COVID19: An economic view

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BY: Nazim Humayoon

COVID19 pandemic will leave behind a spoor of political, social, psychological and last but not least, the economic scars, which will have far-reaching consequences. It is going to impact every being on earth even if they do not stipulate it.

As far as reactions from an economic point of view are concerned, the nations all over the planet have been strong, hasty and bull-eyed to cushion businesses and households affected by incarcerated measures. Nations are implementing, admitting with alternating contingencies, opportunities and haste, short-term working schemes for employees, extended to the self-employed, to preserve worker and household incomes. Governments are providing credit relaxations (delaying EMI payments), tax relief to help businesses and individuals bear the brunt of this pandemic, but not speaking of the health sector will be a great mistake.

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Governments have infused or are infusing very large amounts into the systems. In many cases, they have not set barriers. And that is right. Speaking of the financial markets, they have reacted meekly, thwarted by the boundless ambiguity regarding the expansion of the virus, the largely bumbling global health response, and its economic and financial consequences. Because of this uncertainty, markets are not able to tune risks or economic forecasts. Some experts also suggest that the consequences will surface later in the year, either because of a butterfingered response or if no vaccine or cure is available soon for the virus.

A pandemic like this continuing more than a few months, there is certain skepticism about how short-term measures, drafted for a temporary shock, must be changed or further firmed in the ambiance of lengthened slow growth, bleeding corporate valuations, rising unemployment, high debt, and high inflation. As far as the health sector is concerned, more financial (like 1 billion Dollar emergency financing by IBRD or World Bank to India), logistical and manufacturing resources would need to be designated to material production — be it the products as big as ventilators or as small as facial masks. If this virus continues to penetrate borders, national as well as international, increased coordination and information-sharing will be vital. More resources for data collection and sharing, research, machinery and equipment and support for emerging and low-income economies will be of utmost importance.

Constituting and inflating, committed health funds at the national level are the strides in the right direction. But sharing forces globally will also be essential. Serious money and human capital are needed. But first and foremost, advanced economies, starting with the strong ones, need to agree on a common groundwork for quarantine, containment, and testing, and then further implement it together to avoid prolonging the crisis and the most important factor, which is returning influx of infections as we witnessed in China.

On the economic front, the issue is that a temporary loss of output may turn into a stretched one. In financial terms, averting the shock from relocating or altering from a liquidity one to a solvency one, may require even more forceful and strict policies. First, do no damage: governments should continue to back the private sector, which may include by taking equity stakes, and boosting employment. This will require a large increase in public spending and investment at a time when the only thing about revenues is that they are falling. Ultra-accommodative monetary policy by the central banks, which we have already witnessed by the Reserve Bank of India and other central banks around the globe, will continue to help in addressing rising debt, while timely coordination between various central banks can provide international liquidity. Government guarantees may in turn, result in government becoming owners of some sectors of the economy. The robust demands on government finance need not result in unendurable issuance of debt that would spur markets. It requires fresh, particularly creative thinking on macroeconomic policy issues.