The Covid-19 pandemic has affected about 210 countries with more than 166 million confirmed cases and over 3.44 million deaths across the globe including Pakistan. Till the last week of May 2021, the overall number of global coronavirus cases has surpassed the 165.2 million mark, while the deaths have increased to over 3.42 million. The US accounted for the world’s highest number of cases and deaths at 33,055,801 and 588,531 respectively. India came in second place with 25,772,440 infections and 287,122 deaths. Brazil is on third position in the list of the worst affected countries. It has more than 15,894,094 cases with 444,094 confirmed deaths.
Keeping in view the Pakistan’s population density, health care capacityand environmental factors with more than 900,000 infected people and about 20,200 plus mortalities, community transmission of the coronavirus happened rapidly. During the month of May 2021, the daily average death rate is near 125/day and daily confirmed cases have been above 4500. While the national positivity rate is +10%. However, the highly populated cities show much higher positivity rates like Faisalabad 18%, Mardan 17%, Peshawar 16%, Karachi 14%, Lahore 13%, Multan 10.5% etc. Due to this rise in positive cases and death figures the government has announced re-imposition of the following social restrictions to avoid huge congregations during the end of Ramazan festivities: complete lockdown in all the larger cities from 8 May to 16 May. All the local markets, Malls, etc. were closed down. All types of educational institutions were closed till 23 May. All in-door and out-door eateries were also closed (with limited takeaway/home delivery services). Also a policy of 50% work from home was imposed. Travelling with-in or out of cites was also banned.
Pakistan’s economy before the covid-19
Pakistan’s economy was struggling before Covid-19, however, there was no visible risk of economy collapse. Yet, the pandemic has harshly impacted the Pakistan’s economy. In July 2019, due double deficit problems, Pakistan has to pursue an Extended Fund Facility program with the IMF. The government was successful reducing the current account deficit by 70% through controlling the imports and also devaluing the currency.But, in the result of that the economic growth falls down from 5.6% percent in 2018 to 3.3% in 2019. At that period of time, the experts were expecting a further fall of 2.4%.
In January 2020, the finance ministry issued a statement proclaimingthe recovery of economy by end of FY2020 after adjustment path and stabilization process. The statement noted several achievements in the first five months of FY2020. For example the CAD dropped by nearly 73%, fiscal deficit was at 1.6% of GDP, primary balance 0.3% of GDP. In December 2019, Moody’s upgraded Pakistan’s credit outlook from negative to stable. In its second-quarter report on the state of the country’s economy, the SBP announced notable improvements in the economy which was due to cumulative effect of stabilization and regulatory measures taken during the last one year. However, in fact, the 3.3% growth claimed by the government in FY19 was actually 1.9% which was further fall down to 1.2% in FY20.The increase in foreign exchange reserves was largely based on borrowed money, such as bailout loans from China, Saudi Arabia and the UAE. Meanwhile, there was a steady rise in inflation. The data released by the Pakistan Bureau of Statistics shows that the year-on-year In January 2019, the inflation was 5.6% which was escalated to 14.6 % in January 2020; which was largely due to the disruption and dislocation caused by the pandemic.
Impact due to lockdown
According to the estimates, an economic loss of about 10%, i.e. 1.1 trillion PKR, will be observed in the FY 2021 due to lockdowns, social distancing and travel restrictions and impacted the livelihoods of nearly 7.15 million workers. Consequently, a rise of 33.7% in poverty level. There were many negative impacts on primary, secondary and tertiary sectors of the economy such as agriculture, education and health care are observed. With current economic crisis, fragile health care system and critical health literacy, a well-managed and coordinated action plan is required from all segments of the society led by the public authorities. The total debt and liabilities increased from PKR 29.9 trillion in FY18 to PKR 41.5 trillion in September 2019. Additionally, public debt as a percentage of revenue went up from 447 percent to 667 percent in the span of one year, and debt servicing as a percentage of revenue increased from 37.3 percent to 62.5 percent between FY18 and FY19. According to the IMF’s estimates, Pakistan’s external debt would reach US$ 113 billion by the end of FY20 and that the country would need over US$ 27 billion to finance its external requirements.
In the event of a significant outbreak of Covid-19, the loss would amount to approximately US$ 5 billion, the GDP would contract by 1.57 percent, and nearly a million people would lose their jobs. According to the Asian Development Bank (ADB), Pakistan’s economy would lose around US$ 16 million in the best-case scenario and around US$ 61 million in the worst-case scenario. By the third week of March, the ADB had drastically revised its estimates to a US$ 415 million loss in the best-case scenario, and a US $6.6–17 billion loss in case of significant outbreak, with the loss of employment ranging from 1.2 million to 3.2 million jobs and the GDP growth contracting by two to five percent.
In December 2019, Moody’s projected a GDP growth for FY20 to 2.9% percent. However, by mid-March, this was reduced to 2.5% percent because of the higher debt burden and weaker fiscal balances of the governmentand by end-March, the number was down to 2%. For the same period ADB’s projections was 2.6%. The World Bank was estimating a 2.0% GDP growth in GDP whereas IMF was at 1.5%.
The trade disruptions caused by Covid-19 and its impact on Pakistan’s GDP had worked out as 20% percent decline in exports and imports. Almost 70 percent of Pakistan’s imports constitute raw materials, intermediate goods, and capital goods; around 60 percent of exports are textiles, which depend heavily on imported raw materials. Therefore, a decline in imports will, in turn, affect both exports and growth.
The prospect of reduced remittances by overseas Pakistanis further adds to the crisis. Remittances account for approximately 8% of the country’s GDP which is sometimes more than it’s exports. Covid-19 is expected to have a severe impact on the remittances, especially from the Middle East. Pakistan received record $23 billion in remittances in 2019-20 while the inflows jumped by 51 per cent year-on-year to $2.466 billion in June. Remittances from overseas Pakistanis during December 2020 rose by 16.2 per cent year-on-year to $2.436 billion, compared to $2.097 billion in December 2019, clocking in above $2 billion mark for the seventh consecutive month. On a cumulative basis, inflows during six months of the current financial year have increased by 24.9 percent to $14.2 billion, compared to $11.372 billion during the same period last year.The IMF has estimated a drop of over US$ 5 billion in FY20 and FY21. Together with the fall in exports, this will significantly impact Pakistan’s external finances.Given the decline in imports, the IMF has projected a manageable CAD of around 1.7 percent in FY20 and 2.4 percent in FY21. However, these CAD calculations will be rendered inaccurate if the remittances fall below current projections.
A relief package worth PKR 1.2 trillion (2.9 percent of GDP) was announced by the federal government on March 24, of which PKR 715 billion (1.7 percent of GDP) was executed in FY 2020.
Key measures include:
- Elimination of import duties on emergency health equipment (recently extended until December 2020);
- Cash transfers to 6.2 million daily wage workers (PKR 75 billion);
- Cash transfers to more than 12 million low-income families (PKR 150 billion);
- Accelerated tax refunds to exporters (PKR 100 billion); and
- Support to SMEs and the agriculture sector (PKR 100 billion) in the form of power bill deferment, bank lending, as well as subsidies and tax incentives.
The economic package also earmarked resources for an accelerated procurement of wheat (PKR 280 billion), financial support to utility stores (PKR 50 billion), a reduction in regulated fuel prices (with a benefit for end consumers estimated at PKR 70 billion), support for health and food supplies (PKR 15 billion), electricity bill payments relief (PKR 110 billion), an emergency contingency fund (PKR 100 billion), and a transfer to the National Disaster Management Authority (NDMA) for the purchase of Covid-19 related equipment (PKR 25 billion). The unexecuted part of the relief package is being carried forward to FY2021. In addition, the FY 2021 budget includes further increases in health and social spending, tariff and custom duty reductions on food items, an allocation for ‘Covid-19 Responsive and Other Natural Calamities Control Program’ (PKR 70 billion), a housing package to subsidize mortgages (PKR 30 billion), as well as the provision of tax incentives to the construction sector (retail and cement companies), which got extended in the context of the second wave to the end of December 2021.
Trade and industry
The latest data by the Pakistan Bureau of Statistics reveals that large scale manufacturing (LSM), which accounts for nearly 80 percent of total manufacturing has shown a negative 3 percent growth in the first seven months of FY20. The petroleum sector has witnessed the steepest decline of around 14 percent. According to the Pakistan Bureau of Statistics, LSM output in March 2020 declined by nearly 23 percent year-on-year and 22 percent as compared to February 2020.
Pakistan’s Ministry of Aviation has estimated that the sector could lose up to PKR 25 billion in just two weeks of lockdown.The Pakistan Railways was losing PKR 1 billion per week due to the lockdown. Amongst the worst hit is the automobile sector, with sales down by nearly 50 percent. The pharmaceutical sector has seen a drop in sales by 50 percent and an increase in the cost of raw material (mostly imported from China) by 300 percent. In the telecom sector, too, revenues have fallen by 10-15 percent. Much of the telecom revenue came from pre-paid cards, which are not being recharged as frequently, given the restrictions on movement.
It is estimated that a one-day nationwide shutdown costs the economy over PKR 100 billion per day.
Regulatory measures by SBP
The SBP has introduced further to facilitate the import of Covid-19-related medical equipment and medicine. These includes:
- Lifting the limit on import advance payments and import on open account.
- Allowing banks to approve an Electronic Import Form (EIF) for the import of equipment donated by international donor agencies and foreign governments. SBP has also relaxed the condition of 100 percent cash margin requirement on import of certain raw materials to support the manufacturing and industrial sectors.
The pandemic gave Pakistan an opportunity to obtain debt relief, particularly for its external debt, at US$ 107 billion or 38 percent. Currently, Pakistan is obligated to return around US$ 28 billion to creditors in the next three years. Once again, the country is seeking to obtain loan write-offs; short of that, it hopes to get around 50 percent (US$ 14 billion) of loans rolled over. Already, Pakistan has received US$ 9 billion in bailouts in 2019, from countries such as China, Saudi Arabia, UAE and Qatar.
Government rescue package
In light of the massive economic disruption, Pakistan’s government announced a rescue 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.