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Analysis Coronavirus Economy News

Due To Coronavirus Pakistan’s Economy Will Shrink By 4% Or More, Economists

Leading economists forecast Pakistan Economy could be the hardest hit with a negative growth from 5% to 10%. In an analysis by former Federal Minister and SBP Governor published in Business Recorder, two of the worst economic scenarios are presented. Pakistan Economy would not be able to withstand a major shock, is the key message.

With Moody’s rating agency and EIU forecast of negative global growth in 2020, some economists have suggested that COVID-19 will lead to even worse than the Great Depression. Growth would fall, for example, in China from 6 to -1.5 percent, in India from 6 to 1 percent and in Turkey from 4 to -5 percent growth.

With export orders from developed countries decreasing and massive decline in domestic economic activities, similarly, there is likely to be a decline in the physical inflow of imports into Pakistan of 5 to 10 percent. Aimed at projecting the depth of likely recession, the simulation by leading economists’ measures as to what extent the economy would shrink under the impact of COVID-19.The scenario-1 is relatively relaxing of the impact as opposed to worst case scenario-2. Either way, the following crude possibilities are inescapable if precautionary measures are not taken:

(i) The GDP could fall by 4.6 percent in Scenario – I and by as much as 9.5 percent in Scenario – II in the fourth quarter of 2019-20.

(ii) The rate of inflation is likely to remain relatively low in Scenario- I at 9.6 percent, as high as 16.1 percent in Scenario- II.

(iii) The possible increase in number of unemployed workers could range from 3.1 million to almost 5 million, caused by the likely slowdown of the economy. However, the temporary unemployment resulting from a lockdown/curfew could be of as much as 10.5 million workers, including daily wage and contract/casual workers.

(iv) The number of people who could fall below the poverty line ranges from 9 to 15 million.

(v) The current account deficit could decline by $1824 million. However, in Scenario-II it may worsen by $531 million.

There could be some pressure on the foreign exchange reserves. Already, this process has begun, due to the exit of ‘hot money’. The rise in unemployment will be structural and more persistent in nature. As such, the social protection and anti-poverty initiatives will have to be significantly larger and longer lasting in nature. More effective targeting mechanisms will need to be developed to reach new families falling below the poverty line and the large number of displaced daily income and casual workers.

The economists hope that COVID-19 crisis will allow the government to rethink its strategies and interventions. Strangulated by an IMF programme, the government needs to  considerably increase spending for the social sectors, particularly health and education, for effectively dealing with the impending scale of the COVID-19.


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