Finance ministry warns budget deficit will increase to 9.34% due to ongoing pandemic
ISLAMABAD: The Ministry of Finance has informed the Senate that the coronavirus pandemic can result in an estimated 3mn people being unemployed and the poverty rate to surge to 33.5%.
In a written reply submitted to the upper house on Friday, the finance ministry warned that the budget deficit will increase to 9.34% due to the ongoing pandemic which has proven to be a setback for businesses around the globe.
The ministry stated that ut of the 3mn estimated who could lose their jobs due to the pandemic, a million from the industrial sector will be unemployed while 2mn people will lose their jobs from the services sector. It added that the rate of unemployment will rise from 24.3% to 33.5%.
“The rupee was also devalued by 7.5% per month due to the coronavirus pandemic from February till March,” the ministry told the lawmakers. It added that the DGP growth before the pandemic was expected to be 3.24%. However, the 0.4% negative growth was recorded in the ongoing fiscal year.
On the other hand, the ministry also shared that there was a decrease in FBR’s revenue by Rs700 to 900 billion. It warned that FBR’s tax revenue can decrease to Rs3.9 trillion, adding that the board’s tax target was Rs4.9 trillion.
“The fiscal deficit will increase from 7.5% to 9.5%,” the ministry told the senators in its response, adding that the virus will also hamper the country’s exports which are expected to reduce to $22.22bn.
Remittances from overseas workers will also be reduced by $2 billion and the budget deficit can increase to 9.4%, said the finance ministry.
A report published last month had warned that the ongoing health crisis in the country would push millions into unemployment and poverty.
Due to “a shortfall in revenues; re-prioritising of expenditures and increase in public spending,” the post-pandemic fiscal deficit could reach as high as 9.4% against an earlier projection of 7.4%, one of the finance ministry documents seen by Reuters had confirmed.
Two government officials had told Reuters on condition of anonymity that in recent meetings on the financial situation there were fears the deficit could even hit double digits.
The figure is higher than the previous estimate of 9% predicted by Pakistan’s finance chief Abdul Hafeez Shaikh in a May 8 interview with Reuters.
Shaikh had said that the economy is to likely contract -1% to -1.5% due to losses suffered due to the COVID-19 pandemic.
“We think that right now where we are, it is likely to worsen,” he had said at a webinar.