Pakistan’s deficit and poverty rate to soar due to coronavirus

According to government assessments examined by Reuters News Agency, Pakistan’s fiscal deficit will be significantly more damaging than predicted this fiscal year, with the result from the coronavirus pandemic forcing millions into unemployment and poverty.

Pakistan started a phased lifting of its nationwide lockdown last week despite an increasing rate of cases – a move driven principally by worries of an economic meltdown. The country has recorded 35,788 COVID-19 cases and 770 deaths.

Due to “a shortfall in profits, re-prioritizing of expenses and rise in public spending,” the post-pandemic fiscal deficit could stretch as high as 9.4% against an earlier forecast of 7.4%, one of the finance ministry reports seen by Reuters stated.

Two government executives told Reuters that there were worries the deficit could even hit double digits in recent conferences on the financial condition.

Pakistan’s finance chief Abdul Hafeez Shaikh said on Thursday it is tough to give precise numbers given the pandemic’s obscurity, although the economy likely contracts -1% to -1.5%. “We believe that right now where we’re as expected to worsen,” he answered, speaking a webinar.

The impression on workers and poorer people is severe, with surveys show that the poverty headcount will grow from 24.3% to a base case of 29%, and a worst-case scenario of 33.5%, the papers stated.

At least 3 million people will lose their jobs – 1 million in the industrial sector and 2 million in services. The reports wrote that the Pakistan Institute of Development Economics has predicted job losses could reach 18 million.

Tax acquisition fell sharply by 16.4% in April, the internal calculations revealed.

They also declared that exports are likely to fall by $2.8 billion to $3.8 billion, with a negative result on remittances from the Middle East, the United States and Europe, which are likely to persist around $20 billion to $21 billion against $21.8 billion in 2019.

However, a drop in imports will cast Pakistan’s current account deficit to $4.5 billion in the fiscal year, from $13.8 billion in 2019. The estimations say the economy will incur 1.5% for the financial year 2020 against an increase of 3.29% in 2019.

Government has already rolled out a 1.24 trillion Pakistani rupee ($7.71 billion) stimulus to help the economy and cash grants to the poor. Moody’s on Thursday placed Pakistan’s local and foreign currency long-term issuer B3 ratings under evaluation for the decline, indicating a significant default on private sector debt.

Officials say Pakistan is sure of getting at least $5.4 billion in external financial aid, including $1.386 billion previously obtained from the IMF as speedy financing to alleviate the coronavirus damages, and a debt rescheduling of $1.8 billion from G20 countries. That is aside from payment expected from the IMF’s three-year $6 billion support program the country entered last year, according to officials familiar with the circumstances.

Our external finance viewpoint appears to be very good at the time,” officials told Reuters. “Our expectation and evaluation are very positive.”

The officials stated Pakistan was getting $500 million in coronavirus-related assistance from the Asian Development Bank and about $1 billion from the World Bank, that will also bring forward another $700 million in projects from last year.

Pakistan has also asked long-time associate China to roll over payments linked to the power projects set up as part of the Belt and Road initiative.

Finance chief Shaikh is to present a budget in two weeks to discover means to generate incomes and cut expenses.

Courtesy: Reuters