The coronavirus (COVID-19) crisis continues to unfold across the globe as the World Health Organisation (WHO) declares COVID-19 disease to be a pandemic. The latest economic cost and consequence of the coronavirus outbreak is climbing across China, European countries, and beyond.
The global economic costs are also mounting. In response to answering queries about the economic costs and consequence of the coronavirus, a Professor of Economics at the University of Chicago pinpoints, "what you see is that big parts of the Chinese economy have shut down." Likewise, Italian Prime Minister Giuseppe Conte warns the effect of the COVID-19 outbreak on the Italian economy could be "very strong."
According to the report titled 'The economic impact of the COVID-19 outbreak on developing Asia,' the coronavirus outbreak is likely to have a global impact of $77 billion to $347 billion or 0.1 per cent to 0.4 per cent of world GDP (Gross Domestic Product). Two-thirds of the effects will be felt by China, the epicenter of the COVID-19 outbreak.
Coronavirus outbreak is "just beginning" in Bangladesh. Asian Development Bank (ADB) forecasts Bangladesh may lose up to $3.021 billion if the ongoing coronavirus outbreak across the globe turns to the worst. The loss will be $8.0 million in the best scenario and $16 million, or 0.01 per cent of the GDP if it ends moderately. The economic losses of Bangladesh will be mostly in the industrial and service sectors due to disruption in the supply and decline in the number of tourists, ADB says.
POTENTIAL ECONOMIC COST: The economic cost is a broader concept than that of accounting costs. "The magnitude of the economic losses will depend on how the outbreak evolves, which remains highly uncertain," ADB adds. Experts opine one way to count the potential cost of the coronavirus is by how many people catch it, and then how many die. Another is the direct financial costs of public health measures to treat those infected and contain its spread.
In other words, the economic impact is not directly tied to