Report

Year 2020

Applying Economic theories to real

world events

Authour: Atif
Q-Soft Solutions
P a ge |1

Market Equilibrium / Market Surplus

Saudi Arabia, Russia willingly to cut outputs further on oil in order
to get equilibrium price and reduce market surplus
Source: https://gulfnews.com/business/energy/saudi-arabia-russia-willing-to-do-more-on-oil-1.71025375

Saudi Arabia and Russia indicated that they may reduce oil extracts after the latest OPEC.

Both countries agreed that they will continue to closely monitor the oil market and are agreed to take measures
conjointly with OPEC+ and other producers if these are considered necessary.

Oil has jumped more than 10 percent since the group on Sunday agreed to trim worldwide production by an
unprecedented 9.7 million barrels a day. Yet even the historic cuts won’t be able to offset the demand loss expected from
the coronavirus pandemic. OPEC on Thursday said it projects that demand for its crude will fall to the lowest in three
decades.

The joint statement echoed earlier comments by Saudi Arabia’s bin Salman, who has said that his country is ready to cut
oil production further if needed when the OPEC+ alliance meets again in June. “Flexibility and pragmatism will enable us
to continue to do more if we have to,” he said.

Even if OPEC members fully device their share of the agreed reductions, they’d still
be producing more than the market requires in the second quarter, according to the
group’s own estimates because globally oil dependency are reducing and vehicles
and other instruments are shifting towards solar batteries and charges batteries.

West Texas Intermediate oil futures closed below $20 a barrel on Wednesday 15 th
April 2020 for the first time since 2002.

Declining oil price has been particularly painful for Russia as well. The nation’s
reserves will get less than $1 for each exported barrel of oil, according to Bloomberg
calculations based on the data from the Russian Finance Ministry.

1
P a ge |2

Market Shortage / Demand Curve: A change in buyer

expectations
CORONAVIRUS AND SHOPPING FOR SUPPLIES: TOILET PAPER
SHORTAGE
SOURCE: HTTPS://WWW.USATODAY.COM/STORY/MONEY/2020/04/08/CORONAVIRUS-
SHORTAGE-WHERE-HAS-ALL-THE-TOILET-PAPER-GONE/2964143001/

Buyers were expecting that the price of the basic necessity might increase in the
future, therefore they buy more than regular purchases. This causes an increase in
demand and a rightward shift of the demand curve and results to these type of issues
like market shortage of toilet papers.

On a 3rd April (Friday) afternoon in western Iowa, a man in queue was waiting to buy
toilet paper at a local Dollar General store when another customer started teasing
him , according to local police the issue was the amount of toilet paper being
purchased.

After feeling in danger by the other customer's aggressive behavior, the toilet paper
buyer displayed a gun in self-defense. The all over the situation escalated the matter
at a point of physical confrontation.

In the end, neither person was hurt, but the initial aggressor was charged this week
with disorderly conduct, adding to the recent police blotter over bath tissue.

In Florida last month, sheriff’s deputies arrested a man for allegedly stealing 66 toilet
paper rolls from a Marriott hotel. In California last week, Beverly Hills cops found 192
rolls of toilet paper in a stolen SUV.

All are symptoms of the market shortage during the COVID-19 pandemic, a supply
shortfall caused by change in buyer expectations and increase demand that lead to
panic buying.

2
P a ge |3

People responds to Incentives / Governments can

sometimes improve market outcomes
THAILAND ISSUES INCENTIVES TO COUNTER COVID-19
IMPACT: PHASE ONE
SOURCE:HTTPS://WWW.ASEANBRIEFING.COM/NEWS/THAILAND-ISSUES-INCENTIVES-COUNTER-
COVID-19-IMPACT-PHASE-ONE/

On March 4, 2020, the Thai government issued incentives to counter the economic
impact of the COVID-19 pandemic, they named it as Phase One.

In Phase One, this is the first of three incentive packages, providing support for
businesses and households in the form of low-interest loans and cash offerings.

