COVID-19 Relief Packages: Is the World Doing Enough?
Economies across the globe are scrambling to compensate for the economic fallout of the ongoing coronavirus (COVID-19) pandemic and the resulting lockdown in as many as forty countries across the globe. Trillions of dollars in economic stimulus have been announced by countries such as the United States, Italy, France and India. Here’s a look at some of the proposed packages of financial stimuli that have been unveiled over the past few weeks.
In the United States, the Government announced a sweeping $2 trillion stimulus measure to send direct payments and unemployment benefits to individuals affected by the pandemic. This measure also proposes to finance grants to states as well as businesses that have been rendered devastated in facing the health emergency. Most of the US states are facing lockdowns and closures as a result of the surge in COVID-19 cases which have been marked at over 85 thousand by March 26th, the highest in the world, according to the Centers for Disease Control and Prevention (CDC). Struggling to cope with the fallout of the coronavirus containment measures, the support package is expected to include a $500 billion fund to help industries. According to Al Jazeera, American families could receive up to $3,000 in direct cash payments depending on their household income and whether they have children. The bill also includes $350 billion to provide loans to small-businesses, $250 billion for expanded unemployment aid and $150 billion for various healthcare initiatives, including $100 billion for hospitals and related health systems. This bill will be the third legislative action taken this month to address the pandemic. President Trump had previously signed an $8.3 billion emergency aid and a sweeping package providing paid leave, free testing and additional aid for families affected by the pandemic into law. These figures mark the biggest financial stimulus package in modern American history, even bigger than Franklin D Roosevelt’s New Deal in the 1930s.
On the monetary policy side, the Federal Reserve has slashed interest rates to near zero, injected trillions of dollars into credit markets to keep them from freezing up as well as innovated new measures to provide back-support to the US economy. The Canadian government has also announced a $82 billion package to support its economy and people - with targeted measures for young workers, vulnerable sections of the society and indigenous people. Non-essential travel across the US-Canada border has been restricted and aid has been promised to businesses and industries that have been ravaged by coronavirus disruptions. These measures are an attempt to sustain the workers and businesses that are losing income as vast sections of the American economy are shutting down under quarantine orders and to help the economy rebound quickly once the pandemic abates.
Across the Atlantic, Germany is expected to approve a coronavirus stimulus package worth over $814 billion, marking the first instance of the German government taking on new debt since 2013. The funds envisioned by Chancellor Angela Merkel’s cabinet have provisions for business loans, buying stakes in companies and to finance higher social spending. The European Central Bank announced the "Pandemic Emergency Purchase Program," a bond-buying scheme worth €750 billion to provide the European Union (EU) members with increased liquidity. Additionally, the European Commission has suspended debt and deficit requirements for members of the bloc, giving less economically-stable countries, like Italy, ‘more room to fight the coronavirus’, as per Deutsche Welle.
In France, the epidemic is estimated to be affecting 3.5 million businesses and traders. French Finance Minister Bruno Le Maire has announced a €45 billion aid package for small businesses and other hard-hit sectors of the economy. He has further notified that on the European level, “we decided on one trillion in guarantees from member states for bank loans to ensure that there is liquidity and cash flow”. The French government has also pledged to support lenders during the economic downturn. Le Maire said the French government is expecting a 1 percent drop in gross domestic product (GDP) and a recession in 2020. As for public debt, it will exceed 100 percent of GDP this year, the minister confirmed. Moreover, the EU’s transport ministers are scheduled to meet in the coming week to discuss the measures that can be undertaken to float the plagued aviation and other transport sectors.
Italian Prime Minister Giuseppe Conte’s government is ready to spend as much as €25 billion ($28.3 billion) on stimulus measures to shield the economy from Europe’s worst outbreak of the coronavirus. Finance Minister Roberto Gualtieri said the cabinet is likely to approve a first package worth about about €12 billion by Friday. The rest will be a reserve to pay for any further measures, he said. The government is further planning to up their deficit targets by €20 billion for this fiscal year. The provisions under discussion include help for workers facing temporary layoffs, boosting a guarantee fund for loans to small- and medium-sized companies, compensation for firms whose turn over has plunged more than 25% and some form of moratorium for business and personal mortgage repayments, Gualtieri said assistance to renters is also under consideration.
In a bid to contain the spread of coronavirus in India, the Modi Government had initially allocated $2 billion (INR 15,000 Crore) to strengthen the health infrastructure in India. In his address to the nation, Prime Minister Narendra Modi indicated that the fund will be used for developing health infrastructure in the country, increasing the number of beds, testing kits, and even training of professionals to combat the disease. Indian Finance Minister Nirmala Seetharaman also announced some relief through extensions in tax deadlines, easing minimum balance norms for savings accounts, and increasing the threshold of insolvency filing.
On March 26, this was followed by a more comprehensive relief package worth $28 billion (INR 1.70 lakh crore). Remember, India has been in a very severe lockdown, nearly as comprehensive as that of Italy because of concerns that a large scale outbreak could completely demolish the country’s limited healthcare capacity. The Finance Minister, Ms. Sitharaman said the economic relief package will focus primarily on migrant labourers and daily wage labourers. It includes a mix of food security and direct cash transfer benefits which shield poor families during the lockdown. Health professionals have also been extended an insurance benefit as a part of this package with a compensation package of $66 thousand. She has also promised that wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) will also be increased by $26 (INR 2000) per worker on an average as additional income to help daily wage labourers. To shore up the community benefits of the relief package, the government has doubled the collateral-free for women self-help groups under the Deen Dayal National Livelihood Mission which are expected to be beneficial for seven crore women.
According to a letter of ‘citizens’ response’ submitted by 653 prominent academicians, researchers, activists and policy analysts to the central and state governments, the wage increase under MGNREGA was, in fact, announced three days earlier as a regular adjustment against inflation made every year and cannot be called an “additional resource” in the face of the outbreak. Given that many migrant workers have returned to their native villages in light of lockdowns, many more rural residents will need work under MGNREGA over the next year. Keeping in mind the current circumstances, the number of days of work per rural household should not be limited to 100 days per year, as mandated by the Act, and should instead be increased.
As the COVID-19 threat escalates across South Asia, the South Asian Association for Regional Cooperation (SAARC) has ramped up measures through the means of an emergency fund. SAARC member states Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka attended a summit over video conferencing where each committed monetary contributions, baring Pakistan.
The G20, which represents approximately 85% of the global GDP, 90% of coronavirus cases, and 88% of the deaths caused by it, pledged a "united front" in the fight against the coronavirus pandemic, and said they were injecting $5 trillion into the global economy to counter the impact of the crisis.
According to Moody’s predictions, the US economy is slated to shrink by 2.0 percent and the Eurozone by about 2.2 percent, due to the pandemic. What remains to be seen is if the measures being taken can keep the global economy from slowing down too much, and if the recovery is a V-shaped or a U-shaped one?
Nidhi Razdan, G20 Pledges $5 Trillion, NDTV (Mar. 27, 2020, 12:05 AM) https://www.ndtv.com/india-news/g20-to-inject-5-trillion-to-revive-global-economy-after-coronavirus-crisis-pm-modi-calls-for-concret-2201309
Sanchita Nambiar, SAARC Countries Commit to COVID-19 Emergency Fund, BUSINESS TRAVELLER (Mar. 27, 2020, 12:04 AM) https://www.businesstraveller.com/business-travel/2020/03/24/saarc-countries-commit-to-covid-19-emergency-fund/
Elisa Braun, France Injects Billions into Stimulus Plan, POLITICO (Mar. 27, 2020, 12:00 AM) https://www.politico.eu/article/france-injects-billions-into-stimulus-plan-amid-coronavirus-chaos-bruno-le-maire-economic-catastrophe/
Rs. 15000 Crore Allotted for Healthcare, BUSINESS TODAY (Mar. 26, 2020, 08:10 AM) https://www.businesstoday.in/current/economy-politics/rs-15000-crore-alloted-for-healthcare-to-fight-coronavirus-says-pm-modi/story/399119.html
Sonia Sirletti, John Fallian, Flavia Rotondi, Italy Announce $2 Trillion Stimulus Package, BLOOMBERG (Mar. 26, 2020, 07:15 PM) https://www.bloomberg.com/news/articles/2020-03-10/conte-calls-on-ecb-to-do-whatever-it-takes-against-coronavirus
$2 Trillion Stimulus Deal, Al JAZEERA (Mar. 26, 2020, 11:00 PM) https://www.aljazeera.com/ajimpact/stocks-jump-higher-2-trillion-stimulus-deal-200325123729370.html
Emily Cochrane, Nicholas Fandos, Coronavirus Senate Deal, NY TIMES, (Mar. 25, 2020, 10:00 PM) https://www.nytimes.com/2020/03/25/us/politics/coronavirus-senate-deal.html?action=click&module=RelatedLinks&pgtype=Article
Activists call FM’s Rs. 1.7 Lakh Crore Package Inadequate INDIAN EXPRESS (Mar. 27th, 2020, 6:30 PM)
Views expressed are solely those of the author.
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