Macroeconomic Policy in the Time of COVID-19 : A Primer for Developing Countries
COVID-19 not only represents a worldwide public health emergency but has become an international economic crisis that could surpass the global financial crisis of 2008–09. Right now, containment and mitigation measures are necessary to limit the sp...
| Main Authors: | , |
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| Format: | Policy Note |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/951811585836124198/Macroeconomic-Policy-in-the-Time-of-COVID-19-A-Primer-for-Developing-Countries http://hdl.handle.net/10986/33540 |
| Summary: | COVID-19 not only represents a worldwide
public health emergency but has become an international
economic crisis that could surpass the global financial
crisis of 2008–09. Right now, containment and mitigation
measures are necessary to limit the spread of the virus and
save lives. However, they come at a cost, as shutdowns imply
reducing economic activity. These human and economic costs
are likely to be larger for developing countries, which
generally have lower health care capacity, larger informal
sectors, shallower financial markets, less fiscal space, and
poorer governance. Policy makers will need to weigh
carefully the effectiveness and socioeconomic consequences
of containment and mitigation policies, responding to
epidemiological evidence on how the virus spreads and trying
to avoid unintended consequences. Economic policy in the
short term should be focused on providing emergency relief
to vulnerable populations and affected businesses. The
short-term goal is not to stimulate the economy—which is
impossible, given the supply-restricting containment
measures, but rather to avoid mass layoffs and bankruptcies.
In the medium term, macroeconomic policy should turn to
recovery measures, which typically involve monetary and
fiscal stimulus. However, in many developing countries,
stimulus may be less effective because monetary transmission
is weak and fiscal space and fiscal multipliers are often
small. A more viable goal for macroeconomic policy in
developing countries is avoiding procyclicality, ensuring
the continuity of public services for the economy, and
supporting the vulnerable. Because COVID-19 is truly a
global shock, international coordination is essential, in
economic policy,health care and science, and containment and
mitigation efforts. Critical times call for well-designed
government action and effective public service
delivery—preserving, rather than ignoring, the practices for
macroeconomic stability and proper governance that serve in
good and bad times. |
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