Pakistan’s real GDP growth is estimated to have declined from 1.9 percent in FY19 to -1.5 percent in FY20. The first contraction in decades, this reflects the effects of COVID-19 containment measures that followed monetary and fiscal tightening prior to the outbreak. To curtail the spread of the pandemic, a partial lock down – that included restrictions on air travel, inner-city public transport, religious/social gatherings and the closure of all schools and non-essential businesses – was imposed in March, and gradually eased from May 2020 onward. This disrupted domestic supply and demand, as businesses were unable to operate and consumers curbed expenditures, which specifically affected services and industries. The services sector is estimated to have contracted, by over 1 percent, while industrial production is expected to have declined even more, due to the high policy rates prior to the pandemic and plunging domestic and global demand thereafter. The agriculture sector, partially insulated from the effects of the containment measures, is estimated to have expanded modestly over the year.
The current account deficit shrunk from 4.8 percent of GDP in FY19 to 1.1 percent of GDP in FY20, the narrowest since FY15, driven mainly by import values falling 19.3 percent. Total export values also contracted 7.5 percent due to weak global demand. Despite the global downturn, workers’ remittances increased relative to FY19, underpinning a wider income account surplus. Meanwhile, higher net foreign direct investment, and multilateral and bilateral disbursements, more than offset a decline in portfolio flows, leading to a larger financial account surplus. The balance of payments consequently swung to a surplus of 2.0 percent of GDP in FY20, and official foreign reserves increased to US$13.7 billion at end-June 2020, sufficient to finance 3.2 months of imports.
There are considerable downside risks to the outlook with the most significant being a resurgence of the COVID-19 infection, triggering a new wave of global and/or domestic lockdowns and further delaying the implementation of critical IMF-EFF structural reforms (slated to resume in H1-FY21). Locust attacks and heavy monsoon rains could lead to widespread crop damage, food insecurity and inflationary pressures. Livelihoods for households dependent primarily on agriculture could also be negatively impacted. Finally, external financing risks could be compounded by difficulties in rolling-over bilateral debt from non-traditional donors and tighter international financing conditions.
Detailed Reading available in PDF.Format: Pdf
Total Files: 07File Size: 76.7 MB
Detailed Reading available in PDF.
Post a Comment