Pakistan’s deficit and poverty rate to soar due to coronavirus
ISLAMABAD: Pakistan’s fiscal deficit will be significantly worse than projected this fiscal year, with the fallout from the novel coronavirus pandemic pushing millions into unemployment and poverty, according to government estimates reviewed by Reuters.
Pakistan began a phased lifting of its countrywide lockdown last week despite a rising rate of cases – a move pushed primarily by fears of an economic meltdown. The country has reported 35,788 COVID-19 cases and 770 deaths.
Due to “a shortfall in revenues; re-prioritising of expenditures and increase in public spending,” the post-pandemic fiscal deficit could reach as high as 9.4% against an earlier projection of 7.4%, one of the finance ministry documents seen by Reuters said.
Two government officials told Reuters on condition of anonymity that in recent meetings on the financial situation there were fears the deficit could even hit double digits.
That is higher than the previous upper estimate of 9% predicted by finance chief Abdul Hafeez Shaikh in a May 8 interview with Reuters.
Shaikh said on Thursday it is hard to give specific numbers given the pandemic’s uncertainty, although the economy is to likely contract -1% to -1.5%.
“We think that right now where we’re is likely to worsen,” he said addressing a webinar.
The impact on workers and poorer people is also stark, with estimates that the poverty headcount will rise from 24.3% to a base case of 29%, and a worst-case scenario of 33.5%, the documents said.
At least 3 million people will lose their jobs – 1 million in the industrial sector and 2 million in services.
The documents noted that Pakistan Institute of Development Economics, an autonomous research organisation set up by the government, has projected job losses could reach 18 million.
Tax collection dropped sharply by 16.4% in April, the internal estimates showed.
They also stated that exports are likely to fall by $2.8 billion to $3.8 billion, with a negative impact on remittances from the Middle East, United States and Europe, which are likely to remain around $20 billion to $21 billion against $21.8 billion in 2019.
However, a slump in imports will cut Pakistan’s current account deficit to $4.5 billion in the fiscal year, from $13.8 billion in 2019.
The estimates say the economy will contract 1.5% for financial year 2020 against a rise of 3.29% in 2019.
Pakistan has already rolled out a 1.24 trillion Pakistani rupee ($7.71 billion) stimulus to support the economy and cash handouts to the poor. – Reuters