It is now a certainty that a global recession is underway and that there is nothing governments can do to prevent it.
Governments can, however, take steps to limit the humanitarian impact of the recession and to ensure that economies can recover quickly once the pandemic subsides, according to Professor Jack Rossbach, Assistant Professor of Economics at Georgetown University in Qatar (GU-Q).
Countries must ensure that individuals at risk of losing their income streams are able to remain in their homes and do not lose access to utilities and other essentials. This protects vulnerable individuals while also encouraging compliance with emergency measures put in place to limit the spread of the virus.
According to Professor Rossbach, a country must provide short-term debt relief to prevent a cascade of defaults, as this would eliminate any hope of a quick recovery. Qatar’s QAR75 billion (US$20.5 billion) relief package is targeted towards exactly these goals and shows that the government is responding quickly to the most immediate economic concerns.
With the growing outbreak of coronavirus, and businesses taking a hit, the Qatar government has implemented a series of measures to protect its economy. A financial package to provide incentives has been injected to support the private business sector during the outbreak. Banks have been encouraged to postpone loan installments from the private sector by extending grace periods to six months. And food and medical goods, small and medium-sized businesses, and the tourism and logistics industries are exempted from custom duties for a period of six months.
In the longer term, the government will likely want to consider measures to ensure individuals stay employed so that businesses can quickly resume operations, as well as a broader economic stimulus package to ensure that consumer confidence and spending return to their previously high levels.
Recently, the International Labour Organization (ILO) estimated that up to 24.7 million people around the world could end up unemployed because of the recession, and it is up to countries to create policy responses that include worker protection measures. Read the article here.
The United Kingdom, for example, will pay 80 per cent of salary for staff who are kept on by their employer, covering wages of up to £2,500 a month. This unprecedented measure will seek to stop workers from being laid off due to the crisis.
The United States, that has an alarming increase in cases of coronavirus, is intending to roll out a massive US$2 trillion stimulus package to address the economic fallout from the coronavirus.
The US government is still forming its fiscal response to the pandemic. Recent reports suggest a 2 trillion-dollar stimulus package composed of a mix of industry loans and bailouts, an expansion of unemployment benefits, direct payments to individuals, and aid to state and local governments. Whereas the finalised details of the stimulus package will determine its effectiveness, the package appears much improved compared to earlier iterations that were too small and overly focused on stimulus measures that would have been ineffective while social distancing remains in place.
Nevertheless, at 10 per cent of GDP (in line with 12 per cent of GDP for Qatar’s response), the size of the stimulus package virtually guarantees that the US will blow past deficit levels seen during the height of the global financial crisis and register its largest government deficit since World War II.
Global markets have rallied in response to the emerging details of the stimulus plan and the aggressive responses by central banks worldwide. Given that the United States may soon be the epicentre of the pandemic and is intricately linked to the global economy, whether markets continue their recovery or plunge to even lower levels now largely depends on whether the federal government can deliver a strong and coordinated response that curtails the spread and impact of the virus.
This pandemic has brought with it an unprecedented economic crisis. Qatar’s initial steps, however, should instil confidence that the country will ultimately emerge from the pandemic relatively unscathed.
And while Qatar’s government tackles the impact coronavirus is having on its economy, the oil price war is another critical element that is keeping officials on their toes.
Qatar, along with the United Arab Emirates and Kuwait, has a deeper fiscal buffer than Saudi Arabia, and can afford oil price weakness for longer. And although crude oil price has slipped to around US$24 a barrel, expansion projects of many of the region’s low-cost gas and oil projects will continue, and will be needed to meet the growing energy demands of the future in order to offset declines according to analysts at S&P Global Platts.
The oil price war is a painful short-term development for Qatar and other oil producing nations. Fortunately, Qatar is in a good position to weather the short-term pain, as Qatar can survive low oil prices longer than either Saudi Arabia or Russia due to a low cost of production, a strong history of fiscal surpluses, and healthy foreign reserves.
Professor Rossbach said he does not foresee the current oil price war resulting in any adjustments to Qatar’s national vision or its response to the pandemic.