Money Matters

Preparing for the inevitable!

Money Matters
By Mehtab Haider.
Mon, 03, 20

The International Monetary Fund (IMF) mission had warned Islamabad last month about the impact of cronovirus on Pakistan’s economy and in case it persisted for a longer period coupled with a spillover effect of Chinese economy, thus negatively impacting the GDP growth over medium term.

The International Monetary Fund (IMF) mission had warned Islamabad last month about the impact of cronovirus on Pakistan’s economy and in case it persisted for a longer period coupled with a spillover effect of Chinese economy, thus negatively impacting the GDP growth over medium term.

A full blown economic crisis, since COVID19 outbreak, with lockdown of many countries and a dis-connection between regions seems around the corner. The time has come when the PTI led government should seriously consider its effects on Pakistan’s economy. But seemingly the incumbent regime is totally non-serious and out of sync as it twice postponed scheduled meetings of Monetary and Fiscal Policies Coordination Board (MFPCB) on account of different reasons in the last one month period.

The Ministry of Planning in its working paper for MFPCB meeting proposed to consider effects of cronovirus on Pakistan’s economy given that many regional countries, especially India had taken several steps on trade and taxation front to offset its impact on their economy. Pakistan’s reliance on China has increased manifolds in context of the multibillion dollars Pakistan China Economic Corridor (CPEC), a possible reason for silence on part of Pakistani authorities on the economic helm of affairs.

Pakistani industrialists who are used to importing raw material and intermediary goods from China especially in the textile sectors had already started searching alternates to bring desired imported items from other than China. The government should have analysed the situation and come up with a package to avoid negative impacts on their export orders.

Now the MFPCB is scheduled to meet again on March 18 here in Islamabad after the meeting of Monetary Policy Committee (MPC). The move seems a deliberate attempt to hold MFPCB after monetary policy announcement so there should be no influence on monetary stance of the State Bank of Pakistan by any of the federal ministry.

Pakistani side had argued before the IMF mission last month that China’s economic size is $14.3 trillion, having 16 percent of global economy with agriculture 8 percent, industry 40 percent and services 52 percent.

Wuhan, the capital of Hubei province and the epicenter of coronavirus, shares 4.4 percent in China’s economy with contribution of industry 46 percent, service 43 percent and agriculture 11 percent.

The automotive industry, Iron and steel, textiles, petrochemical, manufacturing, electronic Information, food processing and tobacco; energy and environmental protection are major industries of the province.

China is Pakistan’s major trading partner though balance of trade is always in favor of China. Pakistan’s share of export to China (7.6 percent; $937 million) while share of import from China (22.0 percent; $4.9 billion)- July-December FY 2020. The import from china has already slowdown, as the government closed Pak-China border on November 30 and the border will reopen on the first week of April.

Exports to China are food (23.1 percent; $ 216 million), Raw Material (7.1 percent; 67 million), Textile (59.9 percent; $561 million) and imports from China are food (2.5 percent; $122 million), Non-Food Items (12 percent; $585 million) and Machinery (24.8 percent; $1.2 billion)

The impact on Pakistan economy will be dependent upon time, length of handling coronavirus and its intensity of spreading in surroundings. Its impact is already being felt in different regions and parts and therefore it’s high-time to consider concrete steps to avoid any negative impact on the country’s economy. Analysts said the Pakistan’s textile industry and exports may increase as Hubei’s textile is going to slow down and Pakistan’s textile industry may get more orders from global market.

There is projection that commodity prices will decline including palm oil/ soya bean oil. These are major import items of Pakistan and their decline will have favorable impact on trade balance and ease out inflation/domestic prices.

However, the headline inflation might recede sharply because the oil and commodity prices nosedived in international market making it easier for Pakistan to achieve inflation less than double digit on monthly basis in the next few months.

Now the stage is set where Pakistan’s economic managers must seriously think over exploring possibility of hedging of POL prices in international market on immediate basis in order to reap bonanza of downfall of POL prices for next one to two years period. Domestic SMEs will be able to expand their business to fulfill the gap created by slowing of China imports. FDI may increase as the investors may like to shift from Hubei to Pakistan considering cheaper market.

The trade and investment endeavors might affect negatively in the wake of widespread of cronovirus so there was dire need to sit together to devise short, medium and long term strategies to overcome this looming crisis.

The PTI led government had finally waken up and closed down educational institutions and banned all kind of public gatherings including marriage ceremonies in order to avert spreading out of this virus in Pakistan.

Pakistani authorities are eyeing to achieve around 3.3 percent GDP growth in the outgoing fiscal year against projections made by International Financial Institutions (IFIs) such as the IMF, WB and ADB in the range of 2.4 percent of GDP.

The agriculture and manufacturing sectors had not performed up to the mark so far and if trade got affected because of this virus then the prospects of achieving desired growth target might become more difficult.

The writer is a staff member