What started as a worldwide health crisis, has quickly escalated to a global economic calamity with new monetary policies, volatile markets and several financial and other initiatives as it’s after-effects. The COVID-19 pandemic has truly shaken the strongest of economies, that is now busy in crisis management on both health and financial fronts.
Governments around the world, have been busy rolling out financial aid (stimulus) packages to support individuals, business organizations and even large corporations.
There have been cuts made on interest rates, with the central banks reducing the lending rates near to zero. Many have also initiated extensive direct lending (untested) to financial institutions and corporations.
With so much going on in the economic sphere globally, it is expected that these financial packages and monetary policies will play a major role in shaping the future of the world after it rises above the pandemic crisis.
The Support of Financial Packages
As the pandemic forced governments to enforce nationwide lockdowns and caused the financial markets to crash, both had a universal impact on the global economy. To give some sense of relief to an ailing and panic-stricken population, governments started passing financial stimulus packages. Some of the notable mentions:
- USA President Donald Trump passed a bipartisan $2 trillion economic relief bill or stimulus package, that will send the money directly to the citizens. The package represents 10 percent of the country’s GDP
- New Zealand initially passed a $12.1 billion stimulus package, which then was increased to $18 billion. It will cover critical healthcare and medical supplies, relief to affected businesses, seniors and low-income families, and initial aviation support among other things. The package represents around 5 percent of the country’s GDP.
- The Australian government has announced a $130 billion JobKeeper Payment package, included in the total financial stimulus of $320 billion that represents 16.4 percent of the nation’s GDP.
- Iran has announced a stimulus package amounting to $55 billion that is equivalent to 10 percent of the country’s GDP Germany has adopted a €156 billion supplementary budget that represent 4.9 percent of their GDP.
- The government of Greece has announced a package of measures worth 5 percent of the GDP, which amounts to €10 billion.
- France has presented a fiscal package of €45 billion, which is about 2 percent of the GDP along with a €300 billion of state guarantees for liquidity bank loans to companies that amount to 13 percent of the GDP.
More or less, every other nation with significant COVID-19 damages has passed stimulus packages to offer relief to the population, businesses and other operations. There are mainly three objectives of these financial packages
- Firstly, to ensure that the basic needs of the population are taken care of
- Secondly, to provide support for the quick revival of the economy from the present slump
- Thirdly, to invest and fortify the public healthcare areas, so that such future catastrophes can be addressed in a better way
Also read: COVID-19 Crisis Management by Banks and Financial Institutions
Each government is taking its path and measures to ensure that the package is received by the people. While the US government is directly paying the citizens, countries like Greece, France, and the UK are either doing that or providing targeted aid to the ones who have become unemployed.
In the UK the amount to be paid is a fixed proportion of the recipient’s previous income amount. New Zealand is paying the same fixed amount to all the unemployed.
From an economic perspective, the aid should be divided among only those that have lost their businesses or source of income due to the COVID-19 crisis, so that their basic needs are fulfilled including their dependents until the crisis period is over.
Kickstarting the Economy
Some packages are aimed at boosting the ailing economy and giving it the needed support. The Wage Subsidy Scheme of New Zealand mirrors that objective, by helping both the employers and their employees to maintain the connection of employment. The package ensures that the employee receives incomes even if the individual is unable to work the hours. Although used during the novel corona crisis, the package was initially trialed after the Christchurch earthquake (2011).
A similar package has been included in the fiscal stimulus plan of Australia as well, where the government has subsidized wages of around 6 million workers included in the $130 billion plan.
Wage packages are directed towards, saving jobs of the population by providing financial aid to the businesses so that they don’t have to shut down operations. These plans prevent the economy from crashing completely due to widespread unemployment. Such schemes are also known to boost the confidence of small and mid-level businesses, by offering them the resources to get back on feet after the initial fall.
Global Economic Impact
While the small and mid-level businesses need financial subsidies and support to keep up the operations, it is a different story when it comes to the corporations. It all boils down to the actual need and the importance of the industry that it caters to.
Many countries including New Zealand has a separate package within the stimulus aid for the national airlines. It makes sense, as the aviation industry carries global significance in commerce and maintaining communication between nations, not to mention the other sectors are also dependent on it. Large companies rebuild themselves by filing for bankruptcy and it saves them from complete shutdown as well.
All that being said, the novel coronavirus pandemic has repercussions that go beyond individual economies and might require support on a global scale.
While the high-income countries have been trying to cover the losses through stimulus packages, the low income and middle-income nations are still struggling to make ends meet. Many are yet to announce a financial package, and the ones that have done amounts to less than I percent of the respective GDP. These countries are already in debt to take up any more financial burden on them.
Keeping that in mind, while it makes sense to take care of your own when a crisis hits, however, a global initiative is required at this point where the high-income nations lend their help to suffering nations unable to provide their people with financial aid. Till now, Norway (building a multi-donor fund with United Nations to support the developing nations), Finland and UK (supported the international response by making available £150 million to the IMF’s Catastrophe Containment and Relief Trust) has come with global financial support plans collaborating with the IMF, United Nations and other world bodies.
It falls on the part IMF and the World Bank to provide the required financial support to the developing and low-income nations so that they can avert the health crisis and also provide for the people’s basic needs.
The world needs to stay united in every effort, both financially and health-wise. As any kind of fallout can have a unanimous and even deeper impact on human society, one that will be hard to overcome.