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Pakistan Textile Industry was celebrating a big milestone with 20% jump in exports in February 2020 when coronavirus struck a heavy blow. Some western retailers canceled orders while others put them on hold as the virus spread to Western Europe and the United States in late February and early March. Then came the lockdown in Pakistan that shut down factories and halted transport in Pakistan.
Here's how Guido Schlossman, President and CEO of Synergies Worldwide, a global supply chain management firm with an office in Pakistan, summed up the situation for Sourcing Journal: “Most clients have either cancelled or put orders on hold...That would have huge ramifications and losses, and the fear is that most small factories may shut, whereas the mid and big factories will have huge financial liabilities and losses.” “Ninety-five percent of clients have either cancelled, put on hold or given new delivery dates ranging from 4-6 weeks delay to about 8-10 months,” Schlossman said. “That is how huge the holding period and losses would be for the factories.”
“All over Pakistan it’s a complete lockdown in all the provinces everywhere,” Hafiz Mustanser Ahmed, managing director of Lahore-based factory U.S. Apparel and Textiles, told Sourcing Journal last week. U.S. Apparel & Textiles, which typically produces 100,000 garments a day, is seeing “huge, huge” order cancellations, Ahmed said.
“The transportation when it comes to taking the employees to the factories or the public transportation, it’s all 100 percent closed. All the factories are closed.” For now, moving goods back and forth between the ports and Lahore, Pakistan’s second-biggest textile manufacturing hub after Karachi, is still allowed, but there simply aren’t many goods to move, said Ahmed, whose factory produces denim bottoms for Levi’s, Target, H&M, J.Crew, Primark and Costco, to name a few.
Other Asian garment exporting nations face a similar situation. Bangladesh has issued stay-at-home orders and India has ordered a 21-day nationwide lock-down. The difference is that Pakistan exports had just begun to recover when the COVID-19 global pandemic struck. Now demand for apparel in the western markets is not likely to materialize for at least a month or two. Meanwhile, job losses in Pakistan are almost certain. A prolonged slump in the west will spell disaster for Pakistan's exports and delay the nation's economic recovery.
Pakistan's service economy will also suffer in a prolonged lock-down. Service sector accounts for 50% of the world GDP and 54% of Pakistan's GDP. Social distancing will significantly impact the services, particularly retail, restaurants, travel, transport and education sectors. Imran Khan has expressed fear that the pandemic will devastate the economies of developing countries. “My worry is poverty and hunger," Khan said. "The world community has to think of some sort of a debt write-off for countries like us, which are very vulnerable, at least that will help us in coping with (the coronavirus).”
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Some Nations Face an Awful Question: #Death by #Coronavirus or by #Hunger? So far, 90% cases and deaths are in countries with average temp under 63 deg Fahrenheit, and most of those are rich, developed countries. #US #UK #Italy vs #India #Pakistan- NYTimes by Ruchir Sharma
Though many rich economies have ground to a halt under strict lockdowns to contain the coronavirus, many low- and middle-income countries have decided they can’t afford an all-out fight. Brazil’s president has taken the most controversial stand against shutdowns, saying “we’re all going to die one day,” but he is not alone.
A recent study by UBS, the Swiss bank, found that emerging nations account for most of the “moderate” lockdowns and few of the “severe” lockdowns. Turks between the ages of 20 and 65 are still on the job even as confirmed cases soar. Pakistan has left open key export industries, including textiles. For nations that lack a social safety net, “full lockdowns will only lead to more hunger, starvations and death,” says Luhut Pandjaitan, a senior minister in Indonesia, which was slow to issue travel restrictions and stay-at-home orders.
So far, 90 percent of the reported cases and deaths are in countries where the average temperature is under 63 degrees Fahrenheit, and most of those are rich, developed countries of the Northern Hemisphere. The worst of the economic and financial fallout, however, is hitting the warmer nations of the emerging world, which is now expected to experience its first contraction in the post-World War II era.
The full economic damage has to yet to be assessed, as growth forecasts for 2020 keep falling, but the financial carnage registers daily. While stocks in the United States have hit a bottom 35 percent below their all-time highs, this drop is similar to one in a bear market during a recession, and barely half as bad as in 2008. Six major emerging markets — including Brazil, Turkey and Mexico — have seen falls of more than 70 percent from their all-time highs, and many are trading below their 2008 lows. If there is any silver lining here, it is that the scale of these crashes suggests that markets have already “priced in” more bad news to come for the hardest-hit emerging economies.
