DR HAFIZ A PASHA AND SHAHID KARDAR
All parts of Pakistan have been hit by the Corona Virus. The pandemic continues to spread rapidly and the, more or less, partial lockdown persists throughout the country. Already, the negative economic consequences are becoming visible. The federal and the provincial governments are all engaged in rapidly expanding their medical and health capacity for managing and controlling its spread and in reducing the negative economic fallout in terms of rising unemployment, poverty and hunger.
The previous two articles by the authors had focused on the overall economic impact at the national level of the Corona Virus in different scenarios. This article is an attempt at quantifying the likely impact down to the Provincial level. This we hope will be useful to the relevant agencies in the provincial government in the planning and implementation of targeted medical and relief measures. Also, this type of quantification should enable better co-ordination between the federal and provincial governments.
However, prior to this quantification, it is essential to present a profile of the four provinces in a way which has not been done before. This has been made possible by extensive research at the Beaconhouse Centre for Policy Research over the last few years.
Table 1 highlights the distribution of population, labour force, employment and unemployment among the Provinces as of 2017-18. The Province of Khyber-Pakhtunkhwa includes the newly merged districts of FATA.
=================================================================================
Table 1
Population Distribution, Labor Force,
Employment and Unemployment, 2017-18
=================================================================================
(Share of (%) of Pakistan)
Population Labor Force Employment Unemployed
=================================================================================
Punjab 53.9 60.0 59.9 61.7
Sindh 23.1 22.8 23.0 19.4
Khyber-Pakhtunkhwa 17.1 13.3 13.1 16.3
Baluchistan 5.9 3.9 4.0 2.6
Pakistan 100.0 100.0 100.0 100.0
=================================================================================
A number of differences exist currently among the provinces. First, the labour force participation rate and employment share are relatively high in Punjab and the lowest in Balochistan. However, the unemployment rate is relatively high in the former province and in Khyber Pakhtunkhwa.
The provincial shares in different sectors are given in Table 2. Punjab has a relatively large share in agriculture and Sindh in industry. Overall, the provincial contributions to the national GDP are 53 percent by Punjab, almost 30 percent by Sindh, 13 percent by Khyber Pakhtunkhwa and 4 percent by Balochistan. These estimates are becoming available for the first time. Also, in the last five years there is evidence that the Province of Khyber-Pakhtunkhwa has grown relatively fast while Balochistan has lagged significantly behind. Punjab and Sindh have maintained growth rates close to the national average.
============================================================================
Table 2
Structure of Provincial Economies, 2017-2018
============================================================================
Share (%)
Agriculture Industry Services Total
============================================================================
Punjab 21.4 14.9 63.7 100.0
Sindh 13.9 28.2 57.9 100.0
Khyber-Pakhtunkhwa 14.5 23.0 62.5 100.0
Baluchistan 27.1 24.5 48.4 100.0
Pakistan 18.6 20.3 61.1 100.0
============================================================================
The sectoral distribution of economic activities in each Province is given in Table 2. It is apparent that the lockdown of industrial production affects Sindh the most. Service activities like wholesale and retail trade, transport and communications and social and personal services contribute more to the economies of Punjab and Khyber Pakhtunkhwa.
The extent of vulnerable employment to the lockdown and a continuing downturn of economic activities is measured first by the extent of employment in urban areas where lockdowns are applied more and second by the share of employment in the informal sector consisting of self-employed daily wage workers or employees in SMEs. These two indicators are presented in Table 3.
========================================================
Table 3
Indicators of Vulnerable Employment, 2017-18
========================================================
% share of Employment in
Urban Areas Informal Sector
========================================================
Punjab 32.5 44.3
Sindh 47.2 41.0
Khyber-Pakhtunkhwa 18.2 52.3
Baluchistan 24.6 40.1
Pakistan 34.0 44.3
========================================================
The latest estimates are that the number of vulnerable workers in the informal sector is 17.3 million in Punjab, 6.2 million in Sindh, 3.9 million in Khyber Pakhtunkhwa and 1.1 million in Balochistan. These are the workers who need the greatest support in the next few weeks and months.
The federal government is currently operating on the assumption that cash transfers will adequately cover the families where the income earner is a daily income worker. This is a faulty assumption. The number of vulnerable workers exceeds the number of cash transfers by almost 17 million. As such, the strategy must be to develop mechanisms for income earning economic opportunities even in the presence of lockdowns. One step that has been taken is the offering of strong and diverse incentives to builders to invest in housing projects. This should increase the demand for construction workers who are hired on a project by project basis. However, more will still need to be done. Targeting support to daily income workers will remain the biggest challenge.
The national GDP growth rate in the fourth quarter of 2019-20 is likely to be a negative 13.6 percent in the worst-case scenario as highlighted in our previous article. The expectation is that exports could fall by almost 60 percent. Similarly, there will be some impact on production for the domestic market due to supply shortages of imported and other inputs.
Consequently, the negative impact is likely to be the greatest in terms of the Provincial GDP loss in Sindh and Punjab because over 90 percent of the exports originate from these Provinces. The resulting estimate of the GDP loss per capita is given in Chart 1. The estimated GDP growth rate will be negative in 2019-20in all four Provinces. It is likely to range from minus 3.1 percent in Sindh, minus 2.9 percent in Balochistan, minus 1.7 percent in Punjab to minus 1.5 percent in Khyber Pakhtunkhwa.
The likelihood is that the inflation rate will be 11.5 percent during these three months. Here again, Sindh may be more vulnerable because Karachi has tended to have a higher rate of inflation. Punjab generally has a lower rate of inflation due to greater food security. As such, the inflation rate could approach 14 percent in Sindh, 10 percent in Punjab and close to 11 percent in Khyber-Pakhtunkhwa and Balochistan in the fourth quarter of 2019-20.
Turning to the unemployment scenario, with 13.6 percent decline in the GDP in the fourth quarter of 2019-20 due to the negative impact of the coronavirus, especially on exports and private investment, the estimated increase in number unemployed is above 6 million. This will take the number of unemployed to 10.5 million as shown in Table 4.
====================================================================================
Table 4
Projected Unemployment Rate by Province
====================================================================================
Unemployment 4th Quarter, 2019-20
Rate Prior to Number of Unemployment
Corona Virus (%) Unemployed (Million) Rate (%)
====================================================================================
Punjab 7.0 6.7 16.2
Sindh 5.7 2.4 15.0
Khyber-Pakhtunkhwa 8.1 1.2 14.5
Baluchistan 4.3 0.2 8.9
Pakistan 6.7 10.5 15.2
====================================================================================
The maximum increase in the unemployment is anticipated in Punjab and Sindh. As such, the unemployment rate is projected to rise to over 16 percent in Punjab and to 15 percent in Sindh. It is likely to approach 14.5 percent in Khyber Pakhtunkhwa and 9 percent in Balochistan. These are unemployment rates which have never been seen before in Pakistan.
The IMF has highlighted the risk of social unrest in the face of a record jump in unemployment and poverty in developing countries. Therefore, with the support of multilateral agencies and others, efforts will have to be made by both the federal and provincial agencies to protect unemployment of construction and the daily income workers, self-employed in retail trade and employees in the SMEs.
Proper recent estimates are not available of the level of poverty nationally and in the provinces. Therefore, an approximate estimate is that the number of poor in Pakistan at the end of 2019 was close to 80 million. This is likely to increase by 15 to 20 million in coming months. Altogether, over 14 million families will need continued support from the BISP/Ehsaas Programme. The share of destitute population in relation to the total population is likely to be the highest in Balochistan and Khyber Pakhtunkhwa. The distribution of the transfers could be as follows: 7.1 million in Punjab, 3.5 million in Sindh, 2.3 million in Khyber Pakhtunkhwa and 1.1 million in Balochistan. Also, a second round of cash transfers may become essential by mid-June.
The analysis is incomplete without highlighting the fiscal implications on the provincial governments. Already, the cash surplus of the four Provinces combined was depleted by Rs 98 billion in the month of March. The prospects of transfers from the federal government have substantially worsened for the fourth quarter of 2019-20. Given the big contraction in the various tax bases, there is likely to be an incremental shortfall in FBR revenues of over Rs 400 billion in the last quarter of 2019-20. This will imply the biggest ever reduction in transfers to Provinces of almost Rs 900 billion compared to the originally anticipated level in the Budget of 2019-20. In addition, own-revenues will be lower by almost Rs 100 billion in 2019-20.
There is even the likelihood that the existing cash balance of some provinces may be fully utilized and special arrangements will have to be made for ways and means advances to these provinces. Also, efforts must be made to find rupee counterpart funds for acceleration of projects with concessional financing from the World Bank and Asian Development Bank, especially in the social sectors.
There is need for a national policy for general public health, for tackling the epidemic and implementation of different measures for providing relief and for incentivizing key sectors of the economy. In particular, there is a need going forward for giving the highest priority to food security. And as a starting point the procurement target of 8 million tons of wheat must be met if a price spiral is to be avoided as happened earlier this year. Special arrangements will also have to be made to ensure adequate import of food items like pulses and palm oil. Fundamental steps, policy actions and associated instruments and institutional arrangements will be needed to boost agricultural output. Of course, the intensity and coverage of these measures will vary from Province to province depending upon the magnitude of the spread and negative impact of the coronavirus.
(The writers are former Federal Minister and Governor of the State Bank of Pakistan, respectively)
