Coronavirius – An economic and medical pandemic
M S Siddiqui/ Legal Economist
The coronavirus crisis has laid bare stark weaknesses in global health care systems, from the number of intensive-care beds to the size of the workforce, the inability to provide enough masks and to deploy testing in some countries, and deficiencies in the research for and supply of drugs and vaccines.
The world needs decisive and ambitious actions to mitigate the economic downturn and protect the most vulnerable, apart from immediate health policy response. The worse sufferers are the low income or no income, those who were already facing a difficult situation and who will hit hard. It has started as a series of sudden stops in economic activity, quickly cascaded through the economy and morphed into a full-blown shock simultaneously impeding supply and demand.
At the beginning of outbreak of coronavirus, economist has predicted a temporary blow on global economies. The most urgent priority was to minimize the loss of life and health. But the pandemic has also set in motion a major economic crisis that will burden our societies for years to come. It is obviously difficult to isolate one factor — in this case, a virus outbreak — from everything else happening in the world that can rattle the markets or strain economies. The coronavirus now appears to be infecting economies as quickly as it does people.
Now economists confidently predict that the global economic growth will be and plunge several countries into prolong recession. The shock will bring a double whammy: a halt in production in affected countries, hitting supply chains across the world, and a steep drop in consumption together with a collapse in confidence. It has now brings with it the third and greatest economic, financial and social shock of the 21st Century, after 9/11 and the Global Financial Crisis of 2008. It is thrusting all the economies into an unprecedented “deep freeze” state. Compounding a global health crisis with a major economic and financial crisis will put large strains on our societies. Even after the worst of the health crisis has passed, people will be confronted with the jobs crisis that will ensue.
Irrespective of classification on income level, countries must be launched drive for recovery of economies right from now. The immediate need to address the public health crisis and the subsequent needs to gear up the economies and running again. Countries need a longer-term new policy approaches to repair the damage and ensure that prepare for future shocks. Now is the time for urgent and large-scale responses, to be taken at sub-national, national and international levels. In many places ambitious initial responses are underway, and this is commendable. But only a combined, coordinated international effort will meet the challenge.
The economies need immediate, large-scale and coordinated actions to get the economy be ready for a quick and vigorous restart. It is encouraging that, many major efforts and initiatives announced by both developed and developing countries. These countries now may start greater international co-ordination. This is now fundamental to ensuring these initiatives produce the best results, reassure markets and support the most vulnerable countries.
The outbreak arrived at a weak point for the world economy, when global growth was beginning to pick up from its lowest rate since the 2009 financial crisis. It is now another bigger blow with unknown and prolonged crisis. No one can reliably predict the full economic impact of the outbreak. Too much depends on what is unknowable—how long the outbreak lasts, how many countries it afflicts.
That has troubling implications for developing economies: Tighter credit conditions, weaker growth, and the diversion of government resources to fight the outbreak would reduce funds available for key development priorities. An economic slump would also set back the fight against extreme poverty. It is imperative, therefore, that policymakers everywhere recognize how economic harm can be transmitting from one country to another—and to act quickly to prevent its spread. One country cannot grow alone left others behind.
That transmission is likely to occur through several channels. The first is trade: global value chains, which account for nearly half of global trade, are being disrupt by factory shutdowns and delayed resumption of operations. For example, export orders of Bangladesh garments amounting around US$2 billion has been cancelled by western buyers so far. The second is foreign financial flows, which may be shift away from coronavirus-affected countries. Bangladesh economy use to rely on remittance from expatriates working in Middle east countries. These countries also facing slowdown of economy and drastic fall of price of petroleum. The remittance is going fall down.
The third is domestic capital—human as well as financial—which are becoming underutilize as factories are idled and people stay at home. The major sector of industrial employment is the garment sector in Bangladesh are gradually shutting down production due to cancellation of order and interruption of supply of raw materials from China etc. The fourth is transport and tourism, a major revenue stream for many developing countries that is shrinking with declining demand and expanding travel restrictions. Finally, sharp drops in import and local production of commodity prices will harm developing countries that rely on them for much-needed revenue.
For an immediate actions, Governments should avoid protectionist policies, which would exacerbate disruptions to global value chains and amplify already elevated levels of uncertainty. Tackling these challenges will require global cooperation. Even more important, governments should avoid restricting exports of necessary food and medical products and instead work together to support increased production and ensure that resources flow to where they are most needed.
We know from history that when the global economy faces a common threat, quick, coordinated, and decisive action makes all the difference. That is beginning to happen. Several countries have announced stimulus programs, many have cut interest rates, and both the World Bank Group and the International Monetary Fund have unveiled massive financial-support packages to help countries overcome the health crisis and limit the economic damage.
We don’t know when preventive vaccine or remedial medicine will come out of laboratories and there no prediction of elimination of corona virus. Donors and other agencies suggested that, developing countries like Bangladesh should move quickly to:
(1) Boost spending on health: In many developing countries, public health systems remain weak, making their populations vulnerable to the rapid spread of the outbreak. Governments should boost investments that strengthen these systems to enable faster treatment and containment.
(2) Strengthen the safety net: Cash transfers and free medical services for the most vulnerable people would help contain the outbreak and limit its financial harm.
(3) Support the private sector: Since businesses of all kinds are likely to take a hit, they would benefit from short-term credit, tax breaks, or subsidies.
(4) Counter financial-market disruptions: Central banks in developing countries should stand ready to react to disorderly financial market movements. They may need to lower interest rates and inject liquidity to restore financial stability and boost growth.
Despite the turbulence in financial markets, policymakers need to remain level-headed. They should employ their full arsenal of policy tools, including monetary, fiscal, trade and investment policies, to improve confidence. The unprecedented synchronized and coordinated policy response during the global financial crisis was critical to contain it. This is a big challenge for the policy makers to realize the situation and take positive action ASAP.
Bangladesh is looking to avail $750 million in budgetary support from the International Monetary Fund (IMF), which has made available about $50 billion through its rapid-disbursing emergency financing facilities for low-income and emerging market countries that could potentially seek support. The Asian Development Bank (ADB) has announced a $6.5 billion initial package to help developing countries in Asia with their immediate responses to the spread of coronavirus.
The Manila-based lender may provide $500 million to Bangladesh initially as budget support in order to help the country improve its health system and assist the vulnerable groups.
Bangladesh has taken up some fiscal measures to influx money into economy and to support ailing business enterprises, so that they can survive and regularly pay wages and salaries to the staffs. BB made funds cheaper for banks by reducing the policy or repurchase agreement rate (Repo) by 25 percent basis points to 5.75 per cent in order to help banks tackle the impending financial recession stemming from the coronavirus pandemic. BB also cut banks’ cash reserve ratio (CRR) by 50 basis points to 5 per cent, a move that would inject about Tk 6,500 crore into the economy, said a central bank official, who has a direct link with the matter. Experts believe that central bank should take much more dynamic measures to face the crisis.
So far, government has taken up some other policies. As part of the efforts to alleviate the economic pains confronting the lower income groups, including day-labourers, rickshaw-pullers and street vendors, the government plans to sell rice at Tk 5 per kg through the OMS across the country, down from Tk 30 a kg at present.
This venerable group should be paid loss of work of on-going ‘stay-at-home’ period and beyond. Many workers are going to lose the job due to shut down of factories and stop of development works. The challenge is how to identify the needy persons and how to reach them. Out corrupt and inefficient administration and non-functional local government competent to do the job. Government may take support of NGOs. Combine acts of government, NGO and local government may take the responsibility.
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