Pakistan’s Economic Outlook– Navigating turbulence: SCG

April 08, 2020 (MLN): In an unprecedented time, COVID-19 pandemic has triggered the human and economic toll around the world which cannot be overstated, Whereas, a research report by Standard Chartered Global (SCG) expects that the worst of the impact to be felt in H1-2020, it could extend beyond this period.

The detailed global research forecasted global economic collapse in 1HCY20, followed by a painful recovery. The concentrated shock to China’s economy in Q1, and the rest of the world in Q2, is likely to be larger than for any single quarter during the 2007-09 i.e. Global Financial Crisis (GFC) period, the report added.

Illustrating the scale of the current economic challenges facing by the global economies, the research underscored that US initial jobless claims spiked to 6.65mn in the week ended 28 March, equivalent to 3.2% of the working-age population – six times the previous record of 0.5% set in September 1982. This followed a spike in the previous week to 3.28mn claims.

In Europe, sentiment and co-incident indicators are also indicating steep drop inactivity. In South Korea, signs of a slowdown in new coronavirus cases due to containment measures may presage a recovery in sentiment and activity data, following a similar pattern to China.

In emerging markets, where economic and health-care resources may be more limited, governments are implementing measures to ‘flatten the curve’ i.e. slowing down the rate of infection for the contagious disease through Lockdowns or stay-at-home which have been implemented in most of the globe.

Even if it is avoided, and more aggressive policies are being implemented around the world, 2020 is one of the worst years for the global economy in living memories.

Thus, Q2-2020 should mark the low point for the global recession, with most of the lockdowns happening then, as per research. With entire economic sectors at a standstill, the research quantified the full-year impact on GDP growth in event the of a one-month shutdown of all non-essential activities/ stay-at-home on economies; the negative impact for the full year ranges from -4.7 to -1.2ppt.

Given the huge scale of the economic shock, the magnitude of the economic stimulus being delivered is unsurprising. The most effective stimulus measures, fiscal and monetary measures, are likely to be those aimed at avoiding a spiral of mass layoffs and bankruptcies, particularly for SMEs (which employ most people around the world). Without such measures, this recession deeper than 2009, would likely end up in a depression.


The research expected global pandemic, recession to weigh on Pakistan as well as it lowered 2020 GDP growth forecast for FY20 from 2% to 1.5%. The full impact of the global recession is likely to be felt in H1-FY21. Therefore, it also lowered the FY21 GDP growth forecast to 2.0% (from 3.0%).

Pakistan, a major oil-importing rely on private domestic demand to drive growth. The research emphasized that virus-related disruptions and quarantines could mean a sharp hit to economic activity in Q2.

‘FX earnings from exports and remittances are likely to be hit. Although the initial impact on the current account (C/A) impact should be offset by lower oil prices, much would depend on how long disruptions to exports persist. A prolonged loss of FX revenue would significantly increase the risk of a wider C/A gap than we currently expect’, the report highlighted.

With regards to the IMF program, the research predicted the program will remain on track but the targets will have to be adjusted due to a disruption caused by a coronavirus. Pakistan has requested assistance under the IMF’s Rapid Financing Instrument (RFI) as IMF financing is likely to play a bigger role in helping to fight the crisis in the coming months.

The stimulus fiscal package by fed govt of PKR 1 trillion and monetary easing by 225 bps in March by State bank of Pakistan are somehow justified in response to the virus.  

Considering the global-off sentiments which could lead to further capital flows from economy and costlier financing as traditional FX earnings decline is likely to pressure exchange rates against the USD, the fiscal deficit may widen. The research expects a fiscal deficit for FY20 to rise to 9% of GDP from 8%. The research emphasized that policymakers will need to balance fiscal and financial stability with growth.

Moreover, Standard Chartered research lowered USD-PKR forecasts for end-2020 and end-2021 to 180.0 and 190.0 (164.00 and 170.00 prior) to account for capital outflows and weaker FX earnings. Despite this, lower CPI inflation is forecasted to 11.6% for FY20 (from 12.5%) and 6.6% for FY21 (from 8.9%) to reflect lower oil prices as Pakistan is better placed to benefit from weaker oil prices due to the collapse of the OPEC+ agreement given limited tourism earnings.

The research expected a lower C/A deficit forecast for FY20 to 1.4% of GDP (from 1.9%) on a faster-than-expected import contraction and lower oil prices in Q4-FY20.

The aggressive quantitative easing measure of another 200bps are expected for the rest for FY20 given the sharper-than-expected slowdown and weaker inflation outlook in response to this crisis; the research lowered policy rate forecasts for end-FY20 and end-FY21 to 9.00% and 7.00%, respectively (from 13.25% and 10%).

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Posted on: 2020-04-08T15:35:00+05:00