Site icon Asian Trade TV

COVID19, Lock Down and re-emergence of Economy

pakistan.economy,corona,virus

COVID19, Lock Down and re-emergence of Economy

A virus is restructuring the fate of this world. Coronavirus or COVID-19 started from the city Wuhan of China affecting human life no matter how powerful and scientifically stronger is the country where one lives. In fact world’s most technological advance country, the super power America, is trembling in the fight against this lethal virus which has infected more than 2 Million humans overall the globe while killing more than 200,000, whereas the counting is continued on World Health Organization (WHO) world-o-meter. To avoid spreading the virus WHO recommended social distancing and immediate lockdown depending on circumstances of the countries. As this virus has spread all over the globe therefore the world has witnessed a global lockdown where humans were confined to their homes. It eventually impacted the global trade and economy that is resulting in business losses, unemployment and overall economic chaos. Therefore Central Banks of each country affected through this coronavirus pandemic giving unprecedented support to household, firms and financial markets however there is considerable uncertainty about what the economic landscape will look like after the global lockdown may be over. International financial institutions are not only extending loans to poor countries to coup up the pandemic fall out on their economy but restructuring the repayments of already disbursed loans to give breathing space to under developed economies. According to the scenario where pandemic will peak in second quarter of 2020 and receded in third quarter, International Monetary Fund (IMF) World Economic Outlook projects global growth in 2020 to fall -3% i.e. worst recession since the great depression.

 

Pakistan confirmed first two cases on 26th February 2020 having travel history from Iran. However on March 11th 2020 several districts reported confirmed cases of coronavirus each having travel history but after first death on 20th March 2020 initially Sindh, afterwards Government of Pakistan decided to lockdown the country which rescheduled time to time. The lockdown in Pakistan was in response to WHO guidelines and a part of great global lock down strategy. It was observed during the lockdown period that speed of spreading virus in Pakistan was not that fast as compared to European countries which compelled Government to ease out lock down owing to a further fact that already troubled economy of Pakistan was not able to bear a situation of economic shut down which could have spread unemployment specially related to daily wager labour class and farmers. As global economy is shut down for some time, our industry dependent on exports, hit by these circumstances a lot. According to Mr. Abdul Razak Dawood export for Financial Year 2020 will decrease by $ 3.0 Billion Dollars approx. Textile industry that employ country’s 45% labour force affected the most as its export customers majorly are based in Europe, UK, and USA which are badly hit with virus. Due to global economic crisis unemployment is being witnessed in countries where major population of Pakistani people are migrated therefore remittance side will also impact Current Account position though it may be set off through lower oil prices which fell down 50% during this period. IMF recently stated about economy of Pakistan that it will witness recession in this fiscal year and growth is expected to contract by 1.5% before it recovers to 2% in the next fiscal year. Pakistan’s budget deficit is expected to rise to the highest level in the history to 9.2% of the size of national economy or Rs.4 Trillion in the current fiscal year due to the impact of the virus.

Government of Pakistan responded to the crisis and came up with a relief package of around $ 8 Billion Dollars including a direct relief program for daily wager and unemployed class where Rs.12,000/- per family is being distributed to Millions of underprivileged people across the Pakistan through Ehsas program. Government is also supporting businesses in this lockdown situation and helping them through releasing of tax refunds and phase wise easing out of lockdown on several industries including agriculture.

State Bank of Pakistan (SBP) came up with different schemes to give relief to Small, Medium and Large businesses through deferment of payments of loan for one year from lockdown period together with Wages & Salaries finance on concessional rates so that neither the businesses come under cash flow constraints nor due to shortage of funds layoffs may occur.  The scheme of deferment is valid for consumer finance for individuals as it is expected that the disposable income of the consumer will remain disturbed throughout the year. On the other hand, to support businesses further Discount Rate reduced from 13.25% to 9% in two steps which further can reduce below 7% depending on inflation numbers which also falling due to strict measures taken by the government against hording and international oil prices went down considerably owing to global shut down.

Prime Minister of Pakistan Mr. Imran Khan addressed the United Nations and rich countries for relief on Debt Payments due this year to poor countries including Pakistan. In this regard China, World Bank, G20 countries, IMF and other international financial institutions responded positively. Moreover IMF extended a loan facility for Pakistan to absorb the impact of COVID-19 on its economy. Similar packages from World Bank and Asian Development Bank have also announced with different amounts. Brotherly state China will contribute reportedly $ 6.3 Billion Dollars in financing over next 12 months. After this news, Pak Rupee appreciated against Dollar which lost its value around Rs.12-13 right after lock down and Pakistan Stock Exchange (PSX) showing rising trend also.

Now when it is clear that the world can witness worst recession since great depression of 1935 it will definitely be going to impact on Pakistan economy. While consumer behaviour will be changed it is high time for Pakistan to think ahead and get herself align with the changing world. Fortunately, virus seems under control in our country and businesses are opening with each passing day. However government with private entities have to account for all possible scenarios to grab the opportunities going to arise after experiencing this great global lockdown. First of all, huge data has been created during lockdown through online bank transactions, Ehsas program, BISP, Health Services etc.

It can be used for big data analytics and documentation of the economy which can increase tax net as well. Secondly, in present crisis Pakistan seems positive about the food availability because we have fertile land for agriculture. While industries were stopped during this period there was no fear of starvation rather farming was very much possible due to implied built in social distancing working techniques of farmers.

Government should focus not only on cash crops but try to be self-reliant on maximum varieties of vegetables, fruits and lentils so that not only we may be able to export agri-products but it will reduce unnecessary import bill. Moreover Government needs to support industries which are making products as import substitution. These industries vanished in last regime when dollar was artificially controlled and discount rate was very low. These industries can become future multinational companies. Furthermore SBP and Securities Exchange Commission of Pakistan (SECP) should closely monitor Financial Statements of Companies availing financing from banks on reduced interest rates specially after COVID-19 relief package and check if the companies are availing loan facilities to support there working capital requirement for core business activities or investing it into PSX or Real Estate sector where Government has introduced incentives including ease in disclosure requirement. This has happened in last regime and a bubble was created in both the fields whereas companies started earning from bottom line other income instead of core business activities. As there is a global lockdown and export orders to decline with no immediate normalization of the same, exporters who are enjoying more benefits from bank borrowing can utilize these funds for said reason.

Last but not the least China Pakistan Economic Corridor (CPEC) in this scenario has become very important not only for Pakistan but China as well. Therefore another round of China Pakistan Free Trade Agreement (CPFTA) can be negotiated where more export items to introduce due to the fact that in latest agreement i.e. CPFTA-II out of 313 products maximum were related to Textiles which now have lost orders world-wide for at least in CY 2020. Moreover more construction related projects to become part of CPEC which should be revenue generated projects including Dams, health related technology transfer, automobile manufacturing plants and agricultural infrastructure.

 

Writer: Syed Ali Imran

Exit mobile version