No matter what approach we use to identify the potential impact on global and national economies from the Covid-19 pandemic, the prognoses are not optimistic. According to the OECD, with businesses temporarily shut down and various other containment measures in place, the most adversely affected sectors seem to be travel, retail, restaurants and cinemas, non-essential construction work, and, to a smaller extent, the manufacturing industry. The affected sectors account for between 30-40 percent of total output in most economies. Allowing for only partial shutdowns in some sectors, and assuming a similar extent of closures in all countries, the overall initial direct hit to GDP levels is expected to be between 20-25 percent in many advanced economies. For the BRICS countries, the OECD predicts a potential GDP decline at constant prices of over 20 percent in Brazil and India, 23 percent in Russia, about 19 percent in China, and 17 percent in South Africa as a result of the shutdowns. In China’s case, however, the
OECD estimates that the peak adverse impact on output has already past, with some shutdown measures now being eased. Nevertheless, such predictions call for all governments to take steps to prevent the most adverse and long-lasting consequences on their economies caused by current global epidemiologic circumstance.
Health systems’ response
Arguably, health systems the world over are facing the most severe immediate challenges to contain and mitigate the spread and infection rate of Covid-19. Beyond containment, there is a critical need to provide additional measures, including but not limited to financial and R&D, to ensure proper treatment and efficiently reduce the pressure on healthcare systems.
The OECD has outlined four key measures that should be put into place in response to the pandemic: ensuring that the vulnerable have access to diagnostics and treatment; strengthening and optimising the capacity of health systems; providing the means to leverage digital solutions and data; and aiding improvements in R&D for the accelerated development of diagnostics, treatments, and vaccines. Countries must mobilise their national “sanitary reserves” to
increase the supply of health workers by involving retired health professionals and students in medical and other health programs voluntarily, as has been done in France and Russia.
India has announced an
emergency health fund of INR 150 billion (US$ 2 billion) to treat Covid-19 patients and strengthen the medical infrastructure, including rapidly ramping up the number of testing facilities, personal protective equipment, isolation beds, ICU beds and ventilators. Russia has adopted measures to encourage medical professionals by budgeting
bonuses for working with infected patients, as well as allowing delivery options for over-the-counter medicines purchased online.
Taxation policies
The Covid-19 pandemic is putting pressure on businesses, especially small and medium-sized enterprises (SMEs). The governments of the OECD and BRICS countries are looking for ways to protect their citizens and economies. It is essential to provide support to households and to improve the cash-flow for businesses. The OECD has prioritised work on a range of
targeted and temporary tax policy and tax administration measures that governments could consider as part of their response to the Covid-19 pandemic. Some of the measures governments could consider are delaying the payment of taxes and introducing temporary VAT reductions or deferrals.
China has announced VAT exemptions for “lifestyle services,” increasing loss carry-forward for severely affected businesses in specific sectors (transport, catering, accommodation, and tourism). Russia has also adopted tax incentives in respond to Covid-19, including a moratorium on SME tax audits; a deferral on the collection of tax payments for taxpayers from air transport, tourism, sports, art, culture, and cinema; a three-month delay in rental fees for SMEs that rent state and municipal premises; businesses can defer payments for all taxes except VAT; and micro-enterprises can delay their contributions to social funds.
SME-specific measures
Covid-19 will have an acute impact on SMEs in the OECD and BRICS countries, especially in comparison to larger companies, given their
higher levels of vulnerability and lower resilience to volatility. For instance,
reports from China showed that a third of SMEs only had enough cash to cover fixed expenses for a month, with another third running out within two months, putting millions at risk.
Governments must provide special support packages for SMEs, especially those in the services and tourism sectors. Some initiatives across the OECD and BRICS countries aim to provide information to SMEs on how to help prevent the spread of the coronavirus. Other measures aim to provide flexibility and relief for companies and workers from the reduction of working hours, temporary layoffs and sick leave. Several countries have included financial instruments to reduce the negative impact of the situation. Russia, for instance, has introduced financial instruments, including tax relief, to support SMEs, and will introduce a six-month moratorium on filing creditors’ applications for bankruptcy of SMEs, and the collection of debts and fines.
Employment and social policy
The Covid-19 crisis has proved to be challenging, to say the least, for households and firms. Countries are taking emergency measures to achieve two vital goals in employment and social areas: to reduce workers’ exposure to the virus in the workplace, and ensuring access to income support for sick and quarantined workers. According to the OECD, to do so, countries must help companies, especially SMEs, to quickly develop teleworking capacities through financial assistance to purchase equipment and by supporting the development of suitable teleworking policies, as Japan has done.
In Brazil, informal workers and the unemployed
will receive, over three months, a temporary new benefit of US$ 120 per month (US$ 240 for single mothers), provided they earn less than half the minimum wage and are not covered by other social benefits. Additional spending of 0.04 percent of GDP on the Bolsa Familia conditional cash transfer programme is aiming for a rapid reduction in the time required for registration, which could mean up to one million additional beneficiaries. Formal workers with salaries not exceeding two minimum wages and who have suffered cuts in wages or working hours
are eligible for other public income support that will compensate around 15% of their average monthly earnings. Meanwhile, the Russian government has proposed compensating quarantined citizens, including freelancers and the self-employed, for lost income, and paying pensions and other public benefits in advance.
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