The Economic Affairs Division (EAD) has stated that due to contraction in economic growth and fall in workers’ remittances, the unemployment in Pakistan will increase leading towards raise in poverty besides tightening of financial conditions, leading to complicated situation of external debt maturity refinancing.
The Policy Analysis and Development Wing of the EAD has reviewed reports of international financial institutions (IFIs) on the Covid-19 and examined its impacts on Pakistan’s economy. The EAD Wing has concluded that the Covid-19 pandemic will have severe impacts on Pakistan’s economy.
It further stated that the IFIs’ reports had not quantified the impacts of macroeconomic conditions on the general public.
“We can foresee that due to contraction in economic growth, fall in worker’s remittances; unemployment in Pakistan will increase leading towards increase in poverty in Pakistan. It will continue to put pressure for increased social safety spending in near future even after combating the pandemic successfully,” the EAD added.
It further stated that the ongoing Covid-19 pandemic underscores the government efforts to strengthening social protection in Pakistan.
The Covid-19 is becoming a major economic crisis, which shuts down almost all economic activities.
The economic challenge faced by Pakistan during the ongoing pandemic consists of
- Contraction in aggregate demand for goods and services;
- Disruption in production activities;
- Massive fall in investors and consumer confidence;
- Substantial reduction in trade volume both domestic and external;
- Lower export receipts weaken external position;
- Tightening of financial conditions leading to complicated situation of external debt maturity refinancing.
Quoting the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB), the EAD stated that public finances were expected to come under significant pressure.
The IMF projected that budget deficit is expected to be -9.2 percent of the GDP in fiscal year 2020 due to decline in tax revenue and increase in public spending to support the health response, social safety nets for the very poor.
The World Bank expects that budget deficit will be -9.5 percent of the GDP in fiscal year 2020, and it will gradually decline to -8.7 percent of the GDP in 2021.
As per the ADB, the fiscal deficit will be 8.0 percent of the GDP in 2020.
According to the EAD analysis, the World Bank projected that the public debt-to-GDP ratio will reach 90.6 percent in fiscal year 2020, and 91.8 percent in 2021.
Additionally, volatility of oil prices and difficulty in rolling-over of bilateral debt from non-traditional donors (China, KSA and UAE) will compound Pakistan’s external risks and contribute to higher financing gaps.
It further stated that the IMF is of the view that fall in oil prices and weaker import demand provide some support to the current account but the Covid-19 shock will have a severe impact on the balance of payments especially declined remittances and exports.
It will result in new external financing needs of about $2 billion in the last quarter of fiscal year 2020.
According to the IMF, Pakistan debt as percentage of GDP will reach to 89.8 percent in FY-2020 and will be slightly reduced to 87.8 percent of GDP in FY-2021.
Pakistan’s public debt is assessed to be sustainable, but risks have increased substantially. The World Bank and the IMF have projected that for the first time since 1950, real GDP growth of Pakistan will be in negative.
Pakistan’s public debt is assessed to be sustainable, but risks have increased substantially. As per IMF projection Pakistan real GDP growth will be 1.5 percent and according to WB it will be 1.3 percent in fiscal year 2020.