August 16, 2020 (MLN): The Covid-19 pandemic severely impacted the external part of Pakistan’s economy by reducing exports, foreign investment, remittances and increasing external debt as the pandemic pushed the global economy into a deep recession.

Among Pakistan’s five major trading partners, which include China, USA, UK, Japan and Germany, having more than 50% share in Pakistan’s trade, four of them are the worst hit countries who experienced the devastating impact of covid-19.

Since these countries have been hit hard by the pandemic, it is worthwhile to look at how much Pakistan’s trade, investment and remittances from these countries have been affected.

Exports and Imports

Pakistan’s trade performance since the outbreak of the global epidemic i.e. in last seven months (December 2019 – June 2020) with these major trade partners is shown in the Figure below. The significant disruption in Pakistan’s trade with these countries can be seen. According to SBP's latest available data, Pakistan’s exports to China, Japan and UK experienced a notable reduction during Dec-Jul Fy20, compared to the corresponding period last year as exports to these declined by 18%, 16% and 9% YoY while exports receipts from USA and Germany registered a negative growth of 8% and 1% YoY. Similarly, Pakistan’s import payments to Germany, UK and Japan saw a significant decline. Whereas, imports from USA and China did not affect much as Pakistan heavily imports capital and intermediate good from these countries which then utilize in the production of final goods for domestic consumption and exports.

During 1HFY20, i.e. pre-Covid period, Pakistan's exports to these countries showed an upward trend, as shown in the figure below. Meanwhile, in December 2019, when the covid-19 pandemic originated in China, exporters subsequently moved their orders particularly of textile related products to Pakistan because of trade disruption of these countries with China as the later locked its border and stopped trade with rest of the world.

A dip in Pakistan’s exports was witnessed during 2HFY20, when the pandemic expanded to touch every part of the globe after which countries experienced significant contraction in their economic activity due to interruption in supply chains and transportation, after major lockdowns resulted into a decline in Pakistan’s exports of goods and services.

Furthermore, the latest Google Community Mobility reports revealed that compared to pre-COVID levels, retail activity in USA is down by 16%, UK is down by 28% whereas, Germany is down by 5%, thus, it can be expected that  Pakistan’s exports to USA and UK would remain in borderline due to Covid-19 going forward.

Foreign Investment:

Just before Covid-19 pandemic, there were some signs of recovery in external part of Pakistan’s economy as Foreign Direct Investment (FDI) in Pakistan registered an increase particularly from Chinese companies as shown in the graph below. The situation in these countries became worse during Jan-May FY20 as the flows of FDI from these countries were under severe pressure and declined sharply in case of China.

Remittances

 The only thing that has not affected much by the pandemic outbreak is the flow of remittances to Pakistan. The remittances from USA during the covid period i.e. Dec-Jun FY20 surged by 31% YoY to $2.6 billion, Whereas, remittances from UK and Germany were 29 times and 5 times higher respectively compared to the period of Dec-JulFY19. The below graph also shows that remittances from Japan and Germany remained almost the same as they were during Pre-Covid period while a slight decline in flows of remittances from USA and UK during Jan-MarFY20 can be seen. Thus, despite increasing economic challenges, the flow of remittances remained robust during Dec-Jun FY20.

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