NationalVOLUME 15 ISSUE # 19

Hopes and fears

Pakistan is optimistic about achieving 2pc growth in the upcoming fiscal year despite gloomy projections by international financial institutions after the onset of the coronavirus. If achieved, it would be much lower than Pakistan’s initially estimate of around 3pc growth during the current fiscal year, but far greater than the forecasts of -1.5 growth after the pandemic struck.

With an improvement in the Covid-19 situation and loosened lockdown, Pakistan’s GDP rate is expected to grow by 2pc in the next year. However, for it Pakistan will have to wipe out the virus as quickly as possible. Contraction in the global economy is badly affecting Pakistani exports, as witnessed in April, when exports declined by 40pc as compared to the same month last year. The World Bank and the IMF have projected a negative economic growth rate for the country in the range of 1.3pc to 1.5pc, respectively. According to the IMF, the world economy would contract by 3pc this year – the most severe downturn since the Great Depression in 1930s. The situation could get much worse if the pandemic lingers into the second half of the year or resurges.

The IMF has projected Pakistan’s economy to shrink by 1.5pc during the current fiscal year, compared to 3.3pc growth in 2018-19. “As a result of the pandemic, the global economy is projected to contract sharply by 3pc in 2020, much worse than during the 2008–09 financial crisis,” said the IMF in its annual flagship World Economic Outlook (WEO). “It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago. The Great Lockdown is projected to shrink global growth dramatically,” it said, adding the output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the 2008-09 crash. The estimates suggested almost all major economies and regions plunging into the negative zone with few exceptions, like China and India, which would grow by 1.2pc and 1.9pc this year respectively, despite facing massive setbacks. It estimated the economies of the United States and European Union, the big trade partners of Pakistan, to suffer the most among the developed nations, shrinking by a massive 5.9pc and 7.5pc respectively compared to 1.7pc and 1.2pc growth posted last year. In a baseline scenario, which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8pc in 2021 as economic activity normalises, helped by policy support.

The World Bank warned Pakistan might fall into a recession – for the first time in 68 years – due to the severe impact of the deadly pandemic, the economy expected to be shrinking up to 2.2pc and a painful decline in per capita income. In its latest report, the World Bank noted Pakistan was in such a bad economic condition almost 68 years ago but even after the third India-Pakistan war that led to the separation of East Pakistan, the country posted some growth. The report anticipates a sharp economic slump in each of the region’s eight countries, caused by halting economic activity, collapsing trade, and greater stress in the financial and banking sectors. “Pakistan, which has already experienced low growth rates in recent years, could well fall into a recession. With 1.8pc population growth, that would imply a painful decline in per capita income,” it added. Pakistan is among Maldives, Sri Lanka and Afghanistan whose GDP growth forecast for the fiscal year is in negative territory. South Asia might well experience its worst economic performance in 40 years, with at least half of the countries falling in a deep recession. Overall South Asia regional growth will fall to a range between 1.8pc and 2.8pc in 2020, down from 6.3pc projected six months ago, according to the WB. In case of prolonged and broad national lockdowns, the report warns of a worst-case scenario in which the entire region would experience a negative growth rate this year. The deteriorated forecast will linger in 2021, with growth projected to hover between 3.1pc and 4pc, down from the previous 6.7pc estimate.

Public debt is already high in most countries and the pandemic is expected to slash growth and tax revenues, which creates particularly serious problems for Pakistan and Sri Lanka, already vulnerable countries that had embarked on IMF programs in the last years. India, Bangladesh Pakistan and Sri Lanka are expected to see deficits rise to between 7pc and 10pc of GDP in the baseline.

In contrast to the IMF and WB reports, Moody’s Investors Service anticipated that Pakistan’s economic growth would shrink much less than what is feared. “We expect Pakistan’s real GDP to contract modestly by 0.1-0.5pc in fiscal 2020,” the US-based firm said. A gradual recovery in economic activities would help the national economy to grow by more than 2pc in fiscal 2021, it said.

The Economist Intelligence Unit has painter a rosier picture. It said Pakistan’s GDP could contract by 1.6pc in the ongoing fiscal 2019-20 but would grow to 2.9pc in the next financial year 2020-21 and the loans from IMF and other multilateral and bilateral donors would help ease the balance-of-payments pressures in 2020 and over the next few years. “The slowdown will be due primarily to the economic effects of the shutdown measures taken by the government to slow the spread of the coronavirus. And the slowdown is expected to be concentrated in the fourth quarter of 2019-20, when the measures will be at their strictest. The economic impact of the measures will spill into 2020-21. Private consumption growth in the year will suffer from soured consumer confidence and a lingering increase in unemployment caused by the shutdown. Monetary and fiscal stimulus will begin to feed into the economy in the year, but it will not be enough to prop up growth,” it noted. It projected the economic growth in 2020-21 to stand at 2.9pc, mainly because of a lower base of comparison from 2019-20, rather than any genuine improvement in underlying economic fundamentals. “Economic growth will recover at a gradual pace from 2021-22 onwards, averaging 3.4pc annually on the back of a recovery in private consumption and fixed investment. Nevertheless, growth will continue to be hobbled by the government,” it observed.

The Moody’s Investors Service and Economist Intelligence Unit reports offer hope to the government and people of Pakistan. Luckily, Pakistan has not suffered much loss of life from the pandemic as compared to the world. Its economy can bounce back in few months after the pandemic ends.