Pakistan's deficit and poverty rate to soar due to coronavirus, govt estimates show

Updated 16 May 2020

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At least three million people will lose their jobs — one million in the industrial sector and two million in services. — AFP/File
At least three million people will lose their jobs — one million in the industrial sector and two million in services. — AFP/File

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.

The government began a phased lifting of the countrywide lockdown last week despite a rising rate of cases — a move pushed primarily by fears of an economic meltdown. The country has so far recorded 36,788 Covid-19 cases and 791 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 per cent against an earlier projection of 7.4pc, 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 9pc predicted by Adviser to the Prime Minister on Finance Dr Abdul Hafeez Sheikh 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 -1pc to -1.5pc.

“We think that right now where we are 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 24.3pc to a base case of 29pc, and a worst-case scenario of 33.5pc, the documents said.

At least three million people will lose their jobs — one million in the industrial sector and two million in services.

The documents noted that the 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 16.4pc 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 $20-21 billion against $21.8 billion in 2019.

However, a slump in imports will cut the country'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 1.5pc for financial year 2020 against a rise of 3.29pc in 2019.

The government has already rolled out a Rs1.24 trillion ($7.71 billion) stimulus to support the economy and cash handouts to the poor.

Moody's on Thursday placed Pakistan's local and foreign currency long-term issuer B3 ratings under review for downgrade, citing a potential default on private sector debt.

External help

Officials say the government is confident of getting at least $5.4 billion in external financial help, including $1.386 billion already received from the IMF as rapid financing to mitigate the coronavirus losses, and a debt rescheduling of $1.8 billion from G20 countries.

That is aside from money expected from the IMF's three-year $6 billion support programme the country entered last year, according to two officials familiar with the situation.

“Our external finance outlook appears to be very good at the moment,” one of the top officials told Reuters.

“Our expectation and our assessment is very positive.”

The officials said the country was receiving $500m in coronavirus-related support from the Asian Development Bank, and around $1 billion from the World Bank, which will also carry forward another $700m in projects from last year.

The government has also requested China to roll over payments related to the power projects set up as part of the Belt and Road initiative.

Sheikh is to present a budget in two weeks aimed at finding ways to generate revenues and cut expenditures.