The fiscal policy retaliation has to the epidemic has been unmatched. Urgent initiatives are being seized, which are predicted to result in big fiscal slippage. The reaction will have to be adjusted and refined as time goes by, as a function of both increasing apprehension of issues and the epidemic.
During this COVID-19 disaster, fiscal policy should prioritize three essential objectives. The objectives include; first, the virus itself. Second, to give crisis relief, to assist firms not to undergo bankrupcy and people not to be attacked by hunger. Third, to modify aggregate demand in order to stay close to prospective output as possible. All these three measures have their difficulties and challenges decisions to be undertaken.
These policies will lead to a big increase in debt compared to GDP. In many of the developed nations, interest rates are expected to remain low for a prolonged time, so that, in spite of this rise in debt ratios, the debt must remain sustainable. For the developing economies and emerging markets should be assisted to enable them to spend what they require in order to deal with COVID-19. The developing economies need loans and grants both by advanced economies and international institutions.
These measures involving cooperation across nations is indispensable. Assistance for developing countries and emerging- the market is of necessity. Cooperation in buying and allocation of vaccines and tests is equally. However, an arrangement of fiscal policies is not crucial, in a situation where every nation emphasizes only on its private objectives, the result will be fine.
Economic Policies for COVID-19
Infection fighting. Reducing the rate of infection is an outright priority. Additional to lockdown measures, more masks, other essential medical gear, more respirators, and more tests are crucial. In the short-run, the restraint is majorly technological; however, the extra money can assist attract employees and firms with appropriate skills to hasten production. Maintaining the rate of infection low will be key to recovery, which signifies providing incentives to companies to make tests, develop vaccines, and to explore drugs. The key, however, is that expending on accommodating the infection is expensive, crucial, and existential but still little in budgetary and macroeconomic terms, smaller than 1% of a nation’s GDP.
Disaster relief. A bigger part of households lacks cash reserves. As a result of forced lockdown, low demand, several SMEs, have inadequate cash reserves to endure for a few periods. It is of necessity to give them adequate money to endure the catastrophe. This can be realized through suspending or reducing tax payments, improving unemployment benefits, and asking banks to disburse money to enterprises in need.
Aiding aggregate demand. Since COVID-19 is not a normal recession, hence the need for assisting the aggregate demand. In the short-run, as lockdown and confinement constraints are in operation, probable likely lower. Thus need for governments coming up with economic strategies in sustaining demand over potential, for instance via tax cuts for households or firms, may result in rationing and inflation comparatively to increasing activity. However, doing a lot in raising aggregate demand might be misguided in the short run, yet later a boost may be necessary. Hence flexibility is mandatory.
By having governments wholeover the globe acting upon the aforementioned measures, it would inturn stabilize the world's economy during the COVID-19 economic downturn.
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