Pakistan is one of the worst-hit countries in South Asia right after India. And the cases are still on a rise and have reported 64000 positive cases and 1300 deaths as of the last week of May.
Reuters reported that Pakistan could see a 9.4% fiscal deficit post-pandemic due to the shortfall in revenues, unemployment, and increased government expenditure against an earlier projection of 7.4%.
Latest World Bank report projects a 23% decline in remittances to Pakistan, totaling about $17 billion, compared with $22.5 billion in 2019, in the wake of the economic crisis caused by the Covid-19 outbreak. The top 5 countries remitting money to Pakistan are also in deep recession causing a spike in unemployment amongst the overseas workers.
In preparation to offset the shortfall in the amount of money sent back to the country by migrant workers, the government has proposed an incentive package for overseas Pakistanis.
What are the incentive packages for overseas Pakistanis?
The incentive package is to come into effect for the next fiscal year includes tax exemptions and a special loyalty program.
Under the incentives package, “withholding tax will be exempted from July 1, 2020, on cash withdrawal or on the issuance of banking instruments/transfers from a domestic bank account to the extent of remittances amount received from abroad in that account in a year”. The finance ministry has directed the Federal Board of Revenue to propose necessary amendments to the Income Tax Ordinance through the finance bill accordingly.
Special loyalty program
National Remittance Loyalty Programme is to be launched from September 1. Various loyalty and incentive schemes will be given through both; digital platforms such as mobile apps and offline platforms such as debit and loyalty cards.
Under the program, additional benefits will be given to the overseas Pakistanis in the home country such as:
Money transfer agents and financial services have been affected by the control measures such as the lockdowns, shorter business hours, and social distancing. This has led to a dramatic spike in digital remittances as reported by money transfer companies like MoneyGram, Western Union, and Remitly.
Sending money online has proven to be one of the safest, cheapest, convenient, and the most efficient way of sending money home for overseas Pakistanis. We have covered the best ways to send money to Pakistan online in detail.
Pakistan Government measures
Pakistan’s regional and national administrations have taken up measures to tackle the challenges imposed on the economy:
Despite the government's proper measures taken up, Pakistan's financial capacity might not be enough to meet the larger economic effect of the COVID-19 crisis. A strong fiscal stimulus can be difficult for stimulating recovery. There is a need for debt repayment reprieve and further monetary back-up from the developed world and multilateral institutions namely the International Monetary Fund (IMF) and World Bank.
The world leaders of developing nations have called for a moratorium on debt repayments in the wake of the global pandemic. The IMF and World Bank are looking forward to the final statement of G20 members to restructure the debts for the developing nations including Pakistan.
In conclusion, Pakistan was already facing a moderate recession before the pandemic hit the world. Now a pandemic induced recession coupled with a sharp decline in remittances and increased unemployment rates are all worrying indicators for the country. Fears of a complete economic collapse prompted the government to ease the countrywide lockdown.
Remittance flows around the Muslim festival of Eid had seen a rise but it is not likely to remain for long. The road to economic recovery may now seem bleak not just for a developing country like Pakistan but for the world, but learning from countries like China and South Korea, we might be on the other side sooner than later.