Economy ‘vulnerable’ to shocks, says central bank
June 01 2020 12:23 AM
RELATED STORIES
The State Bank of Pakistan
State Bank of Pakistan

Internews/Karachi

The coronavirus pandemic left Pakistan’s economy “vulnerable” to shocks due to the government’s lack of information on social sectors, increased debt level, low per capita spending on health and sector, said the State Bank of Pakistan (SBP).
The Covid-19 disease is caused by the coronavirus.
“After the period of stabilisation, the economy was beginning to show green shoots of recovery. Pakistan’s fundamentals were much improved before the Covid-19 struck the global economy and this should help Pakistan recover once the pandemic subsides,” the SBP said in a video presentation uploaded on its Twitter account.
However, there are vulnerabilities that remain in some areas, it added.
“Inadequate focus on social sector spending has left us vulnerable to shocks such as Covid-19,” the central bank said.
The government expenditure on health and education in Pakistan is relatively low compared to regional countries, it said, adding that “the country spends 5.8% of its gross domestic product on these sectors compared with 7.3% of GDP spent on the development of health and education by India”.
“Having a strong healthcare system and an adequate level of awareness among the public is important in the current scenario.”
According to the United Nations, roughly four out of 10 people experience multidimensional poverty in Pakistan.
This has raised challenges of food and social security in the extended lockdown situation.
The central bank said Pakistan’s debt level was persistently high, despite the fiscal sector improvement.
The country’s debt rose to 94% of its GDP at the end of December 2020 from 78% of the GDP in the fiscal year 2015/16.
The increase in public debt has constrained the government’s ability to spend on social sectors.
“We have limited monthly and quarterly data regarding key sectors such as livestock, SMEs, health, real estate and housing, and employment,” the central bank said.
The country’s GDP is heavily dependent on consumption: Pakistan’s is the highest amongst the regional countries, which means the GDP growth is vulnerable in a limited mobility scenario.
The informal employment’s share is considerably high at 72%, while formal employment’s share stands at 28%.
The SBP said that the economy was starting to do well before the onset of the pandemic.
“The external sector performance was improving, and trade dynamics were becoming more favourable with increasing exports and declining imports. This led the country to earn more foreign exchange,” it said.
The foreign exchange reserves held by the SBP were $12.8bn in February 2020, compared with $7.3bn in June 2019.
Credit rating agencies were satisfied with the progress, and they either maintained or raised the outlook for Pakistan as “stable”.
Meanwhile, on the government front, tax collections started growing during the fiscal year 2019/20, which meant that the government’s ability to spend was increasing.
The development spending increased to Rs456bn in July-February FY2020 from Rs319bn a year ago.
The primary balance was in surplus for the first time since 2016.
“The Covid-19, which is primarily a health emergency, could turn into an economic shock. The economy could be affected by a number of channels. This shock has affected emerging markets like Pakistan both external channels and domestic channels,” it said.
External channels include the slowdown in trade of goods and services and income, workers’ remittances and financial flows channel.
However, it has also brought some respite for importers in the form of lower oil prices.
Domestically heightened uncertainty has adversely affected consumer demand business activity investment as well as government revenue in emerging markets.
To fight the pandemic, governments have imposed lockdowns of varying degrees, which has led to lower mobility and higher employment resulting in reduced household consumptions and this, in turn, has created cash flow problems for businesses and factories.
“If it continues for too long, it could lead to bankruptcies of businesses and factories and layoffs of workers,” the central bank warned adding: “If the pandemic is prolonged, heightened liquidity issues and bankruptcies of firms might translate into losses putting the financial system under pressure.”
Overall these macro-financial linkages could further depress domestic economic activities, it added.



There are no comments.

LEAVE A COMMENT Your email address will not be published. Required fields are marked*
MORE NEWS

HAPPENING IN DOHAMore