Pakistan’s economy amid COVID-19

  • The outbreak of COVID-19 covered the whole world, posing severe socio-economic challenges, especially for the Developing Countries.
  • Pre COVID-19, global growth was projected to rise by 3.3 % in 2020, which was sharply contracted by -3% (April 2020) as a result of the pandemic. According to the World Economic Outlook (WEO) June 2020 forecast, the growth is projected to reduce further by – 4.9 percent in 2020.
  • Pakistan was no exception and COVID-19 drastically changed the whole scenario.
  • Prior to the COVID-19 outbreak, the GDP growth was projected at 2.4% for Fiscal Year (FY) 2020 while it is estimated at -0.4%.
  • The last quarter of this fiscal year bore the most significant brunt of the COVID-19 crisis.
  • The Federal Board of Revenue (FBR) collected Rs 3,998 billion in FY2020. Pre COVID-19, the FBR target was Rs 4,807 billion; thus estimated revenue loss was approx. Rs 809 billion due to pandemic.
  • The budget deficit stood at 8.1 % of the GDP in FY2020 against the target of 7.5%.
  • Low economic activity in EU, USA, UK, Middle East, and resultant fall in commodity prices, exports of Pakistan remained US$ 22.5 billion (Pre COVID: US$ 25.5 billion estimated).
  • Workers’ remittances reached US$ 23.1 billion (Pre COVID: US$ 24 billion estimated).
  • Before COVID-19, the GDP was projected at 3.0 percent for FY2021, now it is projected at 2.1 percent.

The federal government acted in a timely and well-calibrated manner to lessen the detrimental effects of COVID-19.

  • The government announced the largest-ever Fiscal Stimulus package of Rs 1,240 billion (around US$ 8 billion). The package covers Emergency Response, Support to Business, and Relief to Citizens.
  • A special package for the construction sector was also announced to facilitate the private sector investment and increase employment opportunities in the Country in the wake of the Coronavirus outbreak.
  • To uplift the agriculture sector “National Agriculture Emergency Programme” in coordination with all provinces is being executed. 13 mega projects at the cost of Rs 277 billion are under execution.
  • The State Bank of Pakistan (SBP) is providing liquidity support to households and businesses to help them through the ensuing temporary phase of economic disruption.
  • Further, the policy rate was cut by a 625 basis point in total till June 25, 2020, bringing it down to 7.0 percent from a peak of more than 13.25 percent.

To support exports,—

— Export Finance Scheme (EFS) rate is maintained at 3.0 % and Long Term Finance Facility (LTFF) has reduced from 6.0% to 5.0 %. Per project LTFF limit has been enhanced to Rs 5 billion from 2.5 billion.

— Due to the COVID-19 pandemic, the SBP has reduced the performance requirement for availing credit under EFS, from twice to one and a half times of borrowed fund, and extended the facility till December 2020.

— In addition, the SBP announced additional support of Rs 190 billion for exporters and investors in the export-oriented sectors to safeguard against a reduction in global export opportunities due to the pandemic.

— Payment of export rebates is being fully automated.

— More than 1,600 tariff lines constituting thousands of raw materials were exempted from customs duty.

For worker’s remittances,—

— Reimbursement of T.T. Charges Scheme was revised in March 2020 accordingly, Remittance transaction between US$ 100 and US$ 200 (or equivalent in other currencies) to be reimbursed increased from Saudi Riyal (SAR) 10/ to SAR 20/-.

— The SBP has encouraged formal banking channel for remittances and raised the payment limits for IT-related freelance services from US$ 5,000 to US$ 25,000 per individual per month to enhance business-to-customer transactions.

National Remittance Loyalty Program will be launched from December 1, 2020 through a mobile app.

— The government has exempted withholding tax on remittances transactions.

— Rs 25 billion has been allocated to improve foreign remittances through banking channels and build up foreign exchange reserves.

To expand the tax net,—

— FBR has envisioned various reforms/ special initiatives with an aim to improve revenue collection in line with efforts to facilitate the taxpayers for the best outcome.

— Data obtained from DISCOs and Gas Companies for broadening of the tax base.

— In order to develop 360-degree view of taxpayers, data sources like banks, vehicles and real estate transactions have been captured and a Data Bank developed.

— Due to enforcement measures, number of tax filers has reached to around 2.7 million, which is record high in the history of the FBR.

 

Note: The above information was shared with the Senate on October 16, 2020 by the Minister for Finance and Revenue.