3. MACROECONOMIC FRAMEWORK
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Indicators 2019-20 2019-20 2020-21
Pre-Covid Projections
Real GDP growth (%) 2.4 -0.38 2.0
Fixed investment (as percent of GDP) 13.2 - 11.4
Public investment (as percent of GDP) 3.3 - 2.7
Inflation (CPI, Period Average, Growth %) 11.8 11.3 8.0
Government revenue (percent of GDP) 16.0 14.3 15.8
Government expenditure (percent of GDP) 23.2 23.5 22.3
Budget deficit (percent of GDP) 7.2 9.2 6.5
Primary deficit (percent of GDP) 0.8 2.9 0.4
General government debt (% of GDP) 80.4 85.4 83.3
Exports fob (USD billion) 25.5 23.7 24.8
Imports fob (USD billion) 48.3 44.4 45.8
Remittances (USD billion) 22.6 20.8 20.5
Current Account Deficit (% of GDP) 2.2 1.7 2.4
Gross reserves (USD billion) 12.6 12.0 15.0
Gross reserves (Months of Imports) 2.5 2.7 3.3
Source: Finance Division, SBP & IMF Country Report No. 20/114
4. RISKS TO CURRENT ACCOUNT
Risks to current account have reduced after external assistance pledges. However
there are limits to such assistance from abroad. Ultimately, the government will have
to plan and bridge the growing financing gap through non-debt inflows;
Unfortunately, with expected return of significant number of Pakistani workers from
abroad, particularly in gulf countries, remittance outlook remains uncertain;
We also understand that weakening of financial markets could translate in to a
potential financial contagion for many countries which are trading partners of
Pakistan. This in turn can keep demand for Pakistan’s exports subdued during FY21.
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5. IMPACT OF COVID-19 ON SME SECTOR
SMEDA: 95% of SMEs have reported a reduction in their operations; 92%
have reported a disruption in their supply chain; 23% have reported up to
100% loss in their export orders
SDPI: 1.4 million SMEs may face 50% decline in their income; 3.04 million SMEs
in Pakistan may need assistance; 9.50 million of non-agricultural jobs are at
risk
Karandaaz: 58% SMEs had laid off employees; 47% respondents had
reduced employee salaries; women-led enterprises have reported 61%
reduction in their revenue forecast for April – June.
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6. RESPONSE FROM THE STATE
Central bank: funding and finance; risk sharing; refinance schemes
Ministry of Finance : Power sector subsidy, reducing tariffs on inputs, expediting
refunds etc. Budget FY21 to further announce some relief
Ministry of Industries & Production: Reduction in electricity costs
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7. IS THIS RESPONSE ADEQUATE?
- As costs related to compliance with social distancing and health related SoPs increase, further
support from state may be required
- Need greater awareness regarding how to access the current schemes
- Deferment of utility bills for next quarter
- Support in digitizing production, marketing & distribution
- SMEs in trade require better understanding of safe trading practices
- Support towards payment of rents
- Increasing amount of non-collateralized loans
-Tariff reform for SMEs in health/PPE space
- Which other overheads?
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9. DESPITE IMPROVED EODB RANK INVESTMENT RATE REMAINS LOW
Frequently changing tax code
High cost of regulatory compliance, utilities, and overheads
Investment laws and policies are at variance
Complex dispute resolution mechanisms
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10. BETTER BUSINESS REGULATION REDUCES COST OF DOING BUSINESS
Business climate for each sector
Laws
Rules
Regulations
Compliance
Priorities identified by businesses
Tax harmonization
Foreign exchange manual
Investment policies need alignment with
law
E-commerce policy
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11. SUPPORTING SME TO GROW OVER THE MEDIUM TERM
Policy support required at various levels
Federal regulations
SECP, FBR, SBP, EOBI
If foreign investor (additional offices)
BOI, M/O Interior/Line Minister
Provincial regulations
Provincial GST body, Excise, labour & social security, health & safety, sectoral authorities
Local regulations
Trade licenses, district municipal authority, cant. authority
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12. WAY FORWARD
Reduce regulatory buden on SMEs: take inventory of business regulations,
eliminate unnecessary laws, automate/rationalize compliance processes
Market reform locally is equally important. Strengthen competition regime and
promoting a level-playing foreign investment regime necessary to attract
capital inflows (see SDPI’s recent report); diaspora willing to invest in SMEs
Proposals beyond budget FY21?
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