Finding luck in the pandemic.

Byline: Khaleeq Kiani

THE coronavirus pandemic has put economies in turmoil. The global economy is estimated by the International Monetary Fund (IMF) to face negative 3 per cent growth this year. No major economy worth the name may avoid a recession in 2020, other than the two powerhouses - China and India - who may remain in a marginally positive mode with less than 2pc growth.

Pakistan is no exception. Its current year GDP performance is estimated negative 1.5pc.

But let us acknowledge the industry was already in the negative. Services came under attack as containment and quarantines came into effect. The economic output was down from 5.8pc in 2018 to 3.3pc in 2019. Surpluses emerged in electricity and gas availability, thus ballooned liabilities for unutilised capacities with no resources at hand to settle them. The economy was already in the stabilisation mode of the IMF bailout when the 'act of God' hit.

It would be interesting to examine how a federal secretary, writing recommendations for increasing costs, could become a credible judge as a regulator or investigator

For some, that provides an ideal opportunity, a chance in history, for the government to declare force majeure to get rid of the 'wrongdoings' of the energy investors. And why not? The consumer tariffs have become prohibitively unaffordable and yet unavoidable under the stabilisation programme. What can be a bigger event than a pandemic to announce a force majeure under the contract? Many firms around the globe are reportedly examining legal means of correcting their wrongs through the pandemic window.

For others, knee jerk actions could be counter-productive and expensive. Investor confidence is like a nest that takes decades to build and can be destroyed pretty quickly, leaving behind a lot of dust. Also, investors are ruthless when it comes to protecting their capital and interests in international courts where the Pakistan government's track record has been far from ideal. At home, the intertwined business and political interests make it difficult to move past the smokescreen.

Hence, every step has to be cautious and must be based on a cost-benefit analysis. The force majeure can delay or suspend an obligation until the event is over. International arbitrations normally do not allow general economic hardships, of a firm or a party even if it is a sovereign, as the force majeure event. Hence, a bad business/economic decision in extreme conditions could lead to default...

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