Investor Presentaiton
Chapter VII - Impacts of COVID-19: Fiscal Pressures and Healthcare Deficit
Besides its colossal human toll, the economic and political costs of the contagion are considerable. Developed countries are banking on huge
stimulus packages to somewhat mitigate the effects of economic disruption. The efforts to "flatten the curve" have severely contracted economic
activities around the world. The output contraction will continue in the second quarter of the calendar year 2020 as most countries expect to
experience peaks in pandemic and consequent social containment measures in the next couple of months. Assuming that the pandemic will
recede in the second half of the year (baseline scenario), the global economy is projected to contract by 3% for 2020 (World Economic Outlook,
2020 by IMF). Advanced economies and emerging markets are expected to experience growth rates of -6.1% and -1.0% against the pre-
COVID-19 targets of 1.7% and 3.7%, respectively. The severity of this crisis can be judged from the fact that the Global Financial Crises in
2009 resulted in reduction of global economy by 0.1% - a staggering difference of 2.9 percentage points with the projected impact of COVID-
19vili
Impact of COVID-19 ON Pakistan's Economy
In these circumstances, the economic situation of Pakistan is somewhat similar to the global economy. Following are some of the highlights of
the impact of COVID-19 on Pakistan's economy, the growth rate of which has fallen from a pre-COVID projection of 2.4% to -1.5%ix:
Owing to the closure of global markets amid COVID-19 outbreak, Pakistan's
exports fell by a massive 54% in April, 2020 as compared to April, 2019.
According to the data released by Pakistan Bureau of Statistics (PBS), the
country's exports stood at USD957 million in April 2020, as compared to
exports worth USD2.089 billion in April 2019 and USD1.8 billion in March 2020.
Such a major drop in exports is indicative of the negative impact of COVID-19
on the Trade Balance.
PKR
957.0
(April FY 2020)
Increase in Trade Deficit
PKR 2.089
Billion
PKR
54%
(April FY 2019)
Higher Budget Deficit
7.3% of GDP
9.3% of GDP
Rs. 4.8
Rs. 3.9
Pakistan's budget deficit (post COVID-19) is projected to rise to 9.3% of GDP or PKR
3.9 Trillion in the current Fiscal Year compared to a pre-COVID estimate of 7.3% of
GDP. The major driver of increase in Fiscal Deficit was the reduction in FBR collection
which dropped from a pre-COVID estimate of PKR 4.8 trillion to PKR 3.9 trillion. The
reduction in FBR collection meant a reduction of PKR 256.0 billion in Divisible Pool
transfers to the Government. Consequently, the Government had to make major readjustments/reduction in its Development and Non-
development expenditure.
Slow-Down in Remittance
A World Bank report has estimated that Remittances to Pakistan from abroad, which is a major item of Current Account, is projected to decline
by 23 percent in year 2020, totaling about USD17 billion, compared with USD22.5bn remitted in 2019, in the wake of the economic crisis
caused by the Covid-19 outbreakxi. And, the report cautions that this crisis could be long, deep, and pervasive when viewed through a migration
lens.
i. Increase in Unemployment
Slower growth, reduced trade and lock-downs caused by COVID-19 mean that Pakistan could expect 12.3 million to 18.5 million layoffs xii. This
increase in unemployment has a direct impact on increase in poverty rate in the country.
ii. Decline in Large-Scale Manufacturing Output
Latest data released by PBS suggests that Large Scale Manufacturing (LSM) output witnessed a decline of 22.0% in March 2020 compared to the
corresponding month last year. This decline was contributed by almost all major LSM sector with the exception of Fertilizer industry which exhibited
some growth compared to last yearxiii.
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