Swift action can help developing countries limit economic harm of coronavirus: World Bank

March 13, 2020 (MLN): The World Bank has published a report on swift actions that can help developing countries limit economic harm of coronavirus.

According to the report, the novel coronavirus (COVID-19) outbreak has already exacted a high cost in human life and has been recognized for what it is—a global health emergency. As the virus spreads around the globe, the question now is whether lives can be protected and economic harm can be contained.

‘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.

In the coming weeks, all countries—even those without a single coronavirus patient—will need to take concrete policy steps to protect their people and limit harm to their economies.

But what comes next will be crucial: in the coming weeks, all countries—even those without a single coronavirus patient—will need to take concrete policy steps to protect their people and limit harm to their economies.

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, and the extent to which a coordinated, concerted, fast-track policy response is mobilized and sustained. But what we do know is that 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.

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 transmitted from one country to another—and to act quickly to prevent its spread.

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 disrupted by factory shutdowns and delayed resumption of operations. The second is foreign financial flows, which could be shifted away from coronavirus-affected countries. The third is domestic capital—human as well as financial—which is becoming underutilized as factories are idled and people stay at home. 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 commodity prices will harm developing countries that rely on them for much-needed revenue.

Governments should avoid protectionist policies, which would exacerbate disruptions to global value chains and amplify already elevated levels of uncertainty. 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.

Tackling these challenges will require global cooperation. Governments should avoid protectionist policies, which would exacerbate disruptions to global value chains and amplify already elevated levels of uncertainty. 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. In the medium term, as economic conditions improve, the lesson for policymakers is not to look inward, but to encourage businesses to hold a higher level of inventories and diversify suppliers to best manage risk.

Beyond cooperation, international assistance will be necessary, in particular for countries in sub-Saharan Africa, which lack the health-related infrastructure necessary to contain the epidemic. And all countries should work to increase transparency in information related to the spread of the outbreak—fear and misinformation can magnify its economic impact’ the report said.

Developing countries, for their part, should move quickly to:

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.

Strengthen the safety net: Cash transfers and free medical services for the most vulnerable people would help contain the outbreak and also limit its financial harm.

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.

Counter financial-market disruptions: Central banks in developing countries—particularly those that are sensitive to bouts of risk aversion—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.

These are testing times for policymakers: they must rise to the occasion by acting quickly, decisively, and in collaboration.

The World Bank Group is playing a key role in helping developing countries take the necessary steps in these areas. Our initial fast-track package of $12 billion will immediately support the efforts of developing countries to strengthen health systems and minimize the harm to people and the economy. Depending on the duration and the severity of the epidemic, we will be ready to provide a second phase of support with a greater focus on economic and social impacts.

The package deploys our full array of capabilities—from the Bank, the International Development Association (IDA), and the International Finance Corporation (IFC), to limit the damage as quickly as possible. IFC, for instance, is working with commercial banks to expand trade finance and working capital for businesses. It will also directly support its corporate clients—with an emphasis on strategic sectors such as medical equipment and pharmaceuticals—to sustain supply chains and limit downside risks.

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. Once again, these are testing times for policymakers: they must rise to the occasion by acting quickly, decisively, and in collaboration.

World Bank

Posted on: 2020-03-13T11:17:00+05:00

33400