Economic activity in Pakistan worsened notably in the fiscal year 2020 due to COVID-19, recording a negative growth of 0.5 percent.
However, activity rebounded strongly in the fiscal year 2021 with growth preliminary estimated at 3.9 percent, says the International Monetary Fund (IMF).
The IMF in its updated report, “Policy Actions Taken by Countries,” which reviewed various steps Pakistan has taken to deal with the COVID-19 crisis, stated that in mid-March 2021, the third wave of infections started to emerge, with a steep rise in the number of cases and the positivity rate (exceeding 5,000 daily cases and 10 percent in the second half of April 2021, respectively).
More recently, after Eid celebrations in mid-May 2021, indicators point to a moderation in the rate of infection, with the number of new daily cases falling below 3,000 and the positivity rate falling below five percent.
It further stated that in mid-May 2021, authorities further strengthened restrictions, specifically for the week-long Eid celebrations. New measures consisted of banning inter-city transport, imposing lockdowns on markets, businesses, restaurants, parks, banning religious processions, and limiting the number of inbound flights for two weeks.
These restrictions have been mostly lifted by the end of May 2021, with the resumption of business activities and transportation.
The government of Pakistan is targeting to vaccinate 70 million people by the end of 2021 and has fully vaccinated 2.1 million people as of June 2, 2021, and partially vaccinated 3.6 million people.
The vaccination campaign is being supported by the COVAX facility and by the World Bank and the Asian Development Bank, who will provide:
- Funding to procure additional vaccines and medical equipment
- Technical assistance on issues related to procurement, distribution, and storage of the vaccine, and on operational and supply chain management.
Given the delays in the supplies through the COVAX facility, the government is allocating funds to procure vaccines from China and started rolling out ‘PakVac’ – a locally produced vaccine developed by China’s single-shot vaccine producer ‘CanSino.’
The government has also allowed private laboratories to import and deliver vaccines (namely Sputnik V vaccine since April 2021), it added.
The report stated that the State Bank of Pakistan (SBP) has expanded the scope of existing refinancing facilities and introduced three new ones in 2020 to:
- Support hospitals and medical centers to purchase COVID-19-related equipment (46 hospitals, Rs. 12.6 billion, to date).
- Stimulate investment in new manufacturing plants and machinery, as well as modernization and expansion of existing projects (628 new projects, Rs. 436 billion, to date, ended by March 2021).
- Incentivize businesses to avoid laying off their workers during the pandemic (2,958 firms, Rs. 238 billion, to date).
These facilities had been extended beyond their original deadline of June 2020 to September or December 2020. The schemes have now largely expired.
Furthermore, the SBP introduced temporary regulatory measures to maintain banking system soundness and sustain economic activity. These include:
- Reducing the capital conservation buffer by 100 basis points to 1.5 percent.
- Increasing the regulatory limit on the extension of credit to SMEs by 44 percent to Rs 180 million.
- Relaxing the debt burden ratio for consumer loans from 50 percent to 60 percent.
- Allowing banks to defer clients’ payment of principal on loan obligations by one year (Rs. 657 billion being deferred to date).
- Relaxing regulatory criteria for restructured loans for borrowers who require relief beyond the extension of principal repayment for one year.
- Suspending bank dividends for the first two quarters of 2020 to shore up the capital.
The SBP has also introduced mandatory targets for banks to ensure loans to construction activities account for at least 5 percent of the private sector portfolios by December 2021, the report noted.