The World Bank has warned that Pakistan’s economy can shrink 1.3% to 2.2% within the current yr whereas the International money (IMF) says the economy may contract 1.5%.
The depository financial institution of Pakistan (SBP) also believes all growth indicators will need to be revised downwards.
These are really very troubling times for the state of 220 million already littered with a spread of structural macroeconomic issues. But there’s a solacement.
International creditors are willing to roll over Pakistan’s external debt. this suggests the country will need to put aside a way lesser amount of interchange for debt servicing than before.
The SBP is ready to manage interchange reserves with the relative easy mind. The rupee might not witness a free fall, whether or not exports and remittances don’t grow, foreign direct investment doesn’t devour pace and outflows of hot money or investments made by foreigners in quick assets continue.
Exports and remittances won’t grow during the ultimate quarter of the present yr are almost certain. The foreign direct investment won’t pour in is additionally almost certain. The country is already witnessing evaporation of foreign investment from once high-yielding treasury bills and once-booming stocks.
These things are certain. what’s uncertain though and to this point, only a ray of hope is that the possibility of external debt rollovers. So, the Pakistan Tehreek-e-Insaf (PTI) government must not lower its guards. It must not!
That is why the govt angst is visible. Perhaps, the govt has realised that it now has no room to further procrastinate and must develop a wonderfully coordinated approach towards fixing the economic ills.
Such an approach requires taking all stakeholders on board, identifying with their assistance all problem areas of the economy and dealing on them diligently with specialising in immediate results.
Impact on exports
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Mian Anjum Nisar says he’s most perturbed by the cancellation of export orders by many countries. He hopes that with the recent easing of lockdown, exports of some sectors will start returning to normal levels and might even show an increasing trend.
Karachi Chamber of Commerce and Industry President Agha Shahab isn’t that optimistic. “Since lockdown still remains in situ aside from some exempted sectors, almost 90% business activities have come to a halt, wreaking havoc everywhere across the commercial spectrum and hitting SMEs very badly,” he says.
It is unquestionably that Pakistan’s export earnings would decline sharply within the half-moon (Apr-Jun) of FY20 as many large-scale manufacturing (LSM) industries have still not started operating thanks to the restrictions.
This sadly coincides with an already declining trend in LSM output. Pakistan Bureau of Statistics has reported about 3.4% year-on-year decline in LSM production for Jul-Jan 2019-20. For the total yr, the negative growth will obviously be much higher thanks to the lockdown effect.
In Jul-Mar FY20, Pakistan’s exports increased by just 2.23% to $17.45 billion and imports declined 14.4% to $34.81 billion. Even this nominal growth in exports might not continue, though imports may still slide both thanks to depressed demand and global oil price crash to multi-year lows.
Businessmen say exports of Basmati rice, horticulture, meat and meat products may show an increasing trend, though. “We expect additional earnings of $200 to $300 million this year not thanks to increasing in rice production but thanks to ascending prices within the international market, taking exports towards $2.2 to $2.3 billion,” says Shahjahan Malik, Chairman of the Rice Exporters Association of Pakistan.
When asked about exports during the lockdown, All Pakistan Fruit and Vegetable Exporters and Importers Association Patron-in-Chief Abdul Waheed says within the period of time of the lockdown exporters faced some difficulties regarding documentation in Indonesia and Russia.
However, he acknowledges the role of Pakistani embassies there that managed to induce the scanned copies of documents accepted, leading to restart of shipments with a lag of about 90 days in payments.
Pakistan’s agriculture sector, which has been spared of lockdown restrictions, offers prospects for modest growth. If agriculture grows even modestly, the economic woes unleashed by Covid-19 and also the ensuing lockdowns are somewhat addressed.
Policymakers must sketch a correct attempt to absorb more jobless people within the agriculture and livestock sectors, and to some extent in construction. The blanket amnesty scheme introduced for investment within the construction sector may boost activity within the sector even within the midst of lockdown.
As services and manufacturing sectors are terribly impacted, short-term export enhancement measures launched by the SBP and also the government are often expected to complete their output loss, but only marginally.
The decline in international oil prices to multi-year lows could be a blessing in disguise for Pakistan. it’s going to bring some relief to the balance of payments. But reasons behind these plummeting prices and also the economic slowdown are damaging for remittances from overseas Pakistanis.
Massive layoffs of workers in Gulf countries were being reported even before the outbreak of the Covid-19 pandemic and now joblessness at historic highs within u. s. have made the inflow of remittances all the more vulnerable for Pakistan.
Since 54% of remittances come from Gulf Cooperation Council (GCC) countries where quite 4 million Pakistanis live, the layoff of workers in GCC states within the post-pandemic period will deal a giant blow to remittances.
Media reports say over 10,000 people have already lost their jobs only within the UAE. Probably, Asian country and 4 other GCC countries too will resort to massive layoffs, as their transport, construction and services sectors are hit hard.
In the case of the US from where 15.6% of remittances come to Pakistan, the prospects are quite bleak. Some independent US policy institutes are projecting up to 16% unemployment and quite 15 million job losses this year. this can definitely reduce Pakistan’s remittances from there.
Same as that the case for European countries. Although remittances from the EU in March showed a modest 3.8% increase, within the current quarter the country must be prepared to determine a giant plunge as Covid-19 has devastated major European economies.