MSMEs are backbone of many economies worldwide as they provide income and employment generation to a large number of people around the globe. In the case of Pakistan, MSMEs are considered as crucial for economy as they contribute 40% of the GDP with over 40% to export earnings.
These businesses represent a significant portion of manufacturing, retail, wholesale, trade, agriculture and service sectors and spread all over Pakistan in urban and rural areas. Due to COVID-19 lockdowns and outbreaks, Pakistani firms are facing unusual adverse effects on their businesses. According to United Nations Conference on Trade and Development report, Pakistan is the hardest-hit by the global pandemic of COVID-19. The ongoing pandemic crisis is severely hampering the operations of MSMEs businesses because they are highly dependent on cash economy which has been adversely affected by the pandemic. Besides this, the shortage of raw materials, the unavailability of labors, slowdown of productions and transportation restrictions will have major impact on the national economy as a whole.
Pakistan has also witnessed several similar crisis in past such as climate change, earth quakes, flood and draught that severely affected many businesses. MSMEs have limited resources and capabilities to recover from such crisis especially those in developing countries like Pakistan with economic and political instability and high poverty rate. The first case of COVID-19 in Pakistan as reported on February 26th 2020. From March 15-25, 2020 the number of confirmed cases has started rising rapidly. Since then, the cases are growing exponentially day by day in different areas of the country. It has been reported that Pakistan has lost one-third of its revenue and exports dropped by 50% due to COVID- 19 outbreak and lockdown.
The World Bank also warns that Pakistan might fall into a recession. Due to ongoing crisis caused by COVID-19 pandemic, Pakistan’s GDP growth for FY20 may contract by 2.2% before just recovering to 0.3% growth in FY21. Due to lockdown, out of 2700 factories in Karachi, less than 50 were operating on the first working day.
There are around 05 million people in Pakistan who live just at or below the subsistence line while there are a large number of unskilled or low-skilled people such as labor, construction workers, transport and domestic workers who works in different industries, agriculture and services sectors that rely on daily wages to meet their needs.
These daily wagers have been hardest hit by the lock downs. After them, there is a class of micro enterprises such as shop owners, street vendors and household businesses who heavily rely on their micro business. These micro enterprises are considered as a part of informal economy and they are facing severe outbreak of COVID-19. After micro enterprises, many small and medium enterprises are also facing huge issues. For instance, textile and apparel industry has been affected mainly due to imposition of lockdown.
In the same way the agriculture sector is no exception. Due to non availability of transport and labor, this sector also faced several issues. The closure of businesses and disruption of national supply chains have a major impact on wholesale, retail, transport, warehousing and communications services. Most importantly clothing, saloons, food, electronics and shoes businesses among others are severely affecting due to this pandemic. These small and medium businesses are expected to face liquidity issues and hardly hit by ongoing crisis.
Those firms that are still operating their businesses are facing extra cost to buy gloves, masks and sanitizers among others in terms of managing health and safety of employees. Further, due to COVID-19, Pakistan’s currency has been devalued which poses another threat for the businesses.
Due to the ongoing crisis and lock down, the unemployment rate in Pakistan is expected to reach 5% by the end of year 2021. The impact of corona virus on the global and Pakistani economy will leave deep scars.