This is only the eighth global recession in the past century, and it is confronting emerging countries with unique challenges. They don’t have the resources to match the enormous stimulus programs that are preventing an even deeper recession in the developed world. Their crowded living conditions make it hard to slow the pandemic with social-distancing rules. And if emerging nations do impose lockdowns, their weak welfare systems can’t support unemployed workers for long.
The United States has already committed to spend a sum equal to nearly 10 percent of its annual economic output on stimulus measures to keep growth alive. Germany, Britain and France plan to spend 15 percent or more. But rich nations have the capacity to borrow and spend freely, because in general global markets trust them to make good on their payments, no matter how large.
But the balanced budgets have deteriorated into large budget deficits. When the pandemic hit, many big emerging economies like those of South Africa, Nigeria and Argentina faced a large “twin deficit” in both the government budget and the current account — a measure of how much nations need to borrow abroad to finance their spending habits. Now spooked investors are fleeing to the relative safety of the U.S. dollar, weakening the currencies of emerging economies — and further undermining their ability to pay their bills.
The result is an unprecedented rush for bailouts: The pandemic crisis has put the I.M.F. back in business. In recent years, the I.M.F. typically fielded 10 to 15 requests for assistance. Since the outbreak began, it has gotten requests from nearly 80 countries for emergency financial help, and the concern now is whether the fund’s $1 trillion dollar war chest is enough to cope with this crisis. Countries from Ecuador to Zambia are already asking creditors for some form of debt forgiveness.
Global trade has also played a role: As it slowed after 2008, many large emerging economies like those of India, Indonesia and Brazil were partly shielded by resilient demand from domestic consumers. With the pandemic, international trade has slowed even further — and it has shut down domestic commerce as well.
More than 15 million Americans have filed for unemployment benefits, but in poor countries some two billion people face joblessness without benefits. Unemployment insurance in developed countries typically covers six out of 10 workers who lose formal jobs, compared with just one out of 10 in developing countries — where most people do not hold formal jobs.
As a result, many officials in the emerging world say they can’t simply copy the measures adopted in wealthy countries. Imran Khan, the prime minister of Pakistan, recently tweeted that South Asia is “faced with the stark choice” between “a lockdown” to control the virus and “ensuring that people don’t die of hunger and our economy doesn’t collapse.”
What comes next is largely up to the virus. While some commentators are already drawing comparisons to the Great Depression, consensus forecasts call for global growth to contract by 3 percent this year and recover sharply next year — which would fall far short of the 6 percent contraction between 1929 and 1932. Government stimulus programs were first hatched in response to the Depression, too late to prevent it, but now the world is rolling out more than $10 trillion in stimulus — more than twice the amount spent between 2008 and 2009 to combat the global financial crisis.
Some real-time coronavirus trackers are showing that the growth rate of the number of new cases started to fall last week both worldwide and in critical hot spots, including Spain, Italy and Germany. Now many emerging-world leaders are hoping that the contagion will be slowed at their border by two factors: warm weather and youth.
The virus is much less dangerous for the young, with conservative estimates suggesting death rates up to eight times higher for people over the age of 60. Only about 10 percent of the population is older than 60 in the emerging world, compared with 25 percent in the developed world, so this advantage is real.
The tragic irony is that emerging economies are getting slammed by forces of nature beyond their control but have no better choice than to turn for relief to the same forces. Unlike rich nations, they can’t sustain a large population of idle workers, so many have accepted a grim reality. Given the unbearable pain shutdowns will inflict on their people, they can afford only a limited war to contain the pandemic.
India, Pakistan plan to restart some #economic activity during #coronavirus #lockdown. Top leadership in Pakistan to meet Monday to decide. #India has 9,152 confirmed cases, including 308 deaths. #Pakistan has 5,374 cases, including 93 deaths. #economy https://reut.rs/3ccTEH1
India and Pakistan are planning to partially reopen their economies to minimise the cost of restrictive measures imposed to halt the spread of the novel coronavirus, officials in the two countries said on Monday.
Indian Prime Minister Narendra Modi said on Twitter he will address the nation on Tuesday, at the end of a 21-day lockdown that has severely disrupted economic activity and left millions of its 1.3 billion people out of work.
