Rajib Neupane
On the 11th of March, the World Health Organization (WHO) declared the COVID-19 outbreak as a pandemic in reality. Following the public health crisis, this outbreak is breaking all the records, bringing the global financial market to its ground, as the virus continues to spread. It is creating ripples around the world causing the global markets to massively shrink. Several nations across the world are administering quarantine measures restricting the movement, shutdown of industries and business activity which is eventually stamping down the overall economic activity. With no surprise, supply chains around the globe have been interrupted and the full impact of such disruptions is yet to be felt.
These episodes are displaying how vulnerable the world could be. Notwithstanding, experts believe that there could be numerous undiscovered viruses existing on the planet which could outbreak anytime just like COVID-19. Having such possibilities, the present circumstances also gives us some lessons to confront if a similar pandemic outbreak happens at any time in the future.
Against such backdrop, governments around the world are responding to key economic measures to limit the human and economic shock caused due to the pandemic. Given the situation, International Monetary Fund (IMF) predicts the outlook of global growth for 2020 to be negative implying that the global downturn is going to be at least as bad as the financial crisis of 2008 or even worse. Many countries would fall into a recession upon dealing with the economic fallout that could surpass the magnitude of two world wars.
Nevertheless, the IMF expects a slow recovery in 2021. However, this predicted recovery has a cost associated with it depending on the aggressive measures to be taken for the containment of the virus and bolster health systems everywhere. Even as a layman observer, it looks world will never be the same again.
Given the circumstances, many developed economies of the world, for instance, G20 countries have already started framing extraordinary fiscal, monetary, micro-financial, exchange rate and balance of payments. Moreover, these economies are generally in a better position to counter the emergency of the situation caused due to the sudden crisis like COVID-19 itself. The economic responses of these advanced economies are important not just for their domestic interest but as a critical player in the global economy. These countries occupy a major share of global GDP and therefore play a pivotal role in the balance and stability of international financial stability. But what about the emerging and low-income countries across the globe?
United Nations Development Programme (UNDP) in its recent report stresses that income losses in developing countries are expected to exceed $220 billion. There has also been a forecast that 55 percent of the global population will have no or minimal social protection and that, income losses will create further oscillation impacting the basic social safety nets across societies including health, education, basic food security, and nutrition.
Developing countries alone cannot deal with the gravity of such a situation. And Nepal clearly fits inside the box being one of the world’s poorer countries. The economy of Nepal which is heavily relying on remittance, aid, and tourism is bound to suffer. Let alone agriculture and agro-processing industries. Due to a nationwide lockdown to respond to the pandemic, domestic economic activity has been severely affected and is in a state of stalemate. Besides, we are more vulnerable to debt distress. To temper its impact, the Government of Nepal and central banks have already started seeking help from international financial institutions like IMF and the World Bank whose bilateral and multilateral surveillance could possibly fit our interest towards the best possible financial solutions.
Nepal already is heavily indebted. This crisis has further imperiled our economic position. What we seek from the World Bank is a grant towards debt relief. Additionally, we seek to be benefitted from the Catastrophe Containment and Relief Trust (CCRT) of IMF which could be helpful in redirecting public financial resources. From our development partners, we seek continued assistance towards capacity development activities.
With the global economic downturn, there is a substantial risk of ripples of bankruptcies and lay-offs of the employees and daily wage workers. And Nepal is no exception to that- These happenings can not only threaten the recovery of the national economy but also likely jeopardize the fabric of society. To mitigate such bearings, Nepal Rastra Bank is expected to take extensive measures to address this crisis and buffer its shock on the economy by applying new monetary and fiscal policies.
For a country like Nepal, where the health system is poorly constructed and having insufficient health infrastructures, setting up aggressive containment measures by locking down its territory was only the best suitable choice. So far, it seems enormous stress coming from the spread of COVID-19 has been effectively handled. But everyone is well aware- it has an immense cost to bear on people, business and financial systems.
Remittance is contributing substantially to maintaining the macroeconomic stability of Nepal. The inflow of remittance has always been a less volatile source of external financing than Foreign Direct Investment (FDI) or Official Development Assistance (ODA). With the outbreak of COVID-19, the Gulf economies, East Asian economies, and even India is cutting off their staff. Consequently, hundreds and thousands of Nepalese migrant workers are on the verge of losing their job or have already lost. With the inflow of remittance being plummeted, financial liquidity in the country’s economic health is bound to be affected. At the micro-level, there will be a substantial reduction in consumption level, retarded health care, education, nutrition and housing in Nepalese society.
Although social distancing and quarantining are desired to contest the outbreak of pandemic in reducing public health impact, explicitly inverse action is required when it comes to protecting the national economy.
It feels good to hear that the government of Nepal is concerned in preparing stimulus economic packages aimed at providing support for the informal laborers and economically vulnerable sections of society by applying emergency funding arrangements. However, the talk of protecting and relieving safety net to daily wage laborers, displaced and unemployed to save their livelihood remains unsure and uncertain.
Civil societies and the general public are aware of the constraints of our inefficient public delivery system. The episodes of the 2015 earthquake relief package not being proportionately and efficiently distributed comes to our memory. This definitely brings up the question of the government even if it has the right intention. The efficacy of the public delivery system and whether or not the intended benefit could reach the concerned remains in big puzzles.
However, this time, there are some possible prescriptions that the government could creatively think about. For instance, augmenting the private sector’s role in effective relief distribution. The private sector could apply their Corporate Social responsibility (CSR) budget in relief distribution while the government can subsidize tax to such agencies that are effectively performing their expected role.
So far, Nepal seems to be applying necessary comprehensive measures, foremost being an effective nationwide lockdown for the containment of the virus. As a result, the rate of infection is lower. While there are hues and cries in many countries across the globe, Nepalese should be grateful for one sole reason that we are relatively in a good stage in restraining the public health crisis as of now. While we are slowly gearing up to tackle the health crises with extremely limited resources, our economy is collapsing in an unprecedented way. The socioeconomic hit that we will be facing could take years to recover. However, on a hopeful note, we can just pray that socioeconomic pain inflicted by COVID-19 would relatively be short-lived.
The author is a graduate of MSc. in Globalization, Transnationalism and Culture from Norwegian University of Science and Technology (NTNU) and can be reached at rajibneupane444@gmail.com
