IMPACT OF COVID-19 ON

PAKISTAN’S ECONOMY

MUHAMMAD RAFFAY MAQBOOL

20181-23652
COVID-19 AND CURRENT SITUATION OF PAKISTAN’S ECONOMY

Economies all over the world, including Pakistan, have come to a screeching halt. The impact on
Pakistan economy is dependent on the time line of handling COVID-19 and its intensity of spreading in
surroundings. Asian Development Bank (ADB) stated in its report that the virus outbreak could cost
Pakistan economy in the range of $16.387 million to $4.95 billion, or 0.01% to 1.57% of GDP. The
report also highlighted that this loss would plunge Pakistan's GDP by at least 1.57 per cent and trigger
946,000 job losses.
Impact on Financial Market
As confirmed cases keep rising in various part of Pakistan, the Pakistan Stock Exchange (PSX) is in
continual decline affected by the panic scale. On March 19, the PSX fell to its lowest in more than five
years. KSE-100 has suffered several trade halts these days to safeguard investors and market participants
during volatility and turbulence.
Impact on Trade and Industrial Sector
Many industrial sectors could be affected due to their integration to global market. Pakistan is one of
the major exporters of textile products, which is the key foreign currency earner. Pakistan's textile sector
relies on other countries for the bulk of its capital goods inputs. Since lots of foreign companies were
closed down during the pandemic, those textile factories will be surely affected. However, given the
domestic focus of its economy, Pakistan should be less impacted by travel bans and slowing international
trade than other more externally-exposed developing economies.
Pakistan has also some preferential treatments from some western countries including Europe. After its
Brexit, UK signaled to double its trade with Pakistan on back of the improved security situation of the
country. Moreover, in order to deal with the challenges caused by the pandemic, many countries
including most members of G20 have announced quantitative easing (QE), trillions of USD will flood
in the major economies, and thus push the depreciation to a new height. According to economic
projections, the Chinese Yuan is expected to depreciate by 3-5 percent. All these will result in some
decline in Pakistan's import bills.
Actually, the country's eight months balance of trade i.e. July 2019 to February 2020 has improved by
26% to 15.77 billion as reported by Pakistan Bureau of Statistics. Exports recorded a growth of 3.65%
during the same period, increased from $15.1 billion to $15.65 billion whereas imports declined 14.06%
from $36.56 billion to $31.42 billion during the same period. It means the country's balance of payment
improved 14.61% to $2.26 billion from $1.93 billion in the month of February. This gain could be eroded
by the measures for tackling the pandemic.
Economic activities are crippled. The virus has killed off the stock market gains. The Federal Commerce
Secretary Commerce said that exports orders had got cancelled and due to this export loss can be in the
range of $2 billion to $4 billion. The FBR is already facing a massive revenue shortfall. The estimated
collection of revenue till June 2020 is just Rs 4.4 trillion as compared to the FBR’s annual target of
5.555 trillion. A drop in international tourism and a reduction in remittances are other pieces of bad
news.
Impact on Small and Local Business in Pakistan
In Pakistan, similar to other countries SMEs are regarded as the spine of State’s Economy. They
contribute approximately 40 percent in the GDP of the country, 30 percent in the export and provide 80
percent of total employment. Further, SMEs play pivotal role for innovation, revamping social status
and elevating life style. It is fact that the economy of Pakistan is largely SMEs driven economy. SMEs
are providing significant contributions in Pakistan's economy is more than 90%. There are 3.2 million
business units in Pakistan.
The situation is rapidly changing. The amount of people deemed safe to gather in a single place has
dwindled from thousands, to hundreds, to ten. Restaurants, movie theaters, and gyms in many major
cities are shutting down. Meanwhile many office workers are facing new challenges of working remotely
full time. According to orders given by the federal and provincial governments, many offices have
been shut down partially while shopping malls, parks, picnic spots, restaurants and marriage halls
have been closed completely.
In addition to these, inter-city bus and some air services have also been suspended while markets and
shops have been ordered to stay closed with the exception of grocery stores and pharmacies. Hundreds
of thousands of people are feared to lose jobs in the aftermath of the virus. Around 2.6 million people
may become jobless in the country over the next 18 months.
The unemployment rate may surge to 8.1% in fiscal year 2020-21 compared to 5.8% reported by the
Labor Force Survey 2017-18. All such things increased the cost of production and resulted in de-
industrialization in Pakistan,” “Pakistan’s economic growth will slow down further to around 2.5-
2.7% in current fiscal year 2019-20.
The small businesses have been severely affected by the virus. The closure of markets is set to push
down industrial output and impact employees the most. The entire supply chain will be disrupted.
Imports and exports are set to shrink. The drop in the transportation service is likely to render many
drivers, including those running cabs and rickshaws, jobless.
Karachi Chamber of Commerce and Industry (KCCI)’s former president pointed out that before the
outbreak of the virus, it was mostly the textile industry that was performing well. This industry has
now joined the other ill-performing sectors such as automobile, steel and cement.
Pakistan received a higher number of textile export orders following the lockdown in China. Now, the
export orders are being delayed as Pakistan’s Small and medium enterprises (SMEs), which had a
significant share in the national production and exports, had been the worst hit.