Daily Times

Every day we are hearing news from all around the world about coronavirus and countries are in lockdown situation with no economic activity.

Bloomberg recently launched the first edition of Bloomberg’s new daily coronavirus newsletter for the latest on the Covid-19 outbreak and its impact around the world.

The Bloomberg’s coronavirus newsletter updates regarding COVID-19 and its impacts on global economic activity are alarming. In fact, it’s almost impossible to keep up with the specific impacts as they change by the hour. What we do know for certain is that we must prepare for short-, medium- and long-term impacts to economies-and PPPs.

IMPACTS

An article in the Economist (Flattening the Curve – How the world can deal with a pandemic) discusses potential scenario impacts, referencing past pandemic and epidemic events such as the Spanish flu and the Middle East Respiratory Syndrome (MERS). Impacts included reduced investment in risky markets, cities with large service sectors becoming vulnerable, and costs of millions of dollars to prevent infections spreading. If we were to reach the impact magnitude of the Spanish flu pandemic, the Economist predicts we could see a drop in GDP of 5% and a loss of a quarter of the global GDP forecast for 2020.

Pakistan’s initial economic losses in different sectors of the country’s economy have been estimated at Rs1.3 trillion. These losses are going to be incurred on account of drop in the GDP growth because of reduction in services sector, including airline business and others, FBR’s revenue loss, massive decline in imports, exports, reduction in remittances, disruption in food supplies and other fronts.

The preliminary assessment of losses done by the Asian Development Bank (ADB) and shared with Pakistani authorities stood at $5 billion but Pakistan’s top official argued that these estimates were less than the expected actual losses because there was no basis for it.

The Planning Commission estimated that the size of the country’s GDP stood at Rs44 trillion and one/fourth stood at Rs11 trillion, so the disruption caused by Coronavirus was expected to cause at least 10 percent losses in the last quarter (April-June) that would stand at Rs1.1 trillion at least.

The World Bank (WB) high-ups said that they undertook an initial survey from March 12 to 18, 2020 from a sample of export-oriented industries and found that export orders were disrupted in the range of 25 to 50 percent.

The imports would be reduced in the shape of declined POL prices as well as in quantity. Pakistan imported 80 billion barrels of POL products and keeping in view the lowest-ever prices in international market in the last two decades, the import bill would shrink having negative impact for the FBR’s collection and Petroleum Levy might also be reduced if the consumption decreased because of possible lockdown in different parts of the country.

As supply chains contract, economic activities decrease and companies draw down their financial resources to survive. Banks are under increasing pressure to extend credit and debt is increasing. If the crashing oil market and the temporary cessation of stock trading is an indicator of the coronavirus’ ancillary economic impacts, global public and private sectors leaders need to embrace mitigation strategies immediately.

The virus’ economic impacts on PPPs will place a tremendous burden on project stakeholders, users, the private corporate sector, and the public sector for weeks, months, or years. Perhaps the hardest part is not known.

With reduced economic activity, PPP projects (especially in the transportation sector) will experience considerable revenue generation challenges. In most instances, the vulnerability scope and extent to this force major risk was not foreseen in PPPs that rely on revenues generated by user fees. Just think of the impacts to maritime ports (loss of shipping and service fees), airports (loss of gate fees, refueling fees, airport commercial concessions), tolls roads (no users due to city-wide quarantines), and hospitals (new patients with uncertainty of how they will pay their medical bills).

Even PPPs that receive revenue through availability payments might suffer in the long term as governments face contracting economies that result in declining tax revenues and less treasury and budget resources to honor their availability commitment payments.

Coronavirus will most certainly offer new resilience opportunities for innovators as the PPP market re-calibrates

Additionally, the day-to-day operations and management of PPP projects will be affected, with special purpose vehicle (PPP project companies) employees being incapacitated, especially when it comes to project operations and maintenance project knowledge.

Furthermore, it’s important to monitor what the impact of the coronavirus will have on risk insurance for PPPs. If pandemic insurance becomes expensive and un-affordable the question of impacts on project bank-ability will need to be addressed. Time will tell what appetite World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) will have regarding coverage of escalating political risks caused by economic disruptions that will cumulatively impact the viability of existing PPPs.

If the finance sector becomes less liquid, the question needs to be addressed whether it will have the financial resources in the short and medium term to participate in PPPs with governments in future projects.

The governments need to proactively engage with their private sector partners to mitigate PPP project impacts as soon as they surface. Failure of PPP projects should not be an option specially in Pakistan due to current imposed conditions of IMF. It’s critical the private sector be assured that, as soon as problems arise, they can approach their public sector partners and share project impacts without fear of punitive actions that could unilaterally blame them for impacts.

It’s also important that recovery plans are harmonized with national strategic priorities. Strategic recovery plans must focus on a win-win recovery tactic that is inclusive of the needs of both the public and private sectors.

IMMEDIATE ACTION NEEDED

The clock is ticking. Focused actions to identify vulnerabilities, ascertain the scope of project impacts, monitor risks, adopt active risk management, and identify voluntary and mandatory recovery measures must be embraced immediately. This includes engagement with all stakeholders to optimize recovery actions.

Recovery planning will only be effective if short-, medium-, and long-term strategies are embraced that address necessary mitigations today, the next few weeks, and the coming months.

Allow me to add a positive note: coronavirus will most certainly offer new resilience opportunities for innovators as the PPP market recalibrates.

In the meantime, truly sustainable and resilient PPPs should be promoted to help mitigate the coronavirus’ impacts to vulnerable communities and those that are already grappling with them. Failure by stakeholders, both in the public and private sectors, to rally around the recovery of PPPs impacted by the coronavirus is not an option, as many users rely on these facilities and services to carry out economically sustainable lives.

Disclaimer: The content of this blog does not necessarily reflect the views of the Government, Any Agency, DB, World Bank Group, its Board of Executive Directors, staff or the governments it represents. The numbers are not guaranteed as the accuracy of the data, findings, or analysis in this post is based on the analysis.

The writer is Freelance writer