THE FISCAL IMPACT OF THE PANDEMIC

THE FISCAL IMPACT OF THE PANDEMIC

The coronavirus pandemic has prompted an aggregate negative supply and demand shock of unparalleled intensity. Both are having a substantial effect on the production of goods and services, and since income ultimately stems from production they are rapidly dwindling. With many countries already in a downward spiral and heading toward recession, the pitfall is that the downturn will become an enduring and in-depth collapse.

The simultaneous supply and demand shocks are probable to activate many ‘ripple effects’. Corporations with huge fixed costs that suffer an abrupt plummet in income are facing financial complications or even bankruptcy. When that occurs, the banks and other entities that have lent money to these businesses will also be in woe. As a result, significant economic shocks can frequently lead to banking crunches.

But the effects do not stop there. Governments can face fiscal vulnerabilities when they step in to alleviate the predicament. In the case of the current sickness, the administration will need to shield businesses from liquidation by conceding financial support and subsidies, aid workers by funding provisional unemployment schemes and perhaps even come to bailout enormous banks. Worse, all of this must be completed at a time of diminishing tax revenues, which means that country-level deficits and public-debt levels will catapult.

 

BANGLADESH

Bangladesh’s remarkable growth impetus in recent years is set to come to a colliding cessation for the coronavirus pandemic in the country, with the poor and informal sectors encountering the brunt of the changes. The country’s GDP growth in this fiscal year is projected to be between 2 and 3%, in a stunning nosedive from the 8.15% registered in the preceding year.369

At the onset of this fiscal year, the government was expecting to register 8.20% GDP growth. To prevent the catastrophic outcome, the government needs to develop social security programs in the arrangement of cash or food allocation to those who are above the poverty line and were remuneratively employed in the informal sector but unexpectedly found themselves out of jobs for the nationwide shutdown imposed by the government in late March to compress the outbreak of coronavirus.

The World Bank has been prepared to provide $6 billion for Bangladesh to tackle the eruption and also kickstart the economy once the deadly pathogen has been quenched. The multilateral agency decided to sidetrack funds it had sanctioned projects hitherto. The lender has ratified 46 projects worth around $12 billion, and more than fifty percent of that figure has not been distributed due to the slow headway of the projects. The World Bank is now looking to furnish a $300 million cash transfer project it had approved previously but was taking a while to jumpstart. 

Also, augmented budgetary apportionments will be prerequisites to address the consequences of coronavirus epidemic, including dissemination of medicines, refining health services, and medical equipment. The Centre for Policy Dialogue (CPD) had previously proposed that prudent rationalization and prioritization of public disbursement and rehabilitated efforts to mobilize local resources by repressing tax evasion and clandestine financial flow could be the methods to confront the bewildering catastrophe.

 

USA

The testimonials of the government unveiled the order of $2 trillion in the bailout. This sort of fiscal burden approaches as the administration already had ramped up $624.5 billion in just the initial five months of the fiscal year. That pace of expenditure inferred throughout the entire fiscal year would lead to a $1.5 trillion discrepancy, and that is notwithstanding any of the disbursements to battle the coronavirus.

Moreover, a Treasury security net of Federal Reserve agendas could provide an additional $4 trillion in economic stimulus. The national debt already accounted for more than $23.5 trillion and will be on the trajectory to conceal $25 trillion. The citizens had paid $574.6 billion in the prior fiscal year on interest payments for the debt and a further $229.1 billion in this fiscal year. 

 

CHINA

China will amplify its fiscal deficit quotient and issue special bonds to revive the economy. The country had contributed $344.1 billion to the global economic rescue compendium proclaimed by the G20. China’s turn to a more combative stimulus standpoint comes as the coronavirus, which has infected than a million people worldwide, burdens profoundly on the global economy and the country’s exports.

The China International Capital Corporation (CICC) had lowered its development estimate for China this year to merely 2.6%, significantly below its earlier prognosis of 6.1%. During the financial crisis, China had declared its enormous incentive package of about $564 billion, combined with an abundance of easy credit. More than a decade later, China is still dealing with the aftereffect of debts and unwarranted capacity in numerous industries.

 

SOUTH ASIA

Growth in the region, which encompasses 8 countries, will descent to a gamut between 1.8 and 2.8% this fiscal year, minus the 6.3% projected a few months back, due to stumbling economic activity, disintegrating trade, and greater pressure in the financial and banking institutions.

The fiscal deficit of neighboring India logged in at 5.07% of GDP in February. This would make it challenging for the administration to meet its modified fiscal deficit goal of 3.8% of GDP for the current fiscal year. While India’s GDP is conjectured to grow at 1.5-2.8%, Afghanistan, Pakistan, Sri Lanka and the Maldives will do worse –registering negative growth this year.

Providing that the national lockdowns would be prolonged, the World Bank cautioned of a worst-case scenario in which the entire region would undergo a negative growth rate this year.

 

IN CONCLUSION

The battle against COVID-19 cannot be carried out by the government alone. It will require an exceptional degree of synchronization between the public and private at the domestic and transnational levels. Countries must spur support for its private sector and share some of its understanding of fighting COVID-19 and surging its economic resilience. More importantly, it is time to think outside the norm and to set aside doctrines that may be suitable in conventional times, but not when the world confronts an existential crisis.

 

Written by

Seemran Rashid

Leave a Reply