Money Matters

Economic consequences of COVID-19

By Mehtab Haider.
Mon, 03, 20

Lack of proper coordination is a hallmark of PTI-led regime. This fact could not have been manifested as evidently as it did in the wake of CONVID19 pandemic in Pakistan that is spreading across length and breadth of the country. The question this time is to exactly estimate the impact of this pandemic.

Lack of proper coordination is a hallmark of PTI-led regime. This fact could not have been manifested as evidently as it did in the wake of CONVID19 pandemic in Pakistan that is spreading across length and breadth of the country. The question this time is to exactly estimate the impact of this pandemic.

The Prime Minister’s office and the Ministry of Finance and Planning Commission are working separately to come up with estimates and no one knows whose estimates will be considered final on the basis of which Islamabad might seek financial assistance from multilateral and bilateral donors.

Although, Prime Minister Imran Khan constituted a Ministerial Committee to assess the exact losses, and the government has already taken a decision to announce relief package tomorrow (Tuesday), the joint committee has no representation of the Finance Ministry, FBR, Planning Commission and the State Bank of Pakistan. All have been assigned to workout exact details of impacts of coronavirus on different sectors of national economy.

Instead of working in coordination, different ministries are half-heartedly working on losses faced by Pakistan’s economy in their separate domains with shadow of doubts about whose report would be endorsed at the highest level followed by being presented to the donors for evolving consensus on any reconciled figures of required funding to various sectors in an effort to combat this virus effectively.

Now let’s see how the government moves ahead on this front as confusing signals at this critical stage will serve no good purpose.

The Planning Commission last week invited all ministries/divisions and departments as well as provinces to sit together and finalise exact assessment of possible losses for different sectors of Pakistan’s economy.

The initial assessment worked out by ministries and discussed in last week’s meeting showed that the possible impact on account of coronavirus pandemic was estimated to stand at Rs1.3 trillion through loss of GDP growth projection in the last quarter (April-June) period because of reduction in services sector including; disruptions in airline business and negative impact on imports/exports, FBR’s revenue dip, possible decline in remittances and slowing down of development funding.

The Planning Commission estimated that the size of the country’s GDP stood at Rs44 trillion and one/fourth stood at Rs11 trillion if equally distributed into each of fourth quarter on per annum basis, so the disruption caused by coronavirus was expected to cause at least 10 percent losses in the last quarter (April-June) that might count to Rs1.1 trillion at least.

The FBR initially estimated that tax buoyancy would be impacted negatively and they assessed that the lockdown of Karachi was going to cause major revenue losses. If such disruption persisted till June 2020, then the tax losses would go up to Rs380 billion. The major revenue losses are expected on account of massive reduction in consumption of diesel and petrol as the FBR estimated about 20 percent decline in consumption of diesel because of closure of transportation, intra provinces and cities as well.

“We have just projected potential revenue loss but situation on ground will unfold after passing days, weeks and months” said one top official of FBR and added that in case of blown out of full fledge crisis the FBR’s revenue loss might touch Rs 380 billion.

The FBR was already facing massive revenue shortfall even before the virus had hit, despite slashing down its annual target from Rs5.555 trillion to Rs5.238 trillion.

Earlier, the FBR had also requested the IMF for allowing further reduction in its envisaged target from Rs5.238 trillion to Rs4.8 trillion.

Now the FBR is assessing further reduction in achieving the target so it is estimating collection of just Rs4.4 trillion till June 2020.

The World Bank (WB) high-ups assessed that when they undertook survey from March 12 to 18, 2020 from a sample of export-oriented industries, they found export orders being disrupted in the range of 25 to 50 percent.

The Ministry of Commerce has estimated that the exports might face loss up to $4 billion as export target might face reduction from $24 billion to $20 billion till June 2020. The export orders have got canceled.

The imports would also be reduced in the shape of declined POL prices as well as in quantity. Pakistan imported 80 billion barrels of POL products and keeping in view the current lowest-ever prices in international market in the last two decades, the import bill would shrink further, leaving negative impact for the FBR’s collection and petroleum levy might also be reduced if the consumption decreased because of possible lockdown in different parts of the country.

The worst ever effects would though be borne by the daily wagers, as 47 percent workforce in service sector is made up of these vulnerable people who own small kiosks, work in marriage halls and hotel industry and roadside laborer who earn piece meal.

The government might increase the allocation of Ehsaas program and ensure utilisation of allocated funds. It is decided that the local works development schemes would be initiated both through the federal and provincial governments.

The utilisation of Public Sector Development Program (PSDP) might slow down, so it could be diverted into small schemes through SDGs Accelerated Program. Another probable negatively impacting issue is of possible decrease in remittances.

The Planning Commission has now instructed all federal ministries and provinces to share required information on sample format so that the exact losses could become the basis for calculating exact impact to be tabled before the donors into a synchronised and an understandable format.

Pakistan should not expect any substantial amount of grants from international donors and must devise a strategy on how much it could sustain borrowing on medium to long term basis.

If the donors provide loans with minimum conditions and lowest ever mark-up then it would be a great help to all those countries who are facing this pandemic of coronavirus.

The writer is a staff member