Two Pakistani cabinet ministers told Reuters the civil and military leadership would meet on Monday to decide whether to extend countrywide restrictions there beyond April 15.
The World Bank has said economic growth in India and other South Asian countries is likely to be the slowest for four decades this year because of the coronavirus outbreak.
Although India’s shutdown is likely to be extended as most states have requested, officials say its terms could be softened to help households and businesses.
Modi has asked his cabinet colleagues to come up with plans to open up some crucial industries, a government source involved in the deliberations said.
A government note seen by Reuters said some manufacturing could be restarted, with firms in the autos, textiles, defence and electronics sectors allowed to operate at 25% capacity while ensuring social distancing.
“As the prime minister has indicated, we will have to move towards economic activity, while taking utmost care of the lockdown and social distancing,” said Manohar Lal Khattar, chief minister of the northern state of Haryana.
He said he planned to divide his state into three zones — a red zone where there have been the most cases of coronavirus, orange with fewer cases, and green where no outbreak has been reported. The federal government may employ a similar plan, officials said.
“In the green zone, small and medium industries will be allowed to start operations, provided the entrepreneur gives us an undertaking to fulfil the guidelines in letter and spirit. We want small industries to start operations at lower capacity first,” Khattar, a close Modi ally, said.
Officials said the number of coronavirus cases in India was 9,152 on Monday, including 308 deaths, a swift rise from fewer than 1,000 two weeks ago.
The government is trying to increase testing for the virus, which causes COVID-19, a respiratory disease, from about 15,000 samples a day to around 40,000.
"BlackRock says coronavirus has weakened the #investment case for #Indian assets". #India’s #economy was already slowing when the #coronavirus pandemic hit, weakening the case for investors to buy the country’s #stocks and #bonds. #Modi #BJP #Hindutva https://www.cnbc.com/2020/04/14/coronavirus-has-weakened-investment...|twitter&par=sharebar
India’s economy has come under pressure from the coronavirus pandemic at a time when growth was already slowing, said Neeraj Seth, BlackRock’s head of Asian credit.
That has weakened the case for for investors to buy the country’s stocks and bonds, he said.
“India entered the whole situation of Covid on a weaker footing ... and if anything, the lockdown and the slowdown of economy only put more pressure on the banking system,” he added.
The country’s banking sector has long been plagued with troubles such as large amounts of bad debt, which has hurt the economy. Growth in India’s economy — the third largest in Asia — slowed to 4.7% in the quarter ended December 2019. It was the weakest pace in more than six years.
With the country now in lockdown as the government attempts to slow the spread of the coronavirus, Seth said the Indian economy could even contract in the coming quarters.
Official data in India showed total confirmed cases of Covid-19 standing at 10,363 as of Tuesday morning, with 339 deaths. Indian Prime Minister Narendra Modi on Tuesday extended the coronavirus lockdown until May 3. The initial 21-day nationwide restrictions were supposed to have been lifted today.
Slower economic growth means that company earnings will be hurt, and that would hit the prices of stocks and certain bonds, said Seth, adding that BlackRock has been “cautious” on Indian credit at the “lower end” of the ratings spectrum.
But with India’s central bank — the Reserve Bank of India or RBI — expected to cut interest rates further, fixed income investments could benefit, he said.
“So overall, the case for fixed income, probably positive because we do expect the RBI to cut rate and the direction of monetary policy is still towards easing; the case for Indian credit, a little bit more nuanced, a bit more mixed depending on quality ... and also case for equities also remain mixed here,” said Seth.
#Pakistan set to request #debt repayment standstill. First large #EmergingMarkets economy to avail of #G20 initiative in response to #coronavirus pandemic. https://www.ft.com/content/d3fecf74-9256-435e-aaa4-08cb1f9761a3 via @financialtimes
Pakistan is set to become the first large developing country to apply for a debt repayment standstill under an initiative of the G20 group of wealthy nations, the country’s finance ministry said on Wednesday.
Islamabad hopes to defer repayments due to bilateral lenders this year of about $1.8bn and use the savings to address the coronavirus crisis, the ministry told the Financial Times.
“The savings will all be Covid-related. The impact of the epidemic in terms of cases and deaths is small compared with the US, Europe and China but the economy has come to a standstill as if the whole country had Covid.”
An emerging market debt portfolio manager at a large asset management company said finance ministry officials discussed the planned request with investors at a conference call on Tuesday.
Pakistan’s central bank expects the economy to contract by 1.5 per cent this year as a result of the crisis, after growing 3.3 per cent in 2019.
Last week, the IMF approved a $1.4bn zero-interest loan to Pakistan to help it address the economic impact of the pandemic.
Imran Khan, Pakistan’s prime minister, called Donald Trump on Wednesday and thanked the US president for his support for the country at the IMF.
According to Pakistan’s readout of the call, Mr Khan underlined to Mr Trump that the country had put together an $8bn package to support people and businesses affected by the pandemic. It said Mr Trump promised to send rapid testing machines.
Pakistan has supported US efforts to bring its war in Afghanistan to a close as it seeks to withdraw its troops following a deal brokered between the US and the Taliban earlier this year. The fragile truce will depend on support from Islamabad and Kabul if it is to be successful.
A senior US official told the Financial Times that Mr Trump had helped to secure the G20 debt deferral.
“The administration continues to work with our multilateral partners, including global financial partners like the IMF and World Bank, to help developing nations bounce back from the historic economic challenge of the Covid-19 pandemic,” said the official.
Last week, Steven Mnuchin, US Treasury secretary, defended the administration’s decision not to back a bid to provide IMF liquidity to emerging economies in difficulty, despite appeals to do so from European and African leaders.
The finance ministry said Islamabad would submit a request to the G20 for the repayment freeze as soon as the group published a format for doing so. The initiative, announced last week, is due to run from May 1 until the end of this year, with a possible extension into 2021.
repayment relief from commercial lenders because of the risk that to do so would make it harder to borrow on capital markets in the future.
The official said Pakistan was due to make repayments of $2.3bn to private creditors during the rest of the financial year ending on June 30, all of which had been covered by refinancing commitments from lenders. He predicted that a further $3.2bn in private repayments due over the following 12 months would also be covered by new borrowing.
repayment relief from commercial lenders because of the risk that to do so would make it harder to borrow on capital markets in the future.
The official said Pakistan was due to make repayments of $2.3bn to private creditors during the rest of the financial year ending on June 30, all of which had been covered by refinancing commitments from lenders. He predicted that a further $3.2bn in private repayments due over the following 12 months would also be covered by new borrowing.
The G20 stressed that its initiative does not alter the amount owed by debtor countries, which will be allowed to reschedule their repayments over three years, preceded by a one-year grace period.
#Pakistan’s #FDI jumped 137% to $2.1 billion in the first 9 months of the current fiscal year with March faring particularly well, posting a 92% increase as compared to last year. It’s unlikely to continue due to #coronavirus #lockdown - Pakistan Today
https://www.pakistantoday.com.pk/2020/04/21/jump-in-fdi/
Pakistan’s FDI jumped 137% to $2.1 billion in the first nine months of the current fiscal year with March faring particularly well, posting a 92 percent increase as compared to last year, owing to an investment of $202 million in the energy sector under the CPEC (China Pakistan Economic Corridor) from China which accounts for 72 percent of total FDI in the month. China has so far continued to finance its multi-billion dollar CPEC project even though domestically it faces an existential crisis as the risk of a reemergence of the coronavirus in the country continues to restrict it from returning to normal and restarting its economy, that has contracted for the first time since at least 1992. The country’s GDP has fallen 6.8 percent as a result of a strict lockdown that reduced economic activity to almost nil. This, compared to a few months back when GDP growth was recorded at 6.0 percent in the fourth quarter of 2019, is quite a drop. Any celebration or overzealous self-praise over the FDI figures for March should be muted as there is a likelihood of countries such as China rethinking their foreign investment strategies going forward.
Pakistan too is grappling with covid-19 and the response has been hardly satisfactory. Initially, when the virus had only spread in Sindh, the federal government was confused and unsure over how to proceed and therefore failed to formulate an effective strategy to restrict or at least mitigate the spread to the rest of the country. Its communication with the populace was, and still is, littered with contradictions. A partial lockdown has now been eased off after two weeks, with some choice industries such as construction and textile being allowed to resume operations if they adhere to certain conditions that are far from enforceable. These half-baked measures to fight the novel virus have not resulted in controlling the spread or the death toll, but have still managed to leave the economy in tatters. The FDI number has gone up considerably, which is welcome, but the future looks bleak and it is bound to fall in the coming months as the economic fallout from the coronavirus amplifies.
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