Lockdown dilemma

We live in a guess world. It's a health crisis and there is no scientific study to tell when the COVID spread is going to be over. In countries like Pakistan, the situation is even worse where testing is limited and unknown is bigger. Therefore, it is hard to predict when and how much will the economy recover. Will it be V, U or L shaped curve nothing can be said with confidence. Its seems, V shape recovery is out of question.

The authorities are facing a lockdown dilemma (a term coined by PIDE). It is imperative to keep social distancing to flatten the curve, but at the same time, it deprives millions of households of basics. Feeding the poor is a two-pronged problem. The government does not have enough cash to transfer to all the vulnerable population. If they do, the issue is of distribution of cash or ration. Large gatherings are seen to get cash or food ration from public and private sector in the last week. That defeats the very purpose of lockdown.

A term 'smart lockdown' is circulating and is propagated by many. There is no definition of 'smart lockdown'. If there is any, how can it be implemented without large scale testing? Pakistan is in a partial lockdown situation, anyways. Rural economic set-up is working. Wheat harvesting season is underway. Its storage, procurement and processing will happen simultaneously and as per need.

Thereafter, the preparation of new crop will take place. Agriculture markets (mandis) are functioning to ensure supply of basic food items. Fertilizer, tractors and other industrial activities related to agriculture are least affected. Still some fear that some seasonal crops will miss their respective cycles. Poultry is worst hit as its demand primarily emanates from social gatherings. Even agriculture is not insulated from lockdown.

The government is opening up construction and has come up with a lucrative package. The PM announced that the industries and markets associated with construction will open. This will keep some life in cement, steel, ceramics, paints and numerous other industries related to construction. But the activities are likely to remain subdued till Eid. What happens afterwards will be based on how things evolve.

Export-related industries are already opened up. There are some pending orders that will be completed in a few weeks. Thereafter, the demand of export goods will depend upon how quickly the western world revives to normalcy. There are some orders from hospital-related textile and other items. The export industry may operate at 20-40 percent capacity at this point. In case of automobile, the demand is likely to remain suppressed till the economic activities normalize. The sector was already in a bad shape and will be worse off in days to come.

The key for domestic economic revival is opening up of marketplaces. Retail and wholesale is the worst affected sector. It is about one-third of services and bigger in economic contribution than agriculture. It is the biggest employment generation sector in the urban centers. It generates more jobs than construction.

The problem compounds with retail peak season coming up. Many MSME businesses operate informally and are not bankable. Their liquidity is stuck. Even those which are bankable may not sustain for a few months without opening up. The SBP has come up with a concessional financing for pay roll of businesses. Not many in retail and wholesale chain can avail this. Big businesses may survive. These have, at times, buffers to pay employees. Smaller the business, bigger the problem.

Opening up of retail and wholesale is an issue. Transactions take place in markets. Without it, manufacturing will operate at low capacity. The key is to come up with a protocol and mechanism in opening up retail and wholesale markets. The value chain is not completely closed. Grocery stores and healthcare related retail value chains are working.

The online delivery mechanisms are improved. The other areas like textile, footwear, electronics and all can be opened up partially under some restrictions. The businesses may rely more on technology and delivery model. But nothing can generate demand in such scenarios. Not everyone can afford to buy in days of tight liquidity and those who can, may like to save for bad times.

This quarter is in severe recession. The fate of next is not rosy at all. It is hard to say what will be the circumstances by then. That is why businesses and individuals are keeping cash in hand till they have clarity.