Is Pakistan’s economy stabilizing?

Amid the ongoing gloom and doom due to coronavirus pandemic, Pakistan witness three good news regarding the economy. On Thursday (April 16), the State Bank of Pakistan announced a revised monetary policy and decided to reduce the key interest rate by 200 basis points to nine percent.

On the same day, Foreign Minister Shah Mehmood Qureshi confirmed that the International Monetary Fund (IMF) has decided to give one-year debt relief to Pakistan as the country grapples with the coronavirus pandemic.

The International Monetary Fund (IMF) on Thursday night also approved the disbursement of $1.386 billion to Pakistan under the Rapid Financing Instrument (RFI) to address the economic impact of the COVID-19 shock.

This is undoubtedly good news for the country as the COVID-19 battle looks set to intensify. So far, the deadly virus has claimed lives of almost 136 people across Pakistan and has affected more than 7,000 people.

Let’s take an in-depth review of the impact of the economic developments on Pakistan and economic stability.

What is economic stability?

Economic stability refers to an absence of excessive fluctuations in the macroeconomy. An economy with fairly constant output growth and low and stable inflation would be considered economically stable.

Economic stability can also be referred to as the stability of the country’s economic indicators. Such as the balance of imports and exports, a substantial increase in the exchange reserves and the value of the Pakistani rupee increase against the dollar.

IMF Debt Relief and Monetary Policy

The State Bank of Pakistan decided to reduce the key interest rate by 200 basis points to nine percent. The key interest rate was reduced by two percent that now stands at 9 percent from 11 percent.

The interest rate has been reduced keeping in view the coronavirus situation in the country. It may be noted that the interest rate declined by 4.25 percent in one month.

International Monetary Fund (IMF) has decided to give one-year debt relief to Pakistan as the country grapples with the coronavirus pandemic.

After these announcements, the Pakistan Stock Exchange (PSX) soared on Friday (April 17). The benchmark KSE 100 index increased by 150.37 points and closed at 32,831.83 points, registering a healthy gain of 4.80 percent and ending the week on a positive note. Meanwhile, the lower bench KSE 30 index also increased by 661.13 points (4.81 percent) and closed at 14,407.56 points.

Amid the coronavirus lockdown situation, Pakistan has now 1 year’s time to return the country’s debt. And the approved aid from IMF can be useful in tacking the ongoing coronavirus pandemic.

On the other hand, Prime Minister Imran Khan has also launched the Ehsaas Emergency Fund Programme through which deserving people can get cash assistance of 12,000.

Is the economy stabilizing?

In a report published by International Monetary Fund, the organization projected an economic recession for Pakistan following the coronavirus-related ‘The Great Lockdown’ that would sharply contract the global economy this year.

The fund projected Pakistan’s economy to shrink by 1.5pc during this fiscal year, compared to 3.3pc growth in 2018-19.

The IMF forecast Pakistan’s consumer price index rising by 11.1pc this year before easing to 8pc next year. It also estimated the current account deficit at 1.7pc of GDP in 2019-20 which will increase to 2.4pc next fiscal year.

Moreover, the country’s unemployment rate is projected at 4.5pc in FY20 and 5.1pc in the next fiscal year. However, For FY21, the IMF expects the country’s economy to grow by 2 percent amid a global rebound of 5.8 percent.

Currently, the Pakistani economy has not been stable, but Pakistan has reached the path of economic stability and can achieve it if only the economic policies remain flawless.