When the news of Coronavirus (covid-19) affecting Wuhan city of Hubei province in China broke out towards the end of 2019, not many thought it would assume this unprecedented scale in terms of area coverage, loss of human lives and injuries inflicted on economies all over the world. Indeed, people in faraway places like North America and Europe had nothing much to worry about because the earlier virus (SAARS in 2003), which also originated in China, remained confined mostly to Asian countries. Contrary to the expectation of many of us, however, covid-19 took not much time to bring under its fold resourceful countries far away from China. The United States of America, the United Kingdom, Italy, Spain, France and Germany are seen suffering more than China and other Asian countries in terms of loss of both human lives and economic output. While China has opened Wuhan after seventy-six days under lock-down, India is doing its best, under adverse operating conditions, to keep in check the spread of this disease. Side by side with the painful situation created by the loss of human lives, the world economy is also beginning to face strong headwinds.
Preliminary estimates show that the global economy will shrink by 3 percent and world trade would fall by 32 percent on account of this disease in 2020. While US and Euro Zone economies are likely to shrink by 5.9 and7.5 percent, respectively, the Chinese economy has already contracted by about 7.1 percent in the first quarter of 2020 and thousands of Chinese firms have already declared bankruptcy. Mainly small businesses are feeling the pinch as the pandemic brought consumer activity to a halt. New companies, startups, mostly in the hospitality and retail industry, have gone through a rough time in China. It may be noted that both Indian and Chinese economies passed through a tough period in 2019 and the picture painted for 2020 was not bright either. Corona has further complicated things for these two countries. Things have been made complex for the global economy, which was about set to get into recession even prior to the Corona invasion. It is now apprehended that the world would face the worst situation since the great depression of 1930. It is also said the recession caused by the pandemic is far worse than the global recession of 2008. Nobody can predict with certainty by which time will the world be free of this disease. Countries like the US, UK, Germany, China, etc are working and have allocated huge resources for the development of a vaccine. European Union has committed a billion-dollar and countries attending an online seminar organized by the European Union recently have pledged eight billion dollars for the purpose. Looking at the related progress achieved by different countries, it appears that a well-tested vaccine for mass use will not be available before one year. It looks like the toll on human lives will decline soon but chances of its resurgence will remain high, in the absence of a permanent cure, and complete eradication of the disease is unthinkable in the near future. In realization of the uncertain cure of the disease and serious setback suffered by economies all over the world, protests against lockdown have taken place in many places including the US, France, UK, etc. Hunger protest against it took place in Lebanon where high inflation and lack of job opportunities forced people there on to the street. Protesters all over the world are demanding an end to this stoppage, which is said to be a cause of starvation and poverty. It is said that millions of people (World Bank says 11 million) will plunge into poverty on account of this disease, which has brought scores of economies to a grinding halt. Thousands of precious lives have been lost and governments should leave no stone unturned to arrest this but simultaneous efforts need to be launched to arrest the further deterioration in the global economy. The Secretary-General of UN wants 10 percent of global GDP to fight the pandemic.
The largest economy (US) was on the verge of sliding into recession and the concerned there put pressure on the monetary authority to go for quantitative easing, despite it not being the call of the market, just to delay the onset of a recession. Many other countries such as UK, Australia, etc. followed suit. Corona, however, threw lots of cold water on their efforts as the governments now are facing economic problems not experienced in decades. In the midst of rising death toll and problems associated with combating the disease, the concerned, therefore, was left with no choice but to ease restrictions, paving way for the gradual opening of the economy. Many countries have taken the bold step because they knew keeping the economy in a state of grinding halt for long would inflict incurable injury on their economies. In China, workers are back to factories, which are operating below optimal capacity. Domestic demand is returning to normal but contracted foreign trade is hurting the Chinese economy. In addition to their serious engagements with the disease, many governments have announced stimulus packages to stabilize the economies and provide relief to people who have lost jobs and have to bear the onslaught of soaring prices of essentials. The minimization of losses on both fronts (human lives and economies) seems to be the strategy adopted.
US government started with a fiscal stimulus package of 2 trillion dollars, which includes a direct payment to low-income families. Billions of dollars will be given to airlines, which have ceased operation and are likely to remain so for some more weeks. Another 480 billion dollar package for small businesses, which have been hit the hardest, has been approved. Millions of people in the United States have been listed for unemployment benefits. It may be mentioned that US unemployment soared to 14.7 percent, which is the worst since the great depression. In view of the severity of the problem, it is almost certain that the government will be regularly pumping additional funds (3 trillion dollars already in place) into the economy. Even In the midst of rising human casualties (highest in the world), restrictions have been eased to open the US economy gradually.EU also plans to spend over 100 billion dollars to support the region’s businesses during the pandemic. Despite differences amongst EU nations on joint sharing of debt obligations, EU finance ministers have agreed on a 590 billion dollar rescue package to help ailing economies. Japan has announced a package of 1 trillion dollars and India has already announced a package in the amount of 22 billion dollars. Recently, the government of India has announced another huge stimulus package specifically for small and medium enterprises. China has in place a stimulus package and monetary authority there has advised financial institutions to provide low-cost funds to small enterprises, which are currently in a very difficult situation. In addition to these country-specific packages announced, G-20 nations have decided to temporarily halt debt repayment by poor countries. Aimed at benefiting the resource-poor countries, the World Bank is contemplating a similar debt relief program. International Monetary Fund says it is ready to use WARCHEST 1 trillion dollars to fight the recession. Resource-poor countries in the world have to act smart in accessing bilateral and multilateral sources of help and assistance so that their economies do not take a plunge into an unfathomable mess of misery\poverty recovery from which could take years of hard work and sacrifice. Let us now delve a bit into what is happening in Nepal.
With the news of the spread of the virus in other countries including India, the Nepal government decided to keep the country under lockdown on March 24, which is being obediently observed by us to date. The first few days were reminiscent of curfews clamped to quell agitation during periods of political unrest. Expectedly, this decision has brought the nation and the economy to a grinding halt, which has done serious harm to the economy and individuals, especially low-income people, who are finding it difficult to manage even basic necessities. The latest lockdown decision has eased restrictions a bit on human and vehicular movement and some business units have been permitted to operate below optimal capacity. This has provided some semblance of relief to the hard-hit people but there is a growing feeling that the economy will have to be made operational soon, easing restrictions in a phased manner. Corona infection cases, currently not alarming, could increase significantly as testing progresses as has been the case elsewhere. We have seen how India, with an increasing number of infections and deaths, is struggling to control the spread of the virus and simultaneously initiating measures to move the economy. Governments in North America, Europe and elsewhere have come under tremendous pressure to open their economies and people and governments there did not waste much time to realize that phased easing of restrictions is a must to avoid disastrous consequences resulting from a very likely economic collapse.
In Nepal, we have to learn to live with it, introducing suitable changes (wearing masks, joining hands instead of shaking and maintaining hygienic conditions and social\ physical distancing) in our lifestyle. Nepal also needs a huge resource to rescue different entities, which are desperately waiting for some relief from the government. A combination of fiscal and monetary measures (a flexible monetary policy combined with subsidy and tax cuts) could help the ailing enterprises. The government, however, may find it difficult to garner resources at a time of falling revenue collection and decreasing remittances, which will not take long to dry up basically on account of the disease and falling oil prices on the global market. Expected return in a huge number of Nepalis migrant workers could further complicate matters for the current dispensation often accused of failing to deliver the goods on the economic front. Irrespective of resource constraints, however, the annual budget this year is expected to contain fiscal stimulus package to meaningfully start infrastructure projects and gainfully absorb about a million additional workers in different sectors of the economy, which would help increase both domestic demand and output. The budget in the offing is expected to be larger than the current one with an outlay of Rs. 1533 billion, but it looks like the size will depend much on the level of fiscal deficit that the government decides to endure. An austere budget avoiding crumbs spreading and unproductive expenses is the need of the hour. At this time of crisis, let us hope the government succeeds in preventing loss of human lives as well as their livelihood, which probably can be achieved by gradually opening places of works and letting more people return to work subject to strict maintenance of social\physical distancing and adherence to other prescribed norms. It would be advisable that those not abiding by rules be seriously penalized because they cannot afford to ignore the truth that only strict adherence to the suggested norms at workplaces and elsewhere can save lives and livelihood in these uncertain times.