In response to the economic damage inflicted by the coronavirus (COVID-19) pandemic, governments are announcing gigantic fiscal and monetary stimulus packages with a hope to limit the ongoing economic rampage and kick start the recovery process once the threat to the public health recedes.
After failing to take prompt actions, our government on March 30 finally announced a package, which it claims will support the country’s economy badly affected by the pandemic. However, this is just a relief package and not a stimulus package to lead the process of economic recovery.
We need to see how other countries are working to stop their economies from failing. In the past month alone, several governments have announced stimulus packages at never seen before levels; many are expected to come up with such packages in the next few days. Extraordinary times demand extraordinary measures. Steps such as quantitative easing (QE) to supply more money to the financial system, providing tax reliefs to businesses and ordinary citizens, bailout plans in case of bankruptcies, along with huge monetary spending of governments such as directly providing cash to unemployed people to offset the adverse impacts of the pandemic-induced crisis have been taken by many countries.
It is certain that Nepal’s economy will also take a massive hit from the ongoing crisis. The country’s economic growth, which was already slowing before the start of the COVID-19 outbreak, is certain to decline drastically as the pandemic unleashes several unforeseen consequences to the global economy at once. Nepal’s tourism has been the hardest hit as the global demand for travel has nosedived over the past two months. The sector, which saw a pouring of new investments in the recent years, is on the verge of complete collapse jeopardising the employment of over one million Nepalis whose lives and future depend on the tourism business. In the meantime, risks to the inflow of remittance, which has remained the lifeblood of our economy for the past two decades, have increased as the pandemic-induced crisis and the historic slump in oil prices are having a double-effect on the economic health of Gulf countries that are major destinations for Nepali migrant workers.
The stimulus package needs to incorporate both fiscal and monetary measures to boost the confidence of the private sector and citizens in trying times. It is important that the government needs to come up with sector specific rescue initiatives. Hoteliers and airlines operators have already asked the government to provide support so that they can stay afloat, and it can be expected that entrepreneurs from other sectors will also ask for help. At times, economic revival can be a long and painful process. So, the government needs to pay heed to all necessary aspects to ensure that the recovery is less difficult.
On the fiscal side, it would be a wise move to announce blanket waivers in taxes for businesses and citizens. Similarly, supplying the market with more money (QE) and reduction in interest rate will be appropriate on the monetary side. At a time when all economic activities have been adversely affected, the benefits of the fiscal and monetary stimulus would trickle down to all the sectors of the country’s economy. Likewise, the government should focus on increasing current expenditure than capital expenditure; it would be illogical to think that the government’s capital expenditure will increase which was already sluggish before the start of pandemic-induced crisis. With the economy facing unprecedented headwinds, this is a time to avoid all established rules, but logically and judiciously i.e. without fueling corruption and black marketing. Time is running out for the government to come up with concrete steps to save the country’s economy from collapse.