IMPACTS OF CORONA VIRUS ON PAKISTAN ECONOMY

An overview of the impact of coronavirus

(worldwide)

The coronavirus pandemic has reached almost every country in the world.

The impact of coronavirus worldwide:

1. Stock market since the start of the outbreak.

In response, central banks in many countries have slashed interest rates.

2. World economies struggling with the rising of unemployment.

3. New vaccines still very low in many countries.

4. Most of the countries are now in recession. The only major economy to grow in 2020
was China. It registered a growth of 2.3%.

5. Global shares in flux. Big shifts in stock markets, where shares in companies are
bought and sold, can affect the value of pensions or individual savings accounts.

CORONA VIRUS-IMPACT ON KEY ECONOMIC INDICATORS OF

PAKISTAN

GDP:
GDP growth is estimated to have contracted by 1.5 percent in FY20. Half of the working
population saw either job or income losses, with informal and low-skilled workers employed
in elementary occupations facing the strongest loss in employment.
Real GDP will grow by 3.2% in fiscal year 2021/22 (July-June), as economic growth is
constrained by recurrent waves of Covid-19 infections and fiscal consolidation efforts..

EXPORT:

Pakistan’s exports to its nine regional countries plunged over 5.7 per cent in the nine months
of the current fiscal year due to the impact of Covid-19, data of the State Bank of Pakistan.
The country’s exports to these countries Afghanistan, China, Bangladesh, Sri Lanka, India,
Iran, Nepal, Bhutan and the Maldives account for a small amount of $2.788 billion, which is
just 14.91pc of Pakistan’s total global exports of $18.688bn in 9MFY21.
IMPORTS:

Pakistan’s economy is already at the brink of collapse having incurred a colossal external
debt of approximately $113 billion. Pakistan can face catastrophic consequences if the
looming new trade crisis hits its shores, since about 50% of Pakistan’s exports are shipped to
countries most affected by COVID-19.

Exports and Imports declined in the very first month of COVID-19 and the magnitude of
decline continues to increase by each passing month till May 2020.

REMITTANCES:

Remittance along with Exports plays a major role in acquiring foreign reserves. A potential
decline in remittance flows in Pakistan has a great impact on the economy and society in
general. At the micro-level, remittance dependent households may experience a drop in
savings, living standards along with financial stability for housing, food, education, and
health care. At a macro scale, the national economy is highly dependent too. Although it
favours real exchange rates and improved trade competitiveness among other countries, it
largely impacts national savings, expenditure for development, the balance of payments, and
foreign reserves. It is worth mentioning that Remittances hold a major share in Pakistan’s
GDP.

POVERTY AND UNEMPLOYMENT:

The poverty and unemployment estimates by the Pakistan Institute of Development

Economics (PIDE) are even more dire than those of Pasha and Kardar. PIDE estimates that
poverty rate will increase from around 23.4 percent to nearly 59 percent (an additional 75
million people), bringing the total population living below poverty line to 125 million people.
In light of the looming recession and likely negative GDP growth, this scenario could be a
conservative estimate.

INTEREST RATE:

Pakistani businesses had long been demanding a cut in the interest rate, since the high rate
of interest was an impediment to doing business. The SBP governor had previously been
opposed to the move because of high inflation, but the outbreak of COVID-19 on 16
March 2020 forced the SBP to cut the interest rate by 75 basis points. The rate was
reduced by another 150 basis points a week later, and by 200 basis points more three
weeks after that . Businesses have demanded the rate to be further reduced by four to five
percent.
 MEASURES TAKEN BY PAKISTAN

RELIEF PACKAGE BY GOVERNMENT:

Pakistan’s government announced a relief package worth PKR 1.2 trillion on 24 March
2020. Of this, PKR 150 billion was allocated for direct benefit transfer to the most
vulnerable families, with each family receiving PKR 3,000/month for four months,
disbursed upfront as a single payment of PKR 12,000. PKR 100 billion was allocated to
SMEs and agricultural loans towards deferred payments; PKR 280 to wheat procurement;
PKR 200 billion to the labour force; PKR 75 billion to reduce the prices of petroleum
products; and PKR 100 billion for the export sector, in lieu of the refunds due to them.
While this package seems impressive, many of the items included under it were already part
of the government budget. For example, the government is obligated to provide refunds to
exporters but had been postponing it. Similarly, wheat procurement is supposed to be done
annually as part of a government undertaking and taking loans from banks under
“commodity operations” is par for the course. Furthermore, the income support programme
for the most vulnerable sections had already been included in the FY20 Budget, but the
bulk of it remained unutilised, which was now being presented as a separate allocation

RELIEF PACKAGE BY SBP:

The SBP has formulated a slew of measures in response to the pandemic, of which the
most significant one was to reduce the benchmark policy rate from 13.25 percent to nine
percent. Pakistani businesses had long been demanding a cut in the interest rate, since the
high rate of interest was an impediment to doing business. The SBP governor had
previously been opposed to the move because of high inflation, but the outbreak of
COVID-19 on 16 March 2020 forced the SBP to cut the interest rate by 75 basis points.
The rate was reduced by another 150 basis points a week later, and by 200 basis points
more three weeks after that. Businesses have demanded the rate to be further reduced by
four to five percent. While this move will provide temporary relief, it is unclear whether it
will stimulate economic activity despite the pandemic, and if old stimulus tools will work
in such an unusual situation. For example, top economists have already questioned the
efficacy of the Pakistani government’s package for the construction industry in
kickstarting economic activity. Members of the construction industry, too, remain
sceptical.

IMF, WORLD BANK PROJECTIONS

The COVID-19 (coronavirus) pandemic has taken a drastic human toll, and the economic and social
impacts of the pandemic are reverberating globally. Through a combination of new projects,
restructuring and emergency components of existing projects, and deployment of our disaster finance
instruments.

The global economy is projected to grow 6.0 percent in 2021 and 4.9 percent in 2022.The
2021 global forecast is unchanged from the April 2021 WEO, but with offsetting revisions.
Prospects for emerging market and developing economies have been marked down for 2021,
especially for Emerging Asia. By contrast, the forecast for advanced economies is revised up.
These revisions reflect pandemic developments and changes in policy support. The 0.5
percentage-point upgrade for 2022 derives largely from the forecast upgrade for advanced
economies, particularly the United States, reflecting the anticipated legislation of additional
fiscal support in the second half of 2021 and improved health metrics more broadly across the
group.

ANALYSIS

Pakistan can face catastrophic consequences if the looming new trade crisis hits its shores in
case of the second wave of COVID-19 since about 50% of Pakistan’s exports are shipped to
countries most affected by COVID-19. Control actions like restrictions on transportation, less
labor mobility, and closure of workplaces for 3 months will account for a decline of $6
billion or 2.24 percentage points of the Pakistani GDP. Production (Supply) shock accounts
for almost $3.5 billion loss in Pakistani Exports of Textile and apparels.

Textile and apparels are Pakistan’s top exported items and almost 40 percent of Pakistani
total output of Textile and Apparel is exported to the Rest of the World. Pakistani exporters
in this global pandemic should focus on shifting towards the production of personal
protection equipment and face masks. The government must facilitate exporters by easing
their business constraints and make sure that there are no supply chain disruptions across the
sectors.