As countries implement necessary quarantines and social distancing practices to contain the COVID-19 pandemic, the world economy has witnessed a sharp contraction and possibility of further worsening the situation. The magnitude and speed of breakdown in the economic activities due to lockdown is something which has not been experienced in our life time. The recent shock to the global economy has been both faster and severer than the 2008 global financial crisis (GFC) and even the Great Depression of 1930. In those two previous episodes, over 50 per cent of stock markets collapsed, credit markets froze, massive bankruptcies followed, unemployment rates soared above 10 per cent, and GDP contracted at an annual rate of 10 per cent or more. The recent pandemic till date has forecasted half of the world is going below line of poverty (by Oxfam report) and may worsen if it has not been controlled in time. In addition, other impacts such as shrinking of GDP globally by 1 per cent (by IMF report) are bound to prevail and 90 countries are expecting funding support from donor agencies to subside the adverse impacts. The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars which is even greater than the combined economies of Japan and Germany according to IMF and World Bank report. Furthermore, the World Bank report shows a range of forecast in South Asia region will stand between 1.8 to 2.8 percent in 2020. This figure is the worst performance of the region during the past 40 years. In case of prolonged and broad national lockdown, the report further warns of a worst case scenario in which the entire region would experience a negative growth rate this year. Trade restrictions with domestic and international arenas are breaking supply chains and coronavirus lockdowns are preventing labourers from working on farms. Russia, the world’s largest wheat exporter, is limiting grain exports. Argentina, the world’s largest exporter of soybean products closed the road by their local body. Likewise, the production of onions and eggplants from India has plummeted over past weeks. Seasonal labourers from Eastern Europe are unable to go to the farms of Spain, Germany, Italy and France. The fresh fruits and vegetables which are dependent on availability of people for processing and packaging are paralysed due to this pandemic. More precisely, fruits and vegetables being perishable goods are facing even bigger threat due to restriction of global supply chain management. Worldwide, shipping accounts for 90 per cent of all global trade, which includes food trade but at this point all has been stopped/postponed. This simply symbolises the symptom of food crisis. Hence, given the size of the economic and food security, both advanced and developing economies are in recessions and depression. Sharp economic slump caused by halted economic activities and collapsing trade and greater stress on financial and banking sectors are major areas where adverse effect can be perceived. In banks and financial institutions, the massive depression is inevitable in the sectors reliant on tourism, travel, hospitality and entertainment. For the economy to be vibrant during shutdown, policymakers need to ensure that people are able to meet their needs and that businesses can pick up once the acute phases of the pandemic is over. The timelyfiscal, monetary and financial policies, including tax cuts and increase in government spending and stimulus package, need to be addressed by policymakers. Measures should be taken to ensure credit guarantees, liquidity facilities, loan forbearance, expanded unemployment insurance, enhanced benefits and tax relief which could have been lifelines to households and business entities. This support should continue throughout the containment phase to minimise persistent scars that could emanate from frightened investment and job losses in this severe downturn. Hence, a very prominent question arises “Who will bail out this situation?” It is no doubt that central governments along with donor agencies have balance sheets large enough to prevent the private sector’s collapse. There must be multifold challenges government has to manage and the need to balance across the nation. Besides, corporations, banks, and households are also key as emerging markets players. As a visible fact, the World Bank (USD 850 million), the International Monetary Fund (USD 750 million), Asian Development Bank (USD 600 million), Asian Infrastructure Investment Bank (USD 250 million) and Development Bank (USD 150 million) have already announced lending capacity to support vulnerable countries through rapid-disbursing emergency financing and debt service relief to poorest member countries. In that context, Bangladesh has already used that resource to fight against the adverse consequence of COVID-19. At this stage, Nepal should grasp the opportunity in order to subside the negative impacts. More precisely, Japan International Cooperation Agency (JICA) and International Fund for Agricultural Development (IFAD) are also potential partners for assisting in fighting the COVID-19 situation. Apart from the foreign aid, the central governments and central bank are also instrumental for dealing with this situation by making some interventions in the policies like reduction of cost of borrowing with reasonable periods, allowing the access to supplemental capital to business and allow repayment to be staggered for extended period. The most important part in Nepali context is to maintain financial stability within the country and keep the economy flowing on the normal course of action. In such situation the following interventions could be effective to this end. The central bank needs to provide refinance facilities to the agricultural, MSMEs, hotel and tourism as well as some prominent sectors having high propensity of generating employment opportunities at zero per cent interest rate to address the issue. The banks in turn will provide lending facilities to the wholesale entrepreneurs, including cooperatives and micro finance institutions taking marginal higher lending rate than the operating cost. It is necessary to fix the fixed deposit rate to individuals not more than 6 per cent (to cover inflation) in accordance with other country, and interest on call deposit almost nil. In addition, it is necessary to cap savings rate in accordance with the interest rate corridor spell out in monetary policy. This will help to decrease the cost of fund and will help to decrease base rate substantially. These interventions will help to reduce lending rate by 2.6 to 3 per cent which will be great relief to the market (not more than 7 per cent to COVID-19 affected sector). Finally, we have the obligation on what we go through and we need to acknowledge this, now more than ever.
(Upadhyaya is the chief executive officer of Agricultural Development Bank Limited.)