The coronavirus pandemic has hit Pakistan’s economy hard like the rest of the world, but the post-crisis period during the next fiscal year will be even more painful as the country will face $19 billion of debt payment, including principal and interest, a big drop in remittances and exports, and a worst-case scenario of up to 5 million job losses, according to an economics expert.
Zafar-ul-Hassan Almas, Chief Macroeconomics, Planning Commission of Pakistan, speaking at a webinar titled ‘Economic impact of COVID-19 on Pakistan’ highlighted the macroeconomic challenges facing the country due to the pandemic and how to cope with these issues. It was organized by Institute of Policy Studies, Islamabad as part of its webinar series ‘COVID-19: Global Challenge, National Response’ initiated to cover different aspects of the coronavirus pandemic. The event was chaired by Dr Waqar Masood Khan, former federal finance secretary and member of IPS Academic Council.
Almas said during the post-coronavirus period countries would launch policies to protect their interests that would adversely affect global trade and employment opportunities. There would also be problems of liquidity of banks, fiscal space constraints and resetting of IMF program targets.
The expert said the biggest problem for Pakistan is lack of fiscal space. Next year the country has to make payment of $19 billion on account of principal and interest to international creditors. Pakistan will have to arrange the amount from the international market in the form of new loans. However, tightening of financial conditions will complicate the refinancing of external debt.
Almas said exports and remittances have a greater impact on the economy than imports. He said the government was expecting exports worth $24 billion along with around the same amount in remittances this year. However, there will be a sharp downtrend in remittances in the last quarter of the fiscal year as overseas Pakistanis would continue to be made redundant. This is projected to drive remittances down by around $2 billion.
The government has reports that 30,000 Pakistanis have lost jobs in the UAE and other Gulf countries and this number is going to increase. The employment market will not get a boost even in the post-crisis period as it would be a huge challenge to accommodate the returning expats, he added.
Pakistan has a labor force of 63 million out of which 46 million people are employed in the informal sector and are most at risk of job loss. He said even the most cautious estimates put job losses at 3 million.
Almas said the major loss will be in exports and imports with the country taking a hit of $1-1.5 billion in exports. The loss is $1.5-2 billion for one quarter during this financial year but it could increase significantly in the next quarters. Imports are expected to contract by $3-5 billion.
Fortunately, he said, the country is in a comfortable position regarding the current account deficit. The data for March shows a positive impact due to the low oil prices while imports have gone down substantially.
The expert said the major channel for the hit on economy is the drastic fall in domestic demand for energy and goods as consumption has dropped sharply. The closure of industries is also resulting in postponement of investment decisions, he said.
The government estimates that if only the food, pharma and retail sectors are allowed to remain open the GDP could fall to 2 per cent. He said the government was expecting 3.3-3.4 per cent GDP growth before the crisis but now the estimate has been cut to 2-2.8 per cent.
The financial sector may see an increase in non-performing loans and there could be bankruptcies, all of which would also affect the services sector.
Almas said before the crisis the government was expecting to contain the deficit at 7.4-7.5 per cent. It is now expected to hit 9 per cent due to increasing expenditure demand and fall in taxes and non-tax revenues.
On a positive note Almas said every crisis also brings some opportunities. Such prospects could appear in the IT sector as video conferencing and other initiatives would drive demand for new software. In the services sector there is a move towards digitalization and online delivery in both the private and public sectors. Another step in this direction is that the country has started to produce face masks and is seeing innovation in the production of ventilators.
Regarding food security, Almas said this year the government expects the biggest ever wheat crop of 27 million tons. The government has announced that it would procure 8 million tons for next year to ensure food security. The government’s Rs 1,200 billion relief package also includes Rs 280 billion for wheat procurement.
Almas said the next budget will focus on restoring the economy as there will be a plethora of challenges regarding growth, fiscal deficit, and expenditure and revenue losses.
Dr Waqar said the government must focus on providing food assistance to deserving people without resorting to politics. He was critical of the way monetary relief was being distributed to people and said that disbursement should be done through digital platforms.
He was of the view that life would not return to normal for quite some time even after the crisis blows over. There was no chance of positive growth so there would be a huge increase in poverty, he added.
