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Unemployment in Pakistan to rise in FY21 even after combating COVID-19 successfully

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April 30, 2020 (MLN): World Bank and IMF have projected that for the first time since 1950 real GDP growth of Pakistan will be negative in FY20 after gauging the impact of COVID-19 pandemic on the economy.

Depending upon the effective response of Pakistan and the international community in combating the pandemic, International Financial Institutions (IFIs) reports suggested that in FY2021 there is a slight improvement in macroeconomic indicators.

Policy Analysis & Development Wing of Economic Affairs Division has reviewed recent reports of international financial institutions i.e. World Bank (WB), International Monetary Fund (IMF), and Asian Development Bank (ADB) on COVID-19 and examined its impacts on Pakistan’s economy.

As far as social safety programs, this government has initiated various protection programs to mitigate the vulnerability, reducing poverty, and providing affordable healthcare and insurance to low-income families. However, ongoing COVID-19 pandemic underscores the government's efforts to strengthen social protection in Pakistan.

COVID-19 has become a major economic crisis that shut down almost all economic and social activities which include halted domestic and international flights, public transport, and railways.

On the macroeconomic front,  the challenges faced by Pakistan during the ongoing pandemic are contraction in aggregate demand for goods and services; disruption in production activities;  massive fall in investors and consumer confidence; substantial reduction in trade volume both domestic and external; lower export receipts weaken external position; and tightening of financial conditions leading to complicated situation of external debt maturity refinancing.

The table below highlights Pakistan’s major economic indicators as estimated by leading development partners which gives a summary of Pakistan’s macroeconomic outlook.

Major Economic Indicators

It can easily be deduced from the table that the COVID-19 pandemic will have severe impacts on Pakistan’s economy.

In view of the IMF, the research report by EAD underscored that Pakistan is likely to witness a considerable decrease in worker remittances and Exports. However, a fall in oil prices and weaker import demands provide some support to the current account balance. But, due to Pakistan’s new external financing needs of about $2.0 billion in the last quarter of FY 2020, international financial institutions (IFIs) expect that Pakistan's debt will witness a significant increase. Pakistan’s public debt is assessed to be sustainable, but risks have increased substantially.

Interestingly, these reports by international financial institutions have not quantified the impacts of the macroeconomic conditions on the general public. But it can be foreseen that due to contraction in economic growth, fall in worker’s remittances; unemployment in Pakistan will increase leading towards an increase in poverty in Pakistan, putting pressure on increased social safety spending in near future even after combating the pandemic successfully.  

The analysis by Development Wing of EAD highlighted that the IFIs have supported the government policies to contain  COVID-19 with the view that measures should be targeted and temporary, focusing in particular on increased health spending and utilizing existing social support schemes to provide quick and targeted support to the most vulnerable, but they may not result in permanent distortions of the overall fiscal envelope.

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Posted on: 2020-04-30T17:44:00+05:00

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