Effects Of COVID-19 On Pakistan’s Economy
The novel coronavirus, which emerged from Wuhan (China), has by now infected 26.4 million people globally according to WHO. The virus has had strong negative effects not just on public health but also on the world economy. Pakistan is a developing country and, for this reason, its economy has suffered an especially hard hit. I have compiled a few statistics which help to give us an overview of Pakistan’s economic situation.
The GDP growth for FY2019-2020 was measured at 3%. This year’s real GDP growth rate is expected to be nearly stagnant according to World Bank projections (1.1%), even lower than earlier projections of 2.4%. This will have a serious impact on the labor market and population under the poverty line.
Globally, up to 25 million employees are expected to be affected due to the pandemic, according to the International Labour Organisation (ILO). In Pakistan, daily wagers constitute the largest segment of the workforce, and 29.5% of total population is below the poverty line. Human Rights Watch (HRW) fears that daily wagers in the service sector (comprising about 47% of labour force in this sector, including in weddings hall, hotels etc) would be the worst-hit economically, running a risk of sliding below the poverty line.
According to the World Bank data, Pakistan has a population of around 75 million workers. A report by the Pakistan Institute of Development Economics (PIDE) on labour market and COVID-19 shows that as a consequence of this pandemic and lockdown, 19 to 20 million people will lose their jobs in different areas.
Coronavirus will have a multidimensional effect on Pakistan’s macroeconomy. It will severely impact taxation, trade (especially exports), stock market, foreign exchange reserves, industry (particularly textile sector) and many others. Any economy’s budget depends on its tax revenue. But the government is as of yet unsure of the latest tax receipts because of the COVID-19 pandemic. Tax revenue is expected to decline sharply and it is likely that the FBR will not reach its updated Rs 5 trillion tax revenue goal. Just before the COVID-19 outbreak, FBR faced a significant income deficit. The annual target has been reduced from Rs 5,550 billion to Rs 5,238 billion. The FBR predicts major revenue losses in a range of Rs 300 – 380 billion from March to June in the present unstable economic situation.
Meanwhile, the Pakistan Stock Exchange 100 Index decreased by 25% in March 2020. As the number of infected persons in Pakistan rises, the investors are anxious about a dump and exit strategy. However, in 100 indexes, it now seems to be increasing.
The economy has gone into a recessionary phase due to the outbreak of COVID-19. This pandemic will affect the foreign exchange reserves. According to the State Bank, estimated foreign exchange reserves declined by USD 804 million on a weekend in March 2020 to USD 11.2 billion. This decline is due to the transfer of public foreign debt and other official transactions of USD 441 million. Total liquid foreign exchange reserves amounted to USD 17,387 billion in March 2020. Due to the outbreak of COVID-19, the foreign exchange balance of Pakistan plummeted more than 12% in just three weeks. Due to this, the total net inflow currently amounts to USD 1.15 billion. Pakistan has only one way to accumulate foreign exchange reserves: by increasing exports and decreasing imports and achieving a current account surplus. But due to this global outbreak, Pakistan’s trade has decreased, exports from Pakistan may fall to USD 2.67 billion. In March-June exports can decline by a minimum of 25% and a maximum of 50%. This scenario will trigger severe liquidity problems for exporters.
Pakistan’s major export is from the textile sector and a small part from manufacturing. The COVID-19 has negatively impacted Pakistan’s manufacturing sector, which would lead to a decline in its total GDP share. The Pakistani government should give assistance and incentives to the manufacturing sector during this pandemic. As a consequence of the COVID-19 outbreak, many textile factories have had to either partially or totally shut down their production.
This pandemic has impacted the economy as a whole and put Pakistan’s economy in a recessionary phase. Many people have lost their jobs and plunged into poverty. Although the government of Pakistan followed the best containment measures, like smart lockdowns, still there is a need to work on lots of things. I hope our government and other vital institutions prove to be up to the task.