KARACHI: 2020 will be remembered as the year of ‘trials, tragedies, and tears’ in terms of both human and financial toll, senior economists said, reviewing economic developments in the outgoing year.
The year 2020 posed unprecedented economic challenges for Pakistan as the country suffered huge economic setbacks due to the coronavirus outbreak in March 2020. Lockdowns and travel restrictions badly hit economic activity, resulting in economic growth turning negative by 0.4% for the first time in 68 years and the nation incurring estimated financial losses of around Rs2.5 trillion on an annual basis.
Pakistan’s Finance Ministry said in its Monthly Economic Update and Outlook-December 2020 that “globally, 2020 will be considered the economy’s worst year since World War II … ending on a bleak note for millions of people, despite the prospects of a rebound that a coronavirus vaccine could offer.”
“2020 was a year of trials, tragedies and tears,” Dr. Ashfaque Hasan Khan, member of the Economic Advisory Council (EAC), said about the outgoing year. “The world will remember 2020 just like the great depression of the 1930s and the global economic meltdown of 2007-08.”
Atiq Mir, Chairman of the Alliance of Traders, said the year had wiped 20 years of economic gains.
“The country’s 20 years of economic gains have been wiped out due to pandemic-related shocks and rains that played havoc in 2020,” Mir said. “More than 80 percent of businessmen have suffered huge financial losses; 60 percent of the business activities remained suspended.”
But through the downturn, Dr. Vaqar Ahmed, Joint Executive Director at Sustainable Development Policy Institute (SDPI), said against an estimated loss of Rs 2.5 trillion, the government had come up with additional budgetary spending of Rs 600 billion to support small businesses, exporters, daily wagers, agriculture sector and low income families.
Ahmed said in the second half of 2020, Pakistan witnessed some signs of economic recovery though it would take up to five years to fully recover lost ground.
“We don’t see a forward-looking medium-term strategy that outlines the government’s priorities,” Ahmed added. “The year 2021 would be more challenging.”
Khan, of the Economic Advisory Council, predicted recovery, saying the private sector was in an “upbeat mode,” its confidence restored.
“They have started investment,” he added. “It is happening because we have gone much below in the pandemic and now we are coming up due to some good measures from the government and State Bank.”
Other economists said two major disappointments would continue to haunt Pakistan in 2021, including the government’s failure to reform the energy sector and inconclusive dialogues with the International Monetary Fund (IMF) to restore a $6 billion loan program.
“The major disappointment was the power sector reforms,” Ahmed said. “With or without COVID we should have moved forward with reforms. The government’s weakness could not demonstrate its management to drive the reform process.”
“The second disappointment is that we thought the IMF program would be on track by December 2020 but that could not happen,” he added. “Now other donors have started questioning when the negotiations will be finalized because their donor proceeds would be contingent on the IMF program.”
But EAC’s Khan linked recovery with the suspension of the IMF program: “Pakistan’s economy was on the downturn before the COVID-19 because we were in the IMF program and implementing its prior actions as well as policies.”
“We wanted to correct our balance of payments for which we massively devalued currency, raised the discount rate which slowed down investment and economic growth. Now the Pakistan economy is on an upward trajectory and is moving toward pre-COVID levels because the IMF program remains suspended.”
Khan, who opposed the IMF program, said the government should complete the program but the fund, instead of Pakistan’s policy making, should focus its expertise on institutional reforms.
Pakistan’s central bank expects economic growth will go up to two percent in the current fiscal year that ends on June 30, 2021 but economists say the main challenges amid rising human and financial tolls of the COVID-19 pandemic would be to manage mounting debt burden and meeting revenue targets.
“Managing high fiscal deficit coupled with a massive debt burden is the toughest challenge faced by our economic managers in 2021,” said Dr. Ikram ul Haq, a Lahore based senior economist. “The problem on the fiscal front is not related to revenues, but the real culprit is huge expenses, for instance debt servicing, wasteful expenses and high administrative cost to run the gigantic and inefficient government machinery.”
“The government borrowed over $13 billion in foreign loans in the fiscal year 2019-20 alone,” Haq added, saying the burden of ever-increasing national debt during the 30 months was alarming.
On the external trade front, the trade deficit widened to $9.6 billion in the first five months of the current fiscal year. Revenue growth, at 4.2 percent, needs to grow to 22 percent to reach the annual target of Rs 4.963 trillion. Average $2 billion remittance inflows have also supported the country’s balance of payment position.
Commenting on future economic outlook, the finance ministry said the economy was currently recovering, though the main risk factor remained the resurgence of new waves of infections world-wide and in Pakistan.