There are two aspects to news. Knowing the Headline and understanding the intricacies of it. We at The Connectere focus on both. While The First Forum edition gives a brief about the headlines, The Weekly Analysis Edition is meant to educate the reader on what do various news mean and what are their intricacies. This initiative is meant to educate the reader on how to understand the important news. In the Ninth Edition we are covering the following news:
1. Government amends IBC to suspend insolvency proceedings
2. 1.6 Billion Risk Losing Jobs Due To Coronavirus Pandemic: ILO
3. ADB sanctioned $1.5 billion loan to India
4. Will low oil prices leave Saudi Arabia with empty hands?
5. Covid 19: Why is America’s death toll so high?
6. Cryptocurrency market value jumps $35 billion in 24 hours led by a surge in bitcoin
Imagine that during this lockdown (due to COVID-19 pandemic) corporate borrowers asked to repay their loans without delay. And if they default on their payments right now, banks/lenders can drag them into bankruptcy court. Then what will happen? The answer is the initiation of mass insolvency proceedings against the companies that have defaulted.
Additionally, the already overburdened NCLT (National Company Law Tribunal) shall become more overburdened. Therefore, the government pressed the suspension button of Insolvency and Bankruptcy Code (IBC) for a temporary period of six months to leeway corporate debtors in repaying their loans. This action would be another step in a series of steps taken by the government to mitigate the impact of the pandemic. Starting this with giving the MSME sector some relief by raising the threshold default level for triggering insolvency from 1 lakh to 1 crore. Furthermore, RBI has also allowed borrowers a three months repayment holiday for term loans.
The point here is how this blanket ban on the initiation of insolvency proceedings have adverse repercussions on Creditors and Economy.
- The suspension of IBC perhaps gives a little too much of overprotection to the corporate debtors. Certainly, this suspension will put creditors in dire financial crisis as they have to remain remediless for at least a period of six months.
- The proposed suspension will hit both financial and creditors including operational creditors as may not be able to absorb the fallout of high magnitude bad debts. Similarly, financial institutions may face stress on their balance sheets, which they cannot absorb.
Overall Impact would be denying the lenders the right to invoke the IBC and also denying them the right to recourse to the most timely and efficient debt resolution mechanism present today.
- The suspension may impact lending activity in the country on account of lenders being circumspect as to the limited remedies available in the event of default.
- Lenders could also be concerned that the suspension could be extended beyond the original period of six months based on market and macroeconomic activity. This could result in further delays in an overburdened economy.
In the end, this results in inadequate liquidity in the market and reduced avenues for raising the debt which may contribute to a further slowdown in the economy. Well, these are downsides and the government needs to come up with more nuanced policy measures rather initiating a blanket ban on IBC. Even the RBI appears to have recognised that at least in some cases, financial institutions should be allowed to recover debts. And it may consider issuing guidelines on this basis. This will streamline creditor led insolvency resolution.
Recently the International Labour Organization (ILO) has warned that 1.6 billion workers in the informal economy that is nearly half of the global workforce stand in immediate danger of having their livelihood destroyed as a result of mass layoffs triggered by the coronavirus pandemic.
Let’s figure out why Informal economy is at risk?
The Informal economy accounts jobs that are neither taxed nor monitored by the government and that makes up a huge proportion of developing economies. Some two-thirds of the world’s employed people are engaged in such grey market jobs. The global workforce is 3.3 billion people, of which more than two billion people work in the informal economy. Ultimately it is the workers in the formal sector that are facing the maximum vulnerability.
This simply means that for millions of workers, no income which means no food, no security, and an uncertain future. They have no savings or access to credit. Further, without alternative income, these workers and their families would have no means to survive. This employment crisis is somehow related to the enterprises that are at risk. As worldwide, more than 436 billion enterprises face high risks of serious disruption. These enterprises are operating in the hardest-hit economic sectors including 232 million in wholesale and retail, 111 million in manufacturing, 51 million in accommodation, food services and 42 million in real estate and other business activities. Thus, due to the lockdown and workers work in the hardest-hit sectors, have seen a 60 per cent drop in income.
ILO said as the pandemic and job crisis evolve, the need to protect the workers becomes even more urgent. Urgent policy measures should be taken for workers as follows:
- The employment crisis on this scale needs a global response. We need coordinated and international action to support and protect jobs and give everyone access to social security and boost local and national economies when the recovery phase comes.
- The ILO urged the government to accelerate employment benefits payouts, give financial support to freelance workers, and fast track access to credit for small workers.
- International coordination on stimulus packages and debt relief measures will also be critical to making recovery effective and sustainable.
As per the above analysis of how coronavirus pandemic risk employment of the informal sector in an economy. This can be fairly pointed out that during the recovery stage there will be likely emergence of the “Social Distanced Economy” in which jobs performed remotely would thrive, while technology drives the creation of workers of new roles and jobs.
The Asian Development Bank unveiled a $1.5 billion COVID-19 package for India. Apart from this, the government of India has accelerated its pitch for accumulating funds through a series of steps. The government is estimated to save $18 million by cutting down perks of 11 million employees/pensioners till next year and also invited donations from national and international contributors to the PM CARES (Prime Minister’s Citizen Assistance & Relief in Emergency Situation) fund.
In view of this, let’s get into the intense analysis of ADB’s role in this global crisis and its objective to grant a loan to India. The loan will help the central government to focus on the immediate priorities such as
- Covid-19 containment and prevention.
- Ensuring social protection for the poor and economically vulnerable sections of society.
- To reinforce the much-needed fiscal response and strengthen emergency health measures.
- To support the micro, small and medium enterprise (MSMEs) and infrastructure project through credit guarantees.
The loan has been signed under ADB’s COVID-19 Active Response and Expenditure Support (CARES) programme. It had started to provide immediate requirements to governments in the face of this global crisis. The CARES programme is funded through the COVID-19 Pandemic Response Option (CRPO) under ADB’s country cyclical support facility. It was introduced to be a part of a $20 billion package approved to assist its developing member’s countries in their fight against COVID-19. It will ultimately support government efforts and coordinate with other development partners to stimulate the economy, build capacity for monitoring and evaluation of government programs and improve economic resilience against future shocks. Moreover, apart from the loan, ADB is also constantly consulting the government on further assistance to provide a stimulus for economic growth.
Is the wise decision made by India to borrow the loan?
It all depends on the requirement of the country and its ability to recover from this crisis. The economic growth of India’s worst affected by the pandemic. Earlier this month, the International Monetary Fund (IMF) had estimated that India’s economic growth rate will slip to 1.9 per cent in the current fiscal year in comparison to over 4.5% last year. And it also forecast that India will stage a strong recovery in the next financial year on the back of its sound macroeconomic fundamentals. Hence it is not just India who has sought support from the Multilateral Development Bank as most countries in the world have also requested aid in response to the coronavirus pandemic so it is a timely and reassuring decision in light of India’s large population of over 1.3 billion people and the potential impact the crisis could have on the country.
In 2016, Crown Prince Mohammed bin Salman’s Vision 2030 was first out in April 2016 but the current pandemic situation does make us question it.
Let us first discuss the Vision 2030 to see what Saudi Arabia originally planned. It called for a radical restructuring of the Saudi economy and with it a social and cultural revolution — economic diversification with the banner headline of increasing the share of non-oil GDP from 16% to 50%; the empowerment of women into the private-sector workforce together with a call to increase the sector’s GDP contribution to 65%; the listing of private and government-owned companies, including Aramco, on the Saudi stock market, Tadawul; commitments to realize jobs for young Saudis through the creation of entertainment, hospitality, and non-religious tourism industries; the provision of affordable housing for those same young Saudis struggling to get on the property ladder; and the ramping up of religious tourism.
No one, of course, could have anticipated a coronavirus pandemic. But it has been clear for two months or more than in a slowing global economy, the virus would impact in a significant way on the oil market. While lockdowns are being eased in some countries, the time when the world was consuming 100 million barrels a day are gone for now, with some analysts suggesting those days may be gone forever. Prior to COVID-19, most assumptions were that peak demand — the point at which the world’s appetite for oil begins its permanent decline — would hit around 2030. With oil falling to $20 a barrel and no sign that it will get much better — indeed suggestions are that it could well slide even lower to as little as $5 to $10 — those emergency plans are very likely to come into play. That means deep spending cuts. The question is where will Mohammed bin Salman, has already saddled the kingdom with a war in Yemen that has consumed hundreds of billions of dollars, make those cuts? With the massive loss of revenue, this slowdown that the country faces could be an opportunity for any enemy to attack.
After more than 1.1 million total classes and 67000 deaths making it a country with the highest number of deaths, people now blame President Donald Trump and his government for this but thee stand many who oppose this. The US now has about 62 deaths per million people. In the initial phase of the virus in America, the bureaucrats seemed to worry more about the stock market and the economy failing than the spread of the disease suggest reports.
While the president kept calming everyone saying the situation was under control, there were minimal tests being conducted in government institutions and the private and academic labs tried to develop their own tests but were initially hampered by strict regulations and laborious approval process. While the US drowned in COVID, it introduced another shameful policy cutting its funding for WHO amidst a global pandemic going on, a time when these funds were needed more than ever. When we concentrate only on America and its failure, the obvious reason was their late response to lockdown.
But is president trump the only person to blame? No, if the US government ignored the rising threats then so did the public. Agreed, they didn’t have experts like the government but they had heard the news from China and could have taken preventive measures themselves. Also, another major reason is that in the US, public health authorities are incredibly devolved to states and cities in terms of how they respond in a public health crisis thus every state responded differently. So, the blame goes to almost every single person out there for this rising rate of the virus, though the blame might not be equally spread.
Only 5% of American hospitals approximately offer the most intensive treatment available and with the rising unemployment in America, people lose their health insurance at the same time which means they won’t be able to afford these expensive treatments further increasing the mortality rate.
There has been a big jump in the price of cryptocurrencies led by Bitcoin on around 27th April. The entire value of cryptocurrencies jumped 35.3 billion dollars in just 24 hours. In this massive rise, the price of Bitcoin rose by 18.57% constituting most of this upward movement. Industry participants attribute this to two factors — central bank monetary policy as well as an upcoming event known as bitcoin halving. Major central banks around the world have unveiled huge stimulus packages to cushion the economic fallout from the coronavirus pandemic. They have also signaled their willingness to do more. This has been a factor behind the recent rise in stock markets in the past few days and has filtered through to bitcoin and other cryptocurrencies.
Further explaining the second cause of this rise – bitcoin halving which is scheduled to happen in May and it’s to do with a pre-programmed change in part of bitcoin’s underlying technology known as blockchain. The bitcoin world works with so-called “miners” with high-powered computers competing to solve complex math problems to validate bitcoin transactions. Whoever wins that race gets rewarded in bitcoin. Currently, miners are rewarded 12.5 per block mined. The rewards are halved every few years to keep a lid on inflation. By May 2020, the reward per miner will be cut in half again, to 6.25 new bitcoin. This essentially reduces the supply of bitcoin coming onto the market. Halving is an event that happens every four years. Previous halving events have preceded big price increases in bitcoin. While part of this rebound may be explained by a renewed ‘risk-on’ attitude of global investors, it is also clear that bulls have been triggered by the upcoming halving event and the anticipated appreciation in value in the wake of it. For those buying into bitcoin now, many see this as an opportunity to buy BTC at bargain-basement rates before a price pop post halving.