Earlier we had share our opinion on the economic impact of coronavirus in Pakistan. The economic situation is changing rapidly given the fact that the world has not been able to contain the coronavirus. Accordingly, we have decided to update our readers about the economic impact of COVID-19 on Pakistan and its direction in light of the estimations of major economic indicators.
The coronavirus disease (COVID-19) has brought the world on its knees. Approximately 40% of the global population is under lock-down. Resultantly, the economic activity has hit rock bottom and some even reckon it as global recession. Businesses around the globe have closed down. Major economic sectors such as tourism industry, aviation industry, sport and entertainment industry have disappeared in the last 3 – 4 months. To know more about the losses incurred by these industries, please click here. We also saw an unprecedented event where the West Texas Intermediary (WTI) slumped to negative USD 40 per barrel.
The World Health Organization (WHO) has declared the disease as pandemic. More than 200 countries around the world have been affected by the COVID-19. Pakistan is also one of the countries where relatively less cases have been detected. Fortunately, death in Pakistan have also been on a lower side. According to officials sources, as of 2nd May 2020, around 18,770 cases have been confirmed while 432 unlucky people have died fighting this hidden enemy.
Various international financial agencies such as International Monetary Fund (IMF), World Bank (WB), and Asian Development Bank (ADB) etc. working with Pakistan have kept a close eye on the economic situation in Pakistan and they have been sharing their assessment on the emerging economic situation.
So what we should expect ahead. The estimation made by these institutions have been summarized below to have a clear picture of the economic impact and economic direction of Pakistan after COVID-19 can be assessed in light of the quantifiable major economic indicators.
GDP Growth
IMF: the IMF estimates that Pakistan’s real GDP would shrink by 1.5% in the FY 2019-20. However, in the subsequent year the GDP will see a growth of 2.0%.
WB: Similar to IMF, World Bank has projected 1.3% contraction in the GDP for the FY 2019-20. This will shrink to 0.9% in FY 2020-21.
ADB: ADB expects positive outlook as with a growth of 2.6% in FY 2019-20 and 3.2% in FY 2020-21.
Inflation
IMF: According to IMF forecast, inflation will reach double digit at 11.1 % in the current year. However, in the next year it will reduce to 8.0% in FY 2020-21.
WB: As per WB, the inflation would remain around 11.8% in the FY 2019-20 and 9.5% during FY 2020-21.
ADB: Likewise, ADB also projects a double digit inflation at 11.5% in the current fiscal year. In the next year inflation will shrink to 8.3%.
Fiscal Deficit
The fiscal deficit may widen in the upcoming years due to reduction in revenue collection and government spending.
IMF: According to IMF, the budget deficit would be around 9.2% of GDP in the ongoing fiscal year. However, it is expected that the situation will improve to 6.5% of GDP in the next fiscal year.
WB: WB estimates a similar budget deficit of around 9.5% of the GDP for the current fiscal year. A slight reduction to 8.7% is expected in the following year.
ADB: ADB estimates fiscal deficit to be around 8.0% the GDP in FY 2019-20.
Current Account Deficit (CAD)
IMF: The IMF estimates that the current account deficit will remain around 1.7% in the current fiscal year. Decrease is due to falling imports and plunge in global oil prices. However, the CAD may widen to 2.4% of GDP in the subsequent year.
WB: WB foresees a similar trend as it estimates CAD to be around 1.9% of GDP.
ADB: ADB estimates CAD to narrow down to 2.8% of GDP in FY 2019-20. During the next year, CAD may further reduce to 2.4% of GDP.
GDP Per Capita
IMF: The IMF estimates a reduction of 3.4% in the per capita income of household in the FY 2019-20. However, in the next fiscal year 2020-21, it will increase by 0.1%.
ADB: ADB estimates a meager increase of 0.6% in the current year and 1.2% increase in the following year.
Government Debt
IMF: The current debt portfolio of Pakistan stand at 84% of the GDP. IMF expects it to increase to 89.9% by the end of the current fiscal year. However, a slight reduction in the following year is estimated reaching 87.8% of GDP.
WB: WB projected that Debt to GDP ratio will reach 90.6% in FY 2019-20 and 91.8% in FY 2021.
Remittances
The IMF estimates a reduction of 4.8% in the remittance receipts during the current year. Further, remittances may reduce by 1.3% in the subsequent year. The decrease is primarily due to economic inactivity in the middle east and rest of the world.
Exports
According to assessment made by IMF, the exports will reduce by 4.6% in the fiscal year 2019-20. However, they will rebound with a positive growth of 5.4% in the following year.
Imports
The IMF estimates a drastic reduction in the import bill by 13.9% while an increase of 9.8% in succeeding year.
Almost all of the economic indicator shows a negative trend especially in the current fiscal year. As the economic indicators will remain negative in the near future, it will be very hard to manage the situation. However, we may witness a positive outlook by the end of FY 2020-21. However, the recovery in FY 2020-21 depends on the success of efforts to contain the spread of this pandemic and to build an upward economic direction of Pakistan after COVID-19.
The authorities will have to address various major issue in addition to the mentioned above such as increasing unemployment, rising poverty, shrinking aggregate demand, disruption in supply, rejuvenation of the investor`s confidence
Earlier, the government of Pakistan had announced a stimulus package of Rs. 1.2 trillion to resurrect economic activity in the country.
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