Pak economy under dark shadow of coronavirus vs deep chronic economic crisis
Sitara -e -Shujaat, Nishan-e-Imtiaz
Pakistan is an under developed nation which has been suffering from crisis after crisis for the last many years and passing through political polarisation as well and with bad governance. While Pakistan’s economy is already on ventilator, the coronavirus which is bringing the world economy to a standstill, can destroy our economy like it destroys human body’s immune system and similarly this monster will hit adversely and make irreversible damage and all at once. Pakistan according to rough estimates may incur initial economic loss of Rs1.3tr due to coronavirus.
The Planning Commission estimated that the size of the country’s GDP stood at Rs44 trillion and one/fourth stood at Rs11 trillion, so the disruption caused by coronavirus is expected to cause at least 10 percent losses in the last quarter (April-June) that would stand at Rs1.1 trillion at least.
This lethal pandemic that began in the depths of China’s Hubei province spreading through the world has now besieged the whole nation and economy of Pakistan. There are now significant outbreaks in all territories and provinces of Pakistan and the first death reported was from Sindh while the rest of two from KPK province.
The economic fallout around the world due to the virus could include recessions in the US, euro-area and Japan, the slowest growth on record in China, and a total of $2.7 trillion in lost output—equivalent to the entire GDP of the UK. China will sustain because of its huge reserves.
While the developing economies are suffering from huge financial blows, the total external debt of Pakistan as of March 2019 is already $105 billion with additional burden of bonds, whereas our currency is depleting drastically against dollar.
By May 2019, the Pakistani rupee had undergone a year-on-year depreciation of 30% vis-a-vis the US dollar. The year 2019 along had added the debt of over $13 billion, which is over 40% of the total debt added in last 10 years. Most of our debt is from World Bank, IMF, Asian Development Bank, Paris Club, etc. There is only a small fraction of our debt which constitutes around 5% of the total liability which is due to CPEC. Taking these overt statistics of our economy into consideration, we would not be needing any further economic indicators to infer that we are doomed already if the outbreaks stay continued for few months.
Since 2017, Pakistan is on a consistent roller coaster of crisis, be it energy crisis, economic crisis, Kashmir crisis, security crisis, health crisis or media crisis and political crisis.
We have seen negative fallouts of the change of government and shift of power. Moreover, the factors making our economy even worse are the IMF programme, scrutiny by FATF, Indo-Pak relations, Kashmir crisis and inflation etc and now the potential damages caused by coronavirus can devastate the whole scenario.
The inflation rate in Pakistan has gone up to 12.93 which is highly alarming and it is big indicator that there is going to be more price hike but the income slab of almost all lower middle class people and the poor will remain static. Pakistan is an agro-based country and is capable to feed many neighbouring countries too but the increase in prices of regular items like wheat and sugar which have also recently gone short in supply is the main reason of inflation.
We have been crippled because of FATF IMF and this burden of economy and destabilisation is only due to the fact that we always bow before IMF which is successfully ensuring to add more burden on common people of our country with non-stop price hike and consecutive increase in prices of petroleum products. We like our obedient mode and avoid being aggressive so we keep adding burden on to ourselves.
On the other hand, the August 5th illegal and aggressive move by Indian Prime Minister Narendra Modi in Indian Occupied Kashmir (IOK) followed by complete lockdown till date have escalated tension between India and Pakistan further adding potential threat to the world peace. The Indian aggression against innocent people of Kashmir whose basic human rights are being violated on daily basis is another major crisis Pakistan is going through as government has failed to take action against it to bring justice to the Kashmiris as the successive govt continued to play at Indian pitch set by India on Kashmir. The East West borders are costing us huge funds.
Another crisis behind the destabilisation of our economy is the investment crisis as most of the industries are closed due to government policies creating unemployment and nobody is willing to invest in Pakistan fearing the potential losses and being in FATF’s grey list, we are suffering further.
All of the factors contributing to damaging our economy are not something that comes out of the blue, however, the deadly virus which has confiscated the whole world putting everything under lockdown situation can destroy our economy for good as even the developed countries are failing to deal with it. Our economy is collapsing, the systems are shut, businesses shut, death scare everywhere, capital flight, burden of virus causalities on the fragile economy, diplomatic crisis and isolation and no support as no one will come to our rescue.
In the wake of these crisis, Pakistan’s initial economic losses incurred in different sectors of the country’s economy have been estimated at Rs1.3 trillion, on account of drop in the GDP growth because of reduction in services sector including airline business, hotel business, retail businesses, hoardings, FBR’s revenue loss, massive decline in imports, exports, reduction in remittances, disruption in food, mask and sanitizer’s supplies etc.
Keeping in view the rise in Italy’s death toll, the health indicators around the world are emphasizing on total lockdown around the state whereas we cannot afford to practice such lockouts given that we can face massive revenue shortfall as our resources are limited and economy is collapsing. The FBR estimates show that the lockdown of Karachi is going to cause major revenue losses which if persisted till June 2020, then the tax losses would go up to Rs380 billion.
Apart from this, people around the country have been directed to stay at homes and practice social distancing leaving and avoiding all the social gatherings and sports events which is also causing financial damages to the individuals as well as the economy on state level. As an initial step towards social distancing, the govt had to get the PSL sports event cancelled because of which, all the PSL franchises as well as the PCB has suffered massive losses due to incomplete league. Also the federal secretary commerce says that the exports might face loss in the range of $2 to $4 billion as export orders had got cancelled. Pakistan’s textile export sector relies on China for the bulk of its capital goods inputs, so there will be an impact if there is a protracted closedown of the Chinese economy.
The imports would be reduced in the shape of declined POL prices as well as in quantity. Pakistan imported 80 billion barrels of POL products and keeping in view the lowest-ever prices in international market in the last two decades, the import bill would shrink having negative impact for the FBR’s collection and petroleum levy might also be reduced if the consumption decreased because of possible lockdown in different parts of the country.
The worst effects that would have to be borne by the daily wagers as 47 percent workforce in service sector such as marriage halls, hotel industry and others belonged to this sector.
The United Nations (UN) estimates have shown that the international tourism will drop 3% due to virus resulting a loss up to $50 billion globally, is another bad news for the government which is committed to increase tourism exports.
On the other hand, despite not having a lockdown yet, the sealing off markets, restaurants as well as the automobile and petroleum ventures will cause loss of at least Rs40 billion to local businesses. This is only the beginning of losses as we are yet to meet the safety challenges of our citizens and we have no means and supplies for the treatment of corona positive people.
We will have to allocate extra funds which will be an additional burden on the exchequer. If the situation continues this way and civilian lockdown fails than govt will have choice to call in the army to control corona crisis. I am of the strong views that the anti-coronavirus operation should be handed over to the army without further loss of time.
These are writer’s own views and do not necessarily represent the views of his party.
The writer is former interior minister of Pakistan, Chairman Senate Standing Committee on Interior and Chairman of Think Tank “Global Eye”. He can be reached at: [email protected] and Twitter @Senrehmanmalik