Pakistan’s Economic Standing in the Pandemic Stricken World

The incumbent government of Pakistan has left no stone unturned to upkeep the inclusive economic growth and productivity in each sector through facilitating the marginalized segment and business sector of the country.

The global economy started plummeting at the beginning of the fiscal year FY2020 and apart from the breakout of novel virus COVID-19, there were more than a few underlying reasons for this global economic shortfall. Incidents like heightening US-China Trade war having a spillover effect on the global economy, Brexit worsening the prevalent Euro crisis, Hong Kong Extradition law triggering the worst crisis in Asian markets, drastic decline in the prices and demand of oil etc. regressed the global economic outlook. In case of Pakistan, the struggling economy and debt repayment cycle were upended by the COVID-19 and a major blowback to the economy occurred through suspension of trade with India right after its illegal revocation of the special status of Kashmir. In addition to the economic crisis, Pakistan along with several other countries found itself in a health crisis, disruption in the developmental projects impending the socio-economic progress of the country, and pushing the country towards the brink of an economic recession.

For FY 2019-2020, the estimates of Pakistan Bureau of Statistics shows that the GDP of Pakistan is -0.38, while the Gross Capital Formation is 8.45. These estimates are based on two and three-quarters of fiscal year’s provisional data projected for the whole year adjusted for the impact of COVID 19 followed by the partial lockdown. The contraction in economic growth is the first one in the last decade, and it is due to the COVID-19 containment measures taken by the government. Not only the industrial activity faced a decline due to the pandemic but also the services sector contracted by nearly 1 percent. Whereas, amid the locust attack and heavy monsoon rainfall, the agriculture sector is expected to show a modest expansion over the year.

Pakistan’s economy was already struggling due to fiscal and current account deficits, low tax to GDP ratio, lowering saving rates and marginal export growth, and unsteady monetary policy when COVID-19 hit the national economy of the country. Debt repayments and depleting international reserves were further deteriorating the national economic outlook when the incumbent government undertook structural reforms to readjust the economic course of the country. Premier Imran Khan understood the significance of economic stability as a prerequisite for upward mobility of the country, which is why he commenced economic restructuring and emphasized on debt repayments. In FY 2019 the country’s economic trajectory started showing signs of stability and both, fiscal and current account, deficits lowered. In FY 2020, the national economy witnessed a reversal with the macroeconomic imbalances such as surplus in current account deficits, increase in foreign direct investments, stability in exchange rates and the overall betterment of economic outlook, owing to the pertinent and long-term policies of the incumbent regime.

The economic restructuring was carried out by the incumbent government keeping the vows they have taken during electioneering in 2017, such as elevating the national economic outlook of the country, providing jobs to the largest youth bulge of the world, putting halt to the corruption, hoarding and price hikes, and ensuring uninterrupted supply of commodities. However, the regime was also aware that this economic reformation process would result in a short-term economic slowdown, rising inflation, and reduction in the provision of jobs but in the longer-run, this reformation process will result in stabilizing the national economy and rendering the country as a welfare state.

Pakistan Emerging as a Welfare State

The vision of Imran Khan to make Pakistan a dedicated welfare state and a stable economy remained the underlying principle in this economic restructuring process and several social and economic initiatives have been taken to facilitate the lowest income groups of the country. As a poverty reduction and social safety initiative, the PTI government started several social welfare programs under the umbrella of “Ehsaas Program”. According to the Poverty Alleviation and Social Safety Division, Ehsaas Program is undertaken to counter elite capture and leveraging 21st-century tools through a public-private partnership, federal-provincial collaboration, and ensuring transparency and good governance. According to the website of Ehsas program, it aims to harness the potential of data and technology “to create precision safety nets; promote financial inclusion and access to digital services; supporting the economic empowerment of women; focusing on the central role of human capital formation for poverty eradication, economic growth and sustainable development; and overcoming financial barriers to accessing health and post-secondary education.” For the betterment of education and ensuring the increased enrollment of young ones in schools, “Waseela-e-Taleem Digital” was overhauled including the expansion of the program to other districts, end-to-end digitization, and provision of conditional cash program. Similarly, “Ehsaas Undergraduate Scholarship Program” was started to facilitate 50,000 undergrad university students from low-income families each year for their four to five years university programs. These scholarships will cover 100% of the tuition fee and a living stipend of 4,000 per month. Moreover, to facilitate the disadvantaged women of the society, “Ehsaas Kafalat Program” has been started which will provide cash stipends of Rs. 2,000 monthly. This is a step towards digital inclusion of the women and giving smartphone access to women. In order to lift the rural population from the shackles of poverty, “Ehsaas Amdan Program” has been initiated which will provide assets like livestock, agricultural inputs, bodies of Chingchi rickshaws, and inputs for small retail outlets and small enterprises etc. to the deserving to enable them to graduate out of poverty. For the provision of free food and shelter services, the government started “Ehsaas Lanagr” and “Panagah”. “Ehsaas Rashan Portal” was set up to enable the private sector and civil society organizations to reach the most vulnerable deserving beneficiaries and provide them food ration packs or cash equivalent in the wake of the COVID-19 crisis. In the health sector, the government initiated “Ehsaas Sehat Sahulat Program” providing free of cost healthcare services to people living below the poverty line, and “Ehsaas Nashonuma” a pilot project started in nine districts for conditional cash transfer to address stunting in children under 2 years of age.

To ameliorate the condition of the job market and for creation of jobs for catering the need of the largely unemployed youth bulge of Pakistani society, the government started several mega-developmental programs. “Kamyab Jawan Program” for providing low-interest loans to the youngsters for business purposes and “Naya Pakistan Housing Scheme” for the construction of 5million houses; both programs will fulfil the developmental needs of the country and will create a large number of jobs in the country. For public sector development, the government had provided extra Rs139 million for the stimulation of the construction industry and private manufacturing. Similarly, on the intersection of productivity enhancement, alleviating natural resources and ecological development, the incumbent government has started programs like the National Agriculture Emergency Program and Ten Billion Tree Tsunami. These programs were expected to create approximately 2 million jobs by the end of the year 2020.

During the second half of the FY2020, the economic stabilization measures taken by the government underwent suffered due to the nationwide lockdown to contain COVID-19. The quarantine periods not only disrupted the global supply chains but also decreased the global demands having a spillover effect on Pakistan’s economy. In the latter half of FY2020, a contraction in Pakistan’s economy was witnessed due to a drastic decrease in the exports, tourism industry, and overall trade and commerce. Due to this economic contraction, the GDP growth rate for FY2020 resulted in negative 0.38 percent and negative growth in the industrial and service industry of the country overshadowed the agriculture sector as well. The informal economy of the country suffered a lot due to the social distancing and prolonged nation-wide lockdowns. Although, the government had announced relief packages of Rs1.2 trillion and reduction has been made in the interest rates for the revitalization of the economy the global economy stricken by the COVID-19 is impeding the stability of the overall economic outlook of Pakistan.

The looming debt repayments were eased by the support of international lenders such as IMF, ADB, and World Bank etc. IMF facilitated Pakistan by giving US$1.3billion under Rapid Financing Instrument along with one-year relief due to the pandemic, whereas G-20 facilitated by their debt relief program.

Amid pandemic, the government has facilitated the marginalized segment and business sector of the country through various relief and stimulus programs and has left no stone unturned to upkeep the inclusive economic growth and productivity in each sector, including agriculture, industry and services sector, along with checking the inflationary pressures and price control measures.

In terms of growth and investment, Pakistan’s provisional GDP growth rate was also infected with the ongoing pandemic and for FY2020 it is estimated to remain negative. During last year, the economic reformation of the country resulted in an increase in remittances from foreign workers and a decrease in trade deficits. The private investment for the FY2019 showed a slight decrease whereas the public investment has increased significantly. In FY2020, the general government investment has shown a remarkable increase of 13 percent. Growth of agriculture sector was 2.67 percent, while the industrial sector showed a negative growth of -2.6 percent and services sector declined at 0.59 percent due to lockdowns imposed to contain the pandemic.

The fluctuating exchange rates and instability in rupee value, when pegged to the dollar, is another reason behind the economic instability of the country and its manufacturing industry. Once the rupee depreciates in the international markets, it raises the cost of structures and raw material, specifically the imported ones. Similarly, the high policy rate, a spike in energy prices, semi-skilled labour force, obsolete technology, and lack of marketing discourages foreign investments in the country, especially in the manufacturing and mining industry.

Government’s stringent fiscal strategy to improve the revenues along with expenditure rationalization helped in improving all fiscal indicators and fiscal account improvement was recorded due to higher provincial surplus and a sharp rise in non-tax revenues.  FBR tax collection grew by 10.8 percent to Rs3300 billion during July-April, FY2020 against Rs2980 billion in the comparable period last year, and a remarkable turnaround in the primary balance with a surplus of Rs194 billion during July-March FY2020. In the first nine months, fiscal performance increased, however, with the spread of COVID-19, fiscal accounts performance is now estimated to be under burden due to increased spending on health, pandemic curbing measures and social safety programs. The targets set by the government for revenue generation will also receive a blowback due to the same reason and there will be a need for external financing to overcome the economic disruption brought by the COVID-19.

In order to facilitate the business community in these tough times, State Bank of Pakistan (SBP) has introduced “Temporary Economic Refinance Facility”, “Refinance Facility for Combating COVID-19” and “Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns”. Moreover, the incumbent government showed an unwavering stance towards borrowing from the SBP to overcome its deficits.

The capital market was also challenged by the pandemic containment measures, hike in oil prices and inflation, along with austerity measures taken by the government. The Karachi Stock Exchange index also had a modest growth of 0.61 percent in the first three-quarters of the FY2020. Government pitched in relief stimulus for the investors, resulting in 25 percent points gains in KSE-100 and market capitalization since March.

During Jul-April FY2020, remittances increased to $ 18.8 billion as compared to $ 17.8 billion during the same period last year, with a growth of 5.5 percent.

It is an achievement of the PTI government that Pakistan has been able to decrease the current account deficit and increase the exports, while in July 2020 country recorded $1.998 billion with 5.8 percent growth in comparison to the same month last year. The remittances during FY2020 (Jul-April) also increased $18.8 billion with an increase of 5.5 percent in comparison to last fiscal years’ same months. In an annual economic review meeting, the analysis of the export statistics showed overall good progress where food processing sector grew up to 300 percent, along with the increase in the clothing sector, fish and its products etc. At the same time, a decline was observed in the exports of rice, cement, raw leather and cotton yarn in the month of July FY2020. The overall trade balance in comparison to last year was reduced by -14.7 percent with an increase in exports and a decline in the imports with 4.2 percent.

A recent tweet by Abdul Razak Dawood, Advisor for Commerce, Textile, Industry and Production, and Investment of Pakistan, highlighted that Pakistan exports to the US have crossed the mark of US$400million in a month. In two months (Oct-Nov), the exports to the US stood at US$ 430million and US$ 437million respectively and it is a great achievement by the Pakistani exporters. If this export trajectory sustains, Pakistan will be able to capture a greater share of the US market.

The COVID-19 pandemic has generated both demand and supply shocks across the global economy and has posed significant challenges for exports to increase further in coming months. Government is committed to lower the debt to a sustainable level through rationalizing expense, increasing productivity and revenue mobilization. However, a major impediment in the economic growth is the public debt, which until March 2020 was recorded Rs35207 million with an increase of Rs2499 million from last year. This difference was mainly due to an increase in cash balances and depreciation of the rupee. The federal government did not borrow from SBP for its deficits but all financing was made through concessional agreements from multilateral and bilateral sources. Despite the adverse impact of the pandemic on the economy, the overall external account liquidity has improved due to the decline in oil and other international commodity prices.

In terms of education, last year’s survey revealed that literacy rate is 60 percent as compared to 2015-16 and expense on education is 2.3 percent of GDP in 2018-19. According to UNESCO, since the 1990s there is a globally positive trend in the public expenditure on education but in Pakistan, the education spending in relation to GDP has decreased in comparison to 1997 when it was highest. However, the incumbent government had formulated the National Education Policy Framework to overcome the challenges like increasing enrollments, decreasing dropout rate, achieving uniformity in educational standards, and enhancing skills training and access to education. Similarly, the government is focusing on the betterment of higher education through expedited projects completion, additional funding and provision of scholarships to the deserving undergrad students.

COVID-19 outbreak has damaged the pace of development across the globe and posed numerous challenges to the national and international economic growth. Pakistan is among one of the most affected countries in this regard because the country was already trying to cope with the excessive burden of debt repayment and trying to increase its revenue gathering and productivity when the pandemic struck the economic reformation. Global supply and value chains have been disrupted, stock markets and commodity prices crashed, airline and tourism businesses along with small and medium enterprises (SMEs) suffered huge losses leading to increased unemployment and problems in cash flows. Although governments are taking measures to mitigate the adverse effect of COVID-19 on socio-economic development, to accelerate overall economic activity and to protect the vulnerable segments of society but the economic recovery from this pandemic led shortfall will take years and even decades to overcome.

Past Challenges and Achievements

Decades ago, Pakistan was considered among the few developing countries having an economic growth rate of 5 percent annually and the country was exemplified as a role model for the developing economies since the 1980s. Pakistan was able to decrease the poverty from 40 percent to 18 percent by the end of the 1980s. Right after its independence, Pakistan’s population was approx. 30 million but the country was not able to meet its food requirements and to meet the ends, it imported the food products from other countries; however, after 70 years, the country has been able to produce surplus food and exported wheat and rice to the world. Similarly, the country has emerged as the largest textile exporter over a period of time. An average citizen’s earning in 1947 was $100 while according to stats of 2003 it has increased more than five times and still increasing each year. Pakistan hardly had any manufacturing industries in 1947 and in 2017 it has reached an all-time high of 14.2 %, according to production index growth. The country has been able to produce Steel, cement, automobiles, sugar, fertilizer, cloth and vegetable ghee, industrial chemicals, refined petroleum and a variety of other industries manufacture products indigenously and exports few of them to the global market as well. Pakistan’s road and highway network have expanded more than 5 times since 1947 and with the highway developmental projects of CPEC, a parallel network of roads has been paved from the Northern mountainous region to the Southern sea ports. Although the country was able to pull a huge number of people from the shackles of poverty but still it lacks in the human development and was not able to pull its literacy rate to an optimum level; and if the country were able to increase its literacy level, per capita income would have crossed $1500. With an added focus on the human development, labour training and skill development, today Pakistan has ranked at top of the human resource and manufactured products exporting countries list, which ultimately would result in increased remittances and economic growth. The country would have been in par with the East Asian economies and instead of Bangladesh, Pakistan would have been endorsed as the economic role model of developing and specifically South Asian economies.


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About Amna Malik 61 Articles
Author is the President, Center of Pakistan and International Relations (COPAIR) and Editor-in-Chief of ‘Mélange int’l Magazine’ and ‘ The Asian Telegraph’.