsidies help substantially according
to studies
• Firms should venture into new areas e.g., textile firms can produce face masks and gloves which
not only will help them but will also develop new sectors.
• Employee lending can prevent lay offs and provide necessary workforce to the sectors that need
more workforce at the moment.
 • Businesses and educational institutions should use online telecommunication services to
conduct meetings and classes.
• Good communication with firms and of firms with their employees can increase trust and help
firms bounce back from the setback.

All these can help ensure safety, boost economy, support MSMEs and also make the firms more resilient
and prepared for future situations

Conclusion

MSMEs are the backbone of the economy accounting for rover 90% of all business enterprises in the
country. They are very sensitive to environmental crises and disasters. They are not adequately
equipped to deal with the problems and suffering from various problems like supply chain disruptions,
cashflow issues, and decreased demand sales and profits.

They are dealing with their increased cost by laying off employees and reducing salaries.

The government needs to provide them relief and the firms should resort to lending employees instead
of laying them off