Analysing Economic Policy Changes Brought by the Pandemic Globally
Updated: Oct 5, 2020
Author : Aditi Bairolu
The pandemic has taught Governments to take strategic steps. Keeping in mind to survive the existing competition and to keep the economic curve in its trajectory, every country has considered adopting a "tradeoff." This tradeoff is between the governmental ideologies, macro and microeconomic factors, and human capital. The pre-COVID period for the global economy was not performing well as the growth was stagnant. As of April 2020, countries worldwide have used about $8 trillion to tame the pandemic. The G20 countries are leading the percentage of financial provision. Covid19 has increased the fiscal deficits and increased public debt ratios, too, which were already standing weak much before the pandemic.
Nevertheless, how can policymakers standby the principles of the fiscal policies in place and combat the grievances caused by the virus? Well, the fiscal monitor report has covered it all. It has defined a set of guidelines for policymakers to look into for devising any mitigation measure. According to the monitor, the leaders can offer rescue funds or helicopter funds to save lives, stop the foresighted recession, save companies from any debacle, and initiate recovery.
According to the IMF, "Governments should do whatever it takes but make sure to keep the receipts." The statement is apt as without adequate human resources and capital, there will not be any market movement, and the economic cycle can come to a standstill. Pandemic or epidemic has been a part of any economic cycle occurring periodically. Hence, even when there is a dip in the economic curve, there will still be a recovery very soon, giving rise to newer opportunities. Be it V recovery or a Z recovery, the situation seems staggered, but it is temporary. However, to mitigate the effect, significant policy changes have preceded the usual principles and taken conditional strategic decisions. The $8 trillion rescue or an emergency fund is inclusive of higher spending and foregone revenues, loans for public sectors, liquidity and equity injections, and guarantees. Fiscal stabilizers have played an essential role in stabilizing the uncertainties in tax benefits, progressive taxation, and benefits to the unemployed population through different Government schemes and policies.
It is expected that Governments follow specific guidelines while drafting their suggestions. Here are a few points policymakers should think about:
1. Unbiased Support: In times like these, every human or business or any economic activity should be treated as a separate entity. The policies should be enforced without any biases. Support can be in any form, and the policymakers should include every stakeholder of the society equally. The support should be given to both the households and the businesses and not keep any activity out of the cycle. Essential goods and services should be easily accessible. Fund infusion should be encouraged to save financial and banking institutions. Moratorium and loan repayment policies should be flexed if needed.
2. Resource allocation: Resources will always be limited, and it is an art to keep the demand and supply cycle in place and balanced. It is adverse during unprecedented events like the current pandemic. The kind of disruption occurring in every sector has hit production units and temporarily stopped all activities. In situations like these, resources stand low to suffice the entire population of any country. Hence, the optimal allocation of the resource should be performed. Considering the income disparities and then allocating the resource will help mitigate the issue to some extent. This further can be stimulated with proper subsidiary schemes. The cost of these resources should be as low as possible, and in fact, essential commodities should be sold for free to the families belonging to the lower-income bracket.
3. Monitor: Even in times like these, the human psyche can force people to take drastic measures and encourage them to indulge in unfair practices and corruption and build a lobby of individuals to hoard the resources stopping the same to reach the needy. Hence, monitoring is needed at every juncture to streamline the flow of resources and benefit the ones who need the resources.
4. Transparency: Today, information and data move the sentiments of the people. Any information given out by the policymakers and the Government should be spread across and not held only to a specific segment. In any crisis, the country's entire population becomes the target segment for any information flow because faster propagation of information is needed so that every person benefits from the changes and the policies being devised. There will be risks involved with every measure. Disclosure of the fiscal risks will make institutions better prepared as tending to the deficits and debts might take some time.
5. Flexibility: With the increasing stress on the financial assets, the non-performing assets have increased over time, and the brunt is not just beared (bore) by the policymakers and other entities. The norms or policies thus devised should be flexible enough to set reasonable deadlines. Institutions should continuously improve upon their ideologies to cater to the masses well, i.e., applying the "Kaizen principle."
6. Good governance: Efficient and accurate accounting, the complete disclosure of information, introducing procedures to allow for ex-post evaluation, to keep the record of the receipts is included in Good governance. The tradeoff and changes taking place should not come at the cost of compromising with good governance.
7. Open to new concepts and technology: Policymakers should be open to all options possible. Recent past concepts like "bad banks" and "helicopter money" have triggered the economists to indulge in and rescue the economies. Nevertheless, policymakers are skeptical about these as once initiated, the process is irreversible, and the repercussions are enormous. However, tweaking them temporarily can be done for a short period. Further, technology will play a significant role in streamlining, guiding, and making every step transparent enough to reach the general masses.
8. Social media and Financial Literacy: There has been an increase in the percentage of using social media platforms as internet penetration has increased considerably. Adequate financial literacy has always been a matter of concern. Citizens are not aware of the various financial schemes, fiscal policies, monetary policies, various investment opportunities, updates from the businesses and markets. As a citizen, it becomes necessary that citizens know the state's decisions, be aware of the ongoing trend and take up financial responsibilities for a better and sustainable future. Breaking down all the financial concepts and explaining it to the general public will help a country have well informed citizens, and social media can help propagate this knowledge.
The above points work well while building and drafting the policies. Most of the points have already been included in the current policies accepted by many countries. Nevertheless, which major sectors will need the fiscal stimulus the most is the question of the hour. Health care systems failed miserably, and pandemic became the litmus test. Governments all over the world came up with grants to provide health care units with the help needed. However, developing economies that already have weaker healthcare systems, further doomed as the requirement of resources kept increasing as the demand for grants increases, the probability of the system faltering further increases, too, as unethical practices can be promoted by projecting false numbers. Hence, transparency becomes the prime pillar to ensure the proper disbursement of the grants and funds.
Monitoring of the entire transaction is a mandate that policymakers are yet to incorporate. Borrowings are moved more towards the healthcare sector, research, and development sector. Every economy is heavily investing in innovation, healthcare, research and development, and technology. Social inclusion might be compromised as an imbalance will be caused if the shift is more towards emerging sectors and markets. Hence, cost factors and effects should be considered before proposing any policy to include all the sects. Once the vaccine is deployed and tested, there will be a huge hue and cry about the accessibility. The upper-income bracket individuals will be at the forefront of this race to acquire the vaccine. In this situation, the Government will have to choose wisely. This choice can be mitigated with appropriate fiscal policy to ensure financial and social inclusion to protect livelihoods.
The esteemed organizations, namely- IMF, World Bank, Think Tanks across geographies, financial institutions, and bodies, can include the concept of "community-country building." Community building has always helped organizations in the social sector reach out to the larger population from rural and urban sectors to build change. When the developed countries work in sync with the emerging markets and countries, fund infusion and helping the states tailor their fiscal policies will drift the focus from merely fighting the virus to ideating newer synergies.