By Senator Rehman Malik
I have done a detailed study as to how this corona epidemic is going to affect our economy and what measures we should take to survive in the coming months.
I would therefore like to draw the attention of our PM as well as the government’s financial team and the Governor of the State Bank of Pakistan (SBP) to the serious negative impact of coronavirus on Pakistan’s economy because of the forced closure of production units, services industries, airlines and exports.
All revenue generating sources are drying up rapidly and Pakistan will be having major adverse effects of the global economic meltdown which will be far worse than post 9/11.
I felt it my national duty to point out in time to my nation that we are being pushed to the precipice of world recession by COVID-19. While recapping the situation, I suggest that we must take some timely and effective measures that can be taken to mitigate the worsening situation. I have also written a letter to PM to this effect and I have moved my motion for discussion on this subject in the upper house to get an appropriate resolution as collective support to this move.
Due to the pandemic, the government has been forced to announce an economic package for the needy and helpless common man at the cost of the mutually agreed reforms process already committed with creditors to ensure debt servicing and monetary reforms.
The corona outbreak has forced the country towards lockdown as per the advice of WHO, lack of domestic demand and unavailability of the raw materials. The State Bank of Pakistan (SBP) has also reduced the policy rate twice in a short time span, on March 24, 2020 from 13.25% to 11% and on April 16, 2020 from 11% to 9% to ease out the economy to offer more profitability rates for investors but this all looks to be in vain.
In the present situation, the government expects further delays in the response of the business community. The interest is still very high and we do not expect the increase in business activities because of the continued adverse impact of COVID-19.
The subsequent aftermath of COVID-19, because of countrywide shutdowns and lockdowns are having an adverse effect on our economy, making both large as well as small and medium-sized enterprises particularly vulnerable to liquidity issues. We are expecting large scale bankruptcies by small business houses and therefore the performance of our revenue obligations is interrupted and committed targets with our creditors are not going to be honoured. I am sorry to say that our unemployment rate and inflation rate are going to go even higher. Unemployment and the price hike are going to bring unrest in the country and can even lead to a serious law and order situation for the government.
The disrupted world order has severely incapacitated our ability to service international debt liabilities, and served a staggering blow to our domestic industrial production, which has come to a halt. With the consequential plunge in export revenues, dwindling agriculture proceeds, diminished government earnings from tourism and other services, regression in overseas remittances, repatriation of our work-force from Middle East etc., the situation is getting dismal.
We are left only with the agriculture sector which is ignored even today. In fact, the agriculture sector is the only hope which will not let Pakistanis die of hunger if it is handled with a sensible plan. The farmer must be helped with loans and some incentives to ensure more yield. I will write about this in detail, but at the same time, the Ministry of Agriculture and provincial governments should come up with some doable plan.
Undoubtedly, we are confronted with emergency circumstances due to the pandemic, which is likely to lead us into non-performance because of circumstances which have gone out of the control of the government, thus preventing us from performing our obligations under the said contracts.
This pandemic has brought the wheel of our economy to a standstill. We need to seek deferment and possible writing-off of repayments, by establishing prevalence of force majeure circumstances. In my view, by establishing force majeure, IMF, World Bank, US AID etc would be lawfully obliged to grant deferment for these repayments and possibly write-off our loans.
The force majeure clause typically applies in cases of a natural disaster, an ‘act of God’ such as an earthquake or pandemic, war or terrorist attacks, or government policy or law changes, or a third party who fails in provision of goods or services, a force majeure is put into place in order to protect parties from external variables out of their control. As such, it is mandatory to include this force majeure clause in the contracts.
In case the creditors decline our genuine and legal force majeure claim as per the prevailing law, we should activate the force majeure clause before the competent international court through an accredited lawyer of repute and prove its plausibility to the judge and a jury. However, it is essential that such a claim be framed after thorough pre-vetting and evaluating our case. We need to draft well-prepared estimates of how if the pandemic continues for a longer period, economic recovery would take much longer, hence we should seek relief of making repayments after 10 years with the request to condone the interest rate or asking for the entire loan to be written off.
In support of our arguments, we will need immaculate, verifiable record of the measures we have taken to mitigate the COVID-19 pandemic, and the financial burdens that have been piled up due this pandemic.
The nation is suffering with price hike, inflation and the fall of our Rupee only because, we had to bow before the IMF every time. We must first try to mutually agree on the force majeure situation with our creditors before opting for legal battle. whereas we have a strong case and I am confident that we can even fight it out in the International Court of Justice (ICJ) for this relief on genuine grounds, even if we don’t have a force majeure clause in our contract.
As a last resort, we may opt to discharge the performance obligations under the Doctrine of Frustration. The purpose of the Doctrine/Principle of Frustration is to provide relief to the disadvantaged party; that we are, since the impact of the coronavirus pandemic has left a multitude of inescapable consequences for us, leading to the breach of contract due to events which are beyond the reasonable control of the Government of Pakistan.
I am confident that a serious consideration shall be accorded to my suggestion by the consented authorities, and we should invoke this option to get foreign debt written off. I will bring this point to the Senate for an appropriate resolution in consultation with the leader of the opposition and the leader of the house. I also appeal to all overseas Pakistanis to help Pakistan with your influence abroad to get our loans written off.
These are my own views and do not necessarily represent the views of my party.
(The writer is a PPP Senator, former Interior Minister of Pakistan and Chairman of think tank “Global Eye” and Senate Standing Committee on Interior. He can be reached at: email@example.com, Twitter @Senrehmanmalik)