Lockdown economy – tough times ahead

The lockdown is extended. The worst health crisis is yet to hit. The country has shortage of doctors and paramedical staff. Ventilators or hospital beds can still be arranged. Training can’t be done in days. Curve has to be flattened. Therefore, it’s not possible to open up the society too soon. Partial lockdown might extend further. Life is usually slow in Ramzan. Many sectors may remain shut till Eid.

The worst hit looks to be retail and wholesale markets, especially non-essentials. Automotive, textile, electronics, light engineering are next in line. For textile, it is a double whammy. Both exports and domestic markets are at halt. There are no new export orders. Domestic market is closed. They have inventory of cotton where they are making losses and some exporters lost bucks on selling dollars in forward.

Ramzan and Eid is the best time for domestic retailing. This will hit many industries ranging from food services, clothing and shoes, electronics, saloons etc. The situation of auto and electronic workshops and dealers is no different.  Transport industry has numerous taxi and rickshaw drivers out of job. Think about and add many other small manufacturing and services.

Most of these businesses are SMEs and are in informal sector. There will be lost of employment and small business owner will face shortage of liquidity. Many businesses face problem in managing cash flows. Not even 10 percent of SMEs are bankable, there has to be some support from government to support payroll.

But the cash strapped government does not have much to offer. Rs1.2 trillion offered has most out of budget support, not much leverage to go out of budget. There is some multilateral support in the offing. IMF RFI is giving $1.4 billion which is expected in April. World Bank is giving $200 million. All this money has to be channeled to support vulnerable families and businesses.

On exports side, there are signs of opening up textile and other sectors. The health care demand is high. Textile and other exporting industries catering to that will have orders. Experts say 20-25 percent of industry might opt to function.

The cash flow support is required for 3-9 months. Things can change. It all depends when Pakistan and its trading partners open up. Government is eyeing to open up construction sector from 14^th April. This is coupled with a generous package to attract investment. New projects will take time to come, but existing will generate some employment.

April is wheat harvesting season and that requires seasonal labour deployment. Thereafter, preparation for new crop will take some efforts. Construction and harvesting labour is low skilled and people from other professions can get their hands dirty. This will lower the load on government to support vulnerable families. Things will roll out like this till more clarity comes in unprecedented times.