Analysts expect 0.25 percent growth against targeted 4 percent

Due to severe impact of deadly coronavirus outbreak and lockdown on economic activities, the country's GDP growth is expected at 0.25 percent in the current fiscal year (FY20) as compared to government's target of 4.0 percent, economists said.
The coronavirus outbreak is first and foremost a human tragedy, affecting hundreds of thousands of people. It is also having a growing impact on the global economy including Pakistan, they added.
"While early days, we believe Covid-19 will not just have short-term repercussions but medium-term implications on Pakistan economy that was just starting to recover after two years of slowdown," Syed Atif Zafar, Chief Economist and Director Research at Topline Securities said.
Like several other countries, Pakistan too has announced a lockdown since third week of March-2020 and will continue till April 14, 2020. It will most likely be extended considering the rising Covid-19 cases and deaths. Though so far the mortality ratio in Pakistan is on the lower side at 1.4 percent compared to world average of 5.2 percent so far.
"Based on different studies and analysis, we have built in 6 weeks of severe lockdown till end April, and after that gradual lifting of restrictions over next two months with state starting to normalize post June", Syed Atif Zafar said in its research report. "We estimate the lockdown related disruptions and subsequent fall in aggregate demand because of Covid-19 are likely to result in GDP contraction of 6-8 percent on year-on-year basis in the 4th Quarter of FY20 mainly due to fall in industrial production," the report said.
"While Pakistan does not report quarterly GDP figures, we have conducted this analysis considering the huge impact of lockdown on economic activities. It will result in Pakistan reporting 0.0?0.5 percent on YoY GDP growth in FY20E, where in the worst case scenario Pakistan's economy can shrink by 0.5-1.0 percent on YoY basis, which will possibly be the first time in Pakistan's 72-year history. "However, in FY21F we expect GDP growth to recover to 3.5 percent," Syed Atif Zafar said.
Due to lockdown and government relief measures it is estimated Pakistan's fiscal deficit to shoot to 9.0 percent of GDP in FY20E and subsequently clock in at 8.0 percent of GDP in FY21F. This will result in three consecutive years (FY19A-21F) of 8.0 percent and above fiscal deficits, seen only during FY86-88 in Pakistan previously. "We also foresee Balance of Payments problems over the next 3-12 months (even though Current Account balance will be more than manageable), if Pakistan is unable to muster reasonable support of the IMF, multilateral agencies and friendly countries," he said.
"We believe Pakistan will renegotiate IMF loan program due to the extraordinary circumstance because of the Covid?19 outbreak," he said. "As a result of the mentioned Balance of Payments issues, we have revised our PKR/USD assumption for June-2020 to Rs 170 (from Rs 158) and for June 2021 to Rs 180 (from Rs 165)."
Falling commodities prices will help in easing inflation to 11.1 percent in FY20E and 8.2 percent in FY21F. "Considering fiscal situation and falling PKR, we have not assumed further policy rate cut in 2020," he said.
"We lower our KSE-100 Index target to 38,500 by December-2020 - an upside of 25 percent from April 02, 2020 closing", he added. "The PSX trades at 2020E P/E 5.8x (ex E&P at 7.0x), where we believe cherry picking will be crucial in unlocking returns - which is at a discount of around 60 percent to MSCI EM (Asia) compared to its historical discount of about 40 percent," he said.
The overall impact on the economy due to the Covid-19 will be felt across the corporate sector, in one way or the other. However, there may be a varying level of impact, he said.