GDP estimated to lose 6pc to 8pc in Q4

KARACHI: Coronavirus-sparked industrial shutdown and economic slowdown are likely to wipe away six to eight percent of Pakistan’s economy in the fourth quarter of the current fiscal year of 2019/20, an equity brokerage said on Saturday.

Topline Research said the lockdown-related disruptions and subsequent fall in aggregate demand because of COVID-19 are likely to result in GDP contraction.

“It might result in Pakistan reporting 0.0-0.5 percent of GDP growth in the current fiscal year,” Topline Research said in a report. “In the worst case scenario, Pakistan’s economy can shrink 0.5 to 1.0 percent year-on-year, which will possibly be the first time in the country’s 72-year history. However, in next fiscal year, GDP growth is to recover 3.5 percent.”

The brokerage said COVID-19 would have short-term repercussions and medium term implications on the economy that was just starting to recover after two years of slowdown.

The government announced a lockdown in the third week of March and that would continue till April 14 this year. It will most likely be extended considering the rising COVID-19 cases. So far, the mortality ratio in the country is on the lower side at 1.4 percent compared to world average of 5.2 percent.

“Due to lockdown and government relief measures we estimate Pakistan’s fiscal deficit to shoot to nine percent of GDP in the current fiscal year and would clock in at 8 percent of GDP in the fiscal year 2020/21,” the brokerage said. “This will result in three consecutive years’ fiscal deficits of eight percent and above, seen only during FY86-88.”

Topline Research sees balance of payments problems over the next three to 12 months, even though current account balance would be more than manageable, if Pakistan is able to muster reasonable support of the International Monetary Fund (IMF), multilateral agencies and friendly countries.

Pakistan would likely to renegotiate IMF loan program due to the extraordinary circumstance because of the COVID-19 outbreak. “We have revised our PKR/USD assumption for June-2020 to Rs170 (from Rs158) and for June 2021 to Rs180 (from Rs165).”

The brokerage said falling commodities prices would help in easing inflation to 11.1 percent in FY2020 and 8.2 percent in FY2021. “Considering fiscal situation and falling rupee, we have not assumed further policy rate cut in 2020.”

Topline Research lowered KSE-100 Index target to 38,500 points by December 2020 – an upside of 25 percent from the closing level of April 2, 2020.

The brokerage further said the overall impact on the economy due to the Covid-19 would be felt across the corporate sector, in one way or the other. “However, there may be a varying level of impact. We lower our earnings growth estimate for 2020 from 16 percent in December 2020 to three percent.”