The COVID-19 that is roiling the world has not only triggered health crisis but also posed a serious threat to the global economy, with far-reaching implications and shocks. It has hit hard the areas of production, consumption, supply chains, trade, industry, investment and tourism, among others. Most economists paint grim economic scenario and uncertainty as the death toll from the coronavirus rises each passing day. The UN Secretary General predicts a rise in instability, unrest and conflict due to COVID-19 while UNDP reports negative impacts on the Sustainable Development Goals (SDGs). Similarly, OECD’s report reveals that the world economy is at risk due to restrictions on the movements of people, goods and services and containment measures, including social distancing and closure of factories. The World Trade Organisation (WTO) predicts global economy, including production, trade and employment, will be far worse than that of financial crisis of 2008/09. Likewise, World Bank reports that millions of people from the Asia Pacific Region can be pushed into poverty. Accordingly, the UNCTAD forecasts 2.5 per cent decrease in global growth and 30-40 per cent drop in Foreign Direct Investment (FDI) flow globally. These are some instances that point to the severity of impacts of COVID-19 on the global economy.
Policy instruments There is always light at the end of the tunnel. A number of policy instruments can be adopted to neutralise the situation and find a sustainable solution to the crisis. Several economists have suggested unveiling stimulus package and unconventional economic policy framework related to monetary, fiscal, trade, industry, infrastructure, education, health, employment and insurance policies, among others. Accordingly, some have suggested going for ‘Helicopter Money’ which could be direct cash transfer, wage subsidies for small workers and labourers working in the informal sectors, unemployment allowances and so on. American economist Paul Krugman referred macroeconomic policies as fundamental and suggested unconventional monetary and fiscal policies such as low interest rates and fiscal stimulus to enhance productive capacity. As of April 4, nine confirmed cases of COVID-19 have been reported in Nepal. A High-Level Coordination Committee has been formed under the leadership of Deputy Prime Minister to combat COVID-19. The government has introduced nationwide lockdown for three weeks to prevent the virus’s transmission. In view of the limited institutional and technical capacity of the state, the preventive measures, including social distancing and awareness campaign of sanitation undertaken by the government, are appreciable as the curative stage would be highly challenging to us. Like other several countries, COVID-19 could certainly impact Nepal’s economy negatively. After the modest revival from the 2015 earthquake and subsequent supply obstruction, COVID-19 has posed a big challenge to Nepal’s economy, particularly tourism, industry, trade, agriculture, remittance, investment and infrastructure development. The tourism sector has come to a standstill due to travel restriction, cancellation of flights and hotel bookings. The government has put off Visit Nepal 2020 and cancelled all climbing expedition permits. Accordingly, remittance which accounts for about 1/3 of the GDP has taken a hard hit. The Asian Development Bank predicts about $322 million loss to the economy of Nepal. Such a situation may push many people into poverty trap, making it difficult to achieve the goal of ‘Prosperous Nepal, Happy Nepali’, Middle Income Country (MIC) and Graduating from LDC status. Against this backdrop, we could simultaneously work at three levels – global, regional and national. Firstly, the global leaders should work with shared vision, responsibility and accountability to ensure the uninterrupted global supply chains. Recently published UN report on ‘Shared Responsibility, Global Solidarity: Responding to the Socio-economic Impacts of COVID-19’ could serve as the framework for the global leaders to work together. As we live in the interdependent and interconnected global community, internationally coordinated economic and stimulus programme/package would be more effective in reducing global recession. The recent ‘G20 Virtual Leaders’ Summit on COVID-19’ committed to working together, with a pledge of five trillion dollars for the financial stability, resilient growth and sustainable recovery. Nepal could reap benefits from ‘Global Framework’ through its diplomatic presence abroad. Secondly, the effective utilisation of ‘SAARC Emergency Fund’ created during the video conference of the leaders from the eight SAARC member states is expected to support them to jointly fight the virus. India and Nepal have announced to donate $ 10 million and $ 1 million to the fund, respectively. Nepal as its current chair should be proactive to optimally use the regional forum against the pandemic.
Innovative fiscal policy Thirdly, it is imperative for the Government of Nepal to maintain macro-economic stability through the enforcement of unconventional and innovative monetary and fiscal policies that include productive stimulus package and low interest rates. There is the need for balancing trade-off between containment policies and economic policies. The preliminary initiatives undertaken by the government such as introducing ‘relief package’ for livelihood of poor, rescheduling loans for businesses and SMEs, exemption on electricity bills and customs duty of medical equipment, among others, will help assuage the knock-on effects of the virus. Further, the government should form a national mechanism comprising political leaders, economists, development specialists, business community and mid-career professional bureaucrats to analyse the impacts of COVID-19 and prepare a National Framework for Strategic Planning and Budgeting to revitalise the economy in a sustainable way.
(Aryal, who is currently the District Coordination Officer in Rasuwa, served as Trade Representative at Permanent Mission of Nepal in Geneva for three years)