Daily Times

The government of Pakistan is discussing the possible budget for country. Although it is routine thing but this year it will not be usual business due to multiple factors. COVID-19 has hit world and it has changed dynamics of world economy. The factors of economy are adjusting to new normal. Governments have been stuck between “lockdown or no-lockdown” and they will have to decide between “devil and deep see”. However, the situation is grimmer for developing countries. As, in developed world it is decision between economy and life but for developing countries it is decision between life and life. Unfortunately, Pakistan falls in second category.

Pakistan is home to 58.8 percent food insecure and almost 39.6% population in multi-dimensional poverty trap. Owning to weak economic activities the inflation is on rise. Pakistan Bureau of Statistics (PBS) data shows that the monthly CPI has shown a change of 8.2 percent. The increase in CPI in rural area is 9.7 percent as compare to 7.7 percent in urban areas. The performance on trade and industrial side is also very weak. PBS data indicated that the export of Pakistan is shrinking during the last three months. It has declined to US$ 957 million in April, from US$ 1814 million in March 2020. It shows that total loss is equal to US$ 857 million. It is very sharp dip as compare to decrease in March 2020 (US$ 2140 to US$ 1814 millions).

Further investigation shows that the major impacted sectors with the change in term of PKR in millions are knitwear -55.44%, bed wear -50.54%, readymade garments -69.06%, cotton cloth -64.74%, cotton yarn -57.24% and fish & fish preparation -40.90% in April 2020 as compared to March 2020. Only rice (rice other 8.89 percent, basmati rice 41.36) and plastic material (51.84 percent) shows a positive trend in export. It is very alarming situation. It is assumed that the situation will further be aggravated. Besides, we also have to keep in mind that the textile sector provides jobs to millions of people. The decreasing trend of export will displace hundreds of thousands of people out of job.

Pakistan should dedicate one or two SEZs for technology and create linkages with companies and countries to build capacity and production in Pakistan

On other hand imports are not decreasing at the same pace. According to PBS data the imports for the month of April 2020 were US$ 3204 million as compared to US$3316 million in March 2020. The decrease is very nominal, 3.3% only. It is increasing current account deficit. The worrying part is that major surge in import sector was noticed in food products like palm oil 44.4% and pulses by 86.91%. The surge in import of pulses is very disturbing fact, as Pakistan is an agricultural country.

The impacts of slower export are already visible in production sector. PBS data of March 2020 indicated that the large manufacturing is on declining trend. It shows that LSMI has deceased by 22.95 % in March 2020, from March 2019. The major impacted are sectors textile (-26%), coke and petroleum product (-47.41%), Automobile (-49.45%) and engineering goods (-35.52%) etc. The decrease in large scale production sector will be translated into SMEs and commodity sectors. As these industries are dependent on SMEs or commodity sectors for raw material. For example, the textile sector will directly impact the cotton produces and allied labor. The COVID-19 and decreasing trend of export will further complicate the situation. Pakistan’s business and industrial sector was already under pressure due to poor economic condition of country. It would be difficult for Pakistan to absorb the shock.

It has also introduced problems in revenue field. Prime Minister has mentioned that in last two months the tax collection has been impacted badly and decreased by 30 percent. There was pressure on Pakistan to increase the tax by IMF and partners. But business closure and loss of jobs is impacting the tax collection. It will give impetus to fiscal deficit. The problem will be aggravated in coming months, as remittances are also decreasing due to job loss. Remittances were also contributing to boost consumption in market, which was also contributing to revenue through indirect taxes. Foreign exchange will also exhibit a negative trend. We have observed that many Pakistanis are losing jobs in Middle East and in other countries. They were sending remittances, which was a major source of foreign reserves. Pakistan was already struggling to keep the foreign reserve stable. Pakistan has to payback debt and interest on debt, which is main source of depleting of foreign reserves. Pakistan was taking loans from many international partners and financial institutions to keep our reserve stable and pay back the debt.

In these circumstances, what options government of Pakistan have to present a decent budget. The options are bleak, or we can say we do not have option for a decent budget. The resources are shrinking, and expenditure are expanding, especially in term of relief to business and industrial sector. Moreover, government will also have to spend to take care of millions of poor people. Hence, government has to look for immediately relief or sector which can help to sustain the pressure.

Agriculture is a sector which can help Pakistan at this stage. It has multiple linkages with other industries and livelihoods of people. It can provide raw material for textile, leather, and food industry etc. It can also be a good source of export like rice, meat, mango, citrus, dates, apple, and many others. However, the most important contribution would be in form of job creation and addition to revenues, foreign exchange, from all these activities. The revenue would help us to sustain the shock in other sectors. Second, the job contribution would be direct and indirect, which will help to take care jobless people. But, for that purpose government will have to adopt a comprehensive policy for development of sector. Government will have to come out of lip service and apply real tools. For example, we were listening that government is putting efforts to improve sector, but the attack of locust exposed the government’s efforts.

Second, information technology can also help to create jobs and earn foreign exchange resources. It will also help to promote e-commerce and mechanization of supply chain. Pakistan has already entered in the market and earning good revenue. Sector has observed an encouraging growth (26%) and earned US$ 867 millions during the first eight months of fiscal year 2019-20. Post COVID-19 will create new avenues and opportunities in this field. As, it is open secret that technology is coming in big way to replace the traditional jobs.

Moreover, the fourth industrial revolution is all about the new technologies, especially in the field of ITC. Pakistan should be ready and start investing on young human resource. One available option is CPEC. Pakistan should dedicate one or two SEZs for technology and create linkages with companies and countries to build capacity and production in Pakistan. Huawei is already assisting Pakistan, but it needs to expand the cooperation.

Third, SMEs can also help to create jobs and revenue. Though, Pakistan needs to look for new areas. One option can be Pakistan work with China through CPEC and try to be part of supply chain in some sectors like food, mechanical etc.

Lastly, these sectors can help to present a decent look budget and absorb the shocks of COVID-19. It will also pave way for recovery of economy. However, to benefit from all these areas government needs to be innovative and courageous. The past practices will not serve the purpose and Pakistan will be roaming in closed street.

Director, Asia Study Center SDPI