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| The Coronavirus lockdown has had a major negative impact on Pakistan's entire economy can the nation sustain such lockdown for much longer? |
As the global economy comes to a standstill, a question that dominates the headlines in Pakistan is whether the country's economy can afford a lockdown. Although analysts weigh the costs and benefits of such a move, it is first necessary to understand the economic implications of the current situation before attempting to present a solution.
GDP value
Reviewing Pakistan's economic situation from 2019 to 2020 it is worth mentioning that despite the major economic impact of Coronavirus. The agriculture industry still experienced moderate growth.
This is significant as the sector accounts for about 20% of Pakistan's gross domestic product (GDP). Its growth rate is projected to be 3.7% and will exceed the target of 3.5% as envisaged in the Annual Plan 2019-20.
This is mainly due to the reforms undertaken by the Pakistan Tehreek-e-Insaf (PTI) government in the agricultural sector, particularly in the livestock sub-sector. However, the manufacturing sector, which is around 13.5% of GDP, may show a growth of 5.7% compared to the annual growth target of 2.5% and a decline in its growth against negative growth (-0.27%) in 2018 to 2019.
This is mainly due to the closure of several factories and mills across the country. In the region, only food and drug manufacturers continue their operations during the lockdown.
The power and gas distribution sector is projected to grow by 0.8% against the target of 1.5% plan. In the construction sector, slower growth of 0.1% is projected against the target of 1.5%. In the wholesale and retail trade sector, there will be a slower growth of 1.3% compared to the targeted growth of 3.9%. The transport, storage, and communications sector is projected to show a negative growth rate (-0.7%) against the target of 3.5%.
The finance and insurance sectors will also experience a slowdown with a growth of 2.8% against the target of 6.5%. The general government sector will achieve 6.0% growth, thanks to an increase in health and relief related activities. However, the private services sector will show a growth of 6.3% against the target of 7.1%. Naturally, the tourism sector will also be adversely affected.
The GDP growth for 2019-20 is estimated to be around 1.1% as compared to the annual plan target of 4.0%, and a growth rate of 3.3% achieved in the previous year i.e. 2018-19.
B.O.P
According to government sources, exports for 2019-20 are projected to fall by $ 4 billion to the planned target of $ 26.2187 billion. However, imports will exceed the $ 53.664 billion target due to greater reliance on medical equipment imports.
Consequently, the trade deficit is expected to be wider. Due to the slowdown of the global economy and rising unemployment of foreign Pakistanis, there will be a possibility of a sharp decline in remittances of workers. However, aid and relief packages are likely to flow from the Middle East. The overall current account deficit is projected to be at a higher level than the 3% envisaged in the Annual Plan and the 5% achieved in 2018-19, somewhere between 6-6.5% of GDP.
Tax Revenue
On the fiscal side, tax revenue for the Federal Board of Revenue (FBR) projected 2019 to 2020 will be in the ballpark of Rs 4 trillion as compared to the target of Rs 5 trillion. On the expenditure side, the current expenditure is expected to increase substantially due to the heavy burden of subsidies and relief funds. Therefore, funding of several ongoing public sector projects can be diverted to relief programs. This can lead to an expansion of the fiscal deficit.
Due to the steep decline in economic activity, massive unemployment, economic uncertainty, the negative balance of payments, and tight fiscal conditions, there will be a medium-term slowdown for three to five months.
Additionally, given the 9% interest rate reduction, there will be less investment, less economic growth, decreased per capita income, more poverty, and rising inflation; Eventually leaving less cushion for both savings and consumption, and more unemployment. The economy will be in a precarious state due to the economic downturn and worldwide recession. It is estimated that about 50–55% will be adversely affected.
The government has estimated that 18.5 million people could potentially lose their jobs, and the economy could suffer a loss of Rs 2 lakh trillion. As stated in the Annual Plan 2019-20, during the five-year period from 2013-2017, around 3.66 million Pakistani workers went abroad to find jobs. Even if 60% of these people become unemployed due to global economic decline, it will lead to a huge drop in remittances sent to Pakistan.
Economic measures
To get the economy back on the right track, Pakistan may have to take long-term loans from China to create jobs, build infrastructure, cover the cost of healthcare facilities, as well as the infrastructure, agreed under China Projects can be completed on time. Pakistan Economic Corridor (CPEC).
Currently, to deal with the situation, an economic relief package has been approved by Prime Minister Imran Khan. Of this, 2,200 billion ($ 1.25 billion) has been assigned to wheat procurement for the low-income group, Rs.280 billion ($ 1.76 billion). There is also a package of 100 billion rupees to support the agriculture sector and small industries. The Prime Minister has announced that a stipend of Rs 12,000 per family will be provided to around ten million people. While donating relief amount to the affected poor and marginalized persons, a monitoring mechanism should be put in place to ensure transparency.
The International Monetary Fund (IMF) is providing $ 1.386 billion to the government under its Rapid Financing Instrument. It should be noted here that Pakistan is a long-time recipient of IMF assistance and has already been a part of the $ 6 billion IMF program since last year. According to the IMF, Pakistan must regain its goals to end the crisis, including restoring its public finances and governance.
Expectations of aid from the US as well as aid from the International Monetary Fund, such as the IMF, World Bank, Islamic Development Bank and Asian Development Bank (ADB), may decline by 1414-1-150 per dollar. Japan and other developed countries. Similarly, the state of foreign currency liquidity can also be maintained, which can serve to benefit the country. The state should also pay special attention to the upliftment of small-scale manufacturers (SMMs) and small and medium enterprises (SMEs). Undoubtedly, Kovid-19 has given rise to several macroeconomic uncertainties. In the wake of this financial crisis, the government will have to take some bold decisions during and after the Kovid-19 crisis.
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