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Hard way ahead for Pakistan

by Daily Patriot
June 22, 2020
in City
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Fitch, one of the top three global rating agencies, is right to warn that Pakistan has a tough road ahead and the compulsion to borrow more, primarily because of the very low rate of growth, will push the fiscal deficit further into red than the government seemed to realise while presenting the annual budget. This much is pretty straight forward. There is much about the fight against the pandemic that is still in the realm of the unknown; chief among them being just how long it will last. The WHO raised hopes recently when it said that vaccines might be ready to administer to the most vulnerable people before the year is out, yet there’s very little scientific evidence to back such hope. So, while the uncertainty lasts economies like Pakistan’s will remain under immense strain.For one thing, they just do not know when the next round of stimulus packages might be needed. The government threw what it could into the market a couple of months ago, to keep the economy from falling face first, but that’s about all it had the capacity for. Now anything that is needed must come from donors. But that brings us to the next problem. Institutional donors like IMF (International Monetary Fund) lend a hand whenever they can, as the Fund did in April when it gave us $1.4 billion under the Rapid Financing scheme on top of the EFF (Extended Fund Facility), but third world countries will also have to understand that these outlets are now under more pressure than they have ever been. For, just about every country, rich or poor, is in need of emergency financing. And there are only so many places they can go to for quick loans.

Pakistan must then prepare not just for the fiscal deficit to worsen, but also for the debt-to-GDP ratio to rise. The budget expects it to settle around 82pc of GDP whereas Fitch believes it will be far closer to 90pc. And that, of course, means that the next year will not be much to write home about either. If the country’s economic managers think the outgoing fiscal year was tough, then they should prepare for something really out of the ordinary in the one just underway. This is also a time when exports and remittances are under the kind of pressure we have never known them to be; that is yet another complication brought about by the pandemic. Much caution will be needed to get through the next year without too many problems.

Daily Patriot

Daily Patriot

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