ISMABABAD-Pakistan’s trade deficit is projected to contract by around two billion dollars during the current fiscal year (FY20) due to the economic shocks from the rapid propagation of the COVID-19 outbreak.
The country’s trade deficit is estimated at $20.75 billion after COVID-19 situation during ongoing financial year as against $22.699 billion post coronavirus situation, the data released by the International Monetary Fund (IMF) revealed. Pakistan’s exports and imports both are projected to decline during FY20 due to slowdown in economic activities throughout the world after propagation of the Covid-19 outbreak.
Exports are estimated to reduce by $1.86 billion to $23.732 billion during FY20. Similarly, imports are projected to decline by $4.64 billion to $48.291 billion during the present financial year. The reduction in imports would help in reducing the trade deficit of the country. The reduction in trade deficit would help in controlling the current account deficit. The IMF had projected that Pakistan’s current account deficit would remain $4.505 billion in FY20 after Covid-19 as compared to $6.082 billion of post coronavirus situation in the country.
Data on container traffic at Pakistan’s two major ports shows a sharp decline in export cargo handling since mid-March. This is consistent with the cancellation of export orders or requests to delay the shipments when the lockdown started in Europe. IMF staff projected workers’ remittances to drop by over $5 billion in FY2020 and FY2021, as activity in the GCC countries declines.
The IMF stated that Pakistan’s economy will be impacted through external and domestic channels: externally, the global downturn, including in Pakistan’s major export markets (China, the EU, and the U.S.), would reduce demand for Pakistan’s exports, especially textiles, and lead to more limited financial flows. In addition, remittances are expected to decline sharply. Domestically, the impact of containment measures together with heightened uncertainty and a generalized loss of confidence by business and consumers are likely to result in concurrent demand and supply shocks feeding off each other, with severe effects on investment and output. Similarly, the balance of payments (BoP) will be additionally strained from an expected reduction in exports, as global demand declines, and a weakening in remittances, especially from GCC countries. This scenario will result in new urgent external financing needs in FY 2020.
According to IMF, prior to the coronavirus outbreak, Pakistan’s reform process under the (Extended Fund Facility (EFF) program was on track. The extensive discussion of issues in the context of the 2nd review of EFF and Article IV consultations paved the way for staff-level agreement. This positive outcome reflected the successful completion of all end-December performance criteria and structural benchmarks, vastly improved fundamentals, and endorsement of the authorities’ considerable progress in advancing reforms and maintaining sound economic policies. The authorities were looking forward to approval of the review by IMF management and consideration by the Executive Board earlier this month.
Unfortunately, as a result of the pandemic, the economic situation has changed dramatically, and, as in many other countries, the external and fiscal position in Pakistan have come under stress. While the authorities remain committed to the policies and reform agenda agreed under the EFF, the sudden and massive impact of the pandemic has understandably shifted their near-term priorities more toward combating the pandemic and supporting healthcare, businesses, households and the more vulnerable segments of society. Due to heightened global uncertainty, Pakistan’s near-term economic outlook has become challenging and there is an urgent need to increase public spending to contain the outbreak and support the economy.