Small businesses are especially in need at such pandemic situations whose earnings
on daily or weekly basis and rolling there cash flows over and over again to earn
profits.

Incentive packages

This incentive package is valued at 100 billion baht (US$3.2 billion) and comes as the
number of COVID-19 cases in the country increases to more than 2,000 amid 33
fatalities. The pandemic has already taken a heavy toll on the tourism sector and
exports, these two sectors that account for two-thirds of the country’s GDP.

Investors may took advice from local experts to understand how they avail benefits
from these relief measures.

State-owned Government Savings Bank (GSB) has allocated 150 billion baht (US$4.5
billion) worth of low-interest loans. The GSB will lend to commercial banks with a
lowered interest rate if just 0.01 percent, allowing commercial banks to grant loans
to businesses with an interest rate of two percent.

3
P a ge |4

Businesses can receive this rate for the first two years on the first 20 million baht
(US$612,000).

The Social Security Office (SSO) in Thailand has also granted loan of 30 billion baht
(US$918 million) with the interest rate set at 3 % percent for SSO-registered
entrepreneurs.

Tax reduction

Government reduce the tax rate from 3 to 1.5 percent starting from April 1 until
September 30, 2020. This tax rate will be reduced further to 2 percent from 1 st Oct
until 31st Dec, 2020.

VAT Refunds

Businesses that are part of “Good Exporter” program can receive VAT refunds within
15 days instead of 30 days refund. A Good Exporter is defined as a public or limited
company that is VAT registered, adheres to export regulations, and must have a ratio
of goods exported abroad for no less than 50 percent of total sales.

This is only available for businesses who are filling VAT returns through e-filing
system.

For businesses that file paper returns, the VAT refunds can be received within 45
days (compared to the usual 60 days).

People will more likely to opt the e-filling system in order to avail incentives.

DEDUCTION IN SALARY COSTS

Small Medium Enterprise (SMEs) can deduct 300 percent of eligible salary costs paid
to employees for the period April to July 2020. They must fulfil several conditions:
 The salaries that are eligible for the 300 percent deduction must be below 15,000 baht (US$454) per month, per
employee;
 The total number of employees cannot exceed 200;
 The SME’s annual revenue does not exceed 500 million baht (US$15.1 million);
 Employees must be insured under the national social security program; and
 The number of insured employees during the stated period should not be lower than the number of insured
employees as of December 31, 2019.

4
P a ge |5

LOW INTEREST LOANS FOR INDIVIDUALS

The GSB has allocated 30 billion baht (US$918 million) in low-interest loans for
individuals, and there is a reduction in the Social Security Fund (SSF) contribution
from 5 percent to 4 percent.

Further, individuals who are Social Security Fund registered can receive
unemployment compensation worth up to 50 percent of their salaries.

The government also approved 17 billion baht (US$520 million) in remedial measures
by reducing water and electricity bills by three percent. Certain businesses such as
hotels will have their period of electricity payments extended.

Price Floor

COVID-19 IMPACT ON PAKISTAN’S STOCK EXCHANGES

Source: https://economictimes.indiatimes.com/blogs/voices/covid-19-is-killing-pakistans-economy/

There are no good sentiment on the trading floor of Pakistan Stock Exchange since
the beginning of the month of March and the market fell down on Monday (March
9th) when the Kingdom of Saudi Arabia announced instigating price war against
Russia to capture the oil market share after Putin’s ego went in against the US shale
producers as the demand for crude has been sliding down with China, Europe and
the rest of the world sneezing hard due to COVID-19 spread.

KSE 100 was down 2106 points just moments after trading started and trading
freezes by reaching floor price set by regulator to reduce the floor’s temperature. But
nothing can provide comfort to an investor in the middle of a looming recession.
Karachi Stock Exchange after a series of bearish sell-offs since then is standing at
30,667 – 20% down as it go through highly volatile after two weeks of trading. A sell-
off will indeed leave the firms short of liquidity.