Downs and Ups

Though the coronavirus will have a devastating impact
on Pakistan’s exports, but a positive trend is visible because the
health risks in the country are not as severe as elsewhere.

By Aadil Nakhoda | September 2020

The economic uncertainties associated with Covid-19 have shaken the foundations of almost every economy in the world. All economies, no matter what their level of development, are facing significant challenges as they are reporting economic indicators at levels rarely experienced before. These challenges are unprecedented. Increasing globalization and interconnectedness, which otherwise can boost the standards of living, can also increase the magnitude of difficulties during times of recession. The three largest economies, the US, China and the EU had to abruptly halt economic activities over the last few months, devastating trade flows as global demand and supply channels came to almost a standstill. This initially had a spillover effect on the economies at the peripheries. However, as COVID-19 spread into the developing world, the economic challenges multiplied for several countries. The situation became increasingly dire for countries facing budgetary and debt-related challenges before the COVID-19 crisis.

Unfortunately, Pakistan is one such country that has struggled on the external debt front with frequent interventions from the IMF. A slowdown of the economy has had a detrimental effect, particularly as the government strives for a reduction in the probability of a future balance of payments crisis. Several developing countries, Pakistan included, burdened with external debt, were offered to restructure their debt by delaying their payments and ease their balance of payment concerns.

The following analysis is extracted from State Bank of Pakistan figures. The net reserves with State Bank of Pakistan fluctuated considerably between January and July 2020. They were at $12.3 billion in January 2020 and at $12.5 billion on 30th July 2020. The reserves peaked at $12.8 billion in February 2020, dropped to $9.96 billion in mid-June. They recovered to $12 billion in the first week of July. The reserves with the SBP were valued at $7.3 billion in June 2019. The total liquid foreign exchange reserves were reported at $19.6 billion at the end of July 2020, the highest level since 2017.

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The writer is an Assistant Professor of Economics and Research Fellow at CBER, Institute of Business Administration (IBA), Karachi. He can be reached at anakhoda@iba.edu.pk

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