Pakistan’s economy to face more coronavirus pain next fiscal: expert

Islamabad : The coronavirus pandemic has hit Pakistan’s economy hard like the rest of the world but the post-crisis period during the next fiscal year will be even more painful as the country will face $19 billion of debt payment including principal and interest, a big drop in remittances and exports, and a worst-case scenario of up to 5 million job losses, according to an economist.

Zafar-ul-Hassan Almas, Chief Macroeconomics, Planning Commission of Pakistan, speaking at a webinar titled ‘Economic impact of COVID-19 on Pakistan’ highlighted the macroeconomic challenges facing the country due to the pandemic and how to cope with these issues. It was organized by Institute of Policy Studies, Islamabad as part of its webinar series ‘COVID-19: Global Challenge, National Response’ initiated to cover different aspects of the coronavirus pandemic. The event was chaired by Dr Waqar Masood Khan, former federal finance secretary and member of IPS Academic Council.

Almas said during the post-coronavirus period countries would launch policies to protect their interests that would adversely affect global trade and employment opportunities. There would also be problems of liquidity of banks, fiscal space constraints and resetting of IMF programme targets.

The expert said the biggest problem for Pakistan is lack of fiscal space. Next year the country has to make payment of $19 billion on account of principal and interest to international creditors. Pakistan will have to arrange the amount from the international market in the form of new loans. However, tightening of financial conditions will complicate the refinancing of external debt.

Almas said exports and remittances have a greater impact on the economy than imports. He said the government was expecting exports worth $24 billion along with around the same amount in remittances this year. However, there will be a sharp downtrend in remittances in the last quarter of the fiscal year as overseas Pakistanis would continue to be made redundant. This is projected to drive remittances down by around $2 billion.

The government has reports that 30,000 Pakistanis have lost jobs in the UAE and other Gulf countries and this number is going to increase. The employment market will not get a boost even in the post-crisis period as it would be a huge challenge to accommodate the returning expats, he added.

Pakistan has a labour force of 63 million out of which 46 million people are employed in the informal sector and are most at risk of job loss. He said even the most cautious estimates put job losses at 3 million.

Almas said the major loss will be in exports and imports with the country taking a hit of $1-1.5 billion in exports. The loss is $1.5-2 billion for one quarter during this financial year but it could increase significantly in the next quarters. Imports are expected to contract by $3-5 billion.

Fortunately, he said, the country is in a comfortable position regarding the current account deficit. The data for March shows a positive impact due to the low oil prices while imports have gone down substantially.

The expert said the major channel for the hit on economy is the drastic fall in domestic demand for energy and goods as consumption has dropped sharply. The closure of industries is also resulting in postponement of investment decisions, he said.