The Covid-19 pandemic is a crisis like no other, four officials from the International Monetary Fund (IMF) said on Wednesday in a blog released by the Fund. They said it feels like a war in many ways as people are dying while medical professionals are on the frontlines.
Giovanni Dell’Ariccia, Deputy Director of the Research Department at IMF; Antonio Spilimbergo, IMF Deputy Director in the Research Department; Paolo Mauro, Deputy Director in the IMF’s Fiscal Affairs Department; and Jeromin Zettelmeyer, Deputy Director in the Strategy, Policy, and Review Department at IMF, are the officials who wrote the Wednesday’s blog.
Those in essential services, food distribution, delivery, and public utilities work overtime to support the effort. And then there are the hidden soldiers: those who fight the epidemic confined in their homes, unable to fully contribute to production, they added.
In a war, massive spending on armaments stimulates economic activity and special provisions ensure essential services. In this crisis, things are more complicated, but a common feature is an increased role for the public sector, they mentioned.
At the risk of oversimplifying, policy needs to distinguish two phases: facing the crisis in full swing to save people’s lives and mitigation measures to curtail its impact on economic activity. This may be expected to last at least one or two quarters.
The second phase includes the post-war recovery while the virus will be under control with vaccines/drugs, partial herd immunity, and continued but less disruptive containment measures.
The success of the pace of the economic recovery will depend crucially on policies undertaken during the crisis. If policies ensure that workers do not lose their jobs, renters and homeowners are not evicted, companies avoid bankruptcy, and business and trade networks are preserved, the recovery will occur sooner and more smoothly.
This is a major challenge for advanced economies whose governments can easily finance an extraordinary increase in expenditures even as their revenues are dropping. The challenge is even greater for low-income and emerging economies that face capital flight. They will need grants and financing from the global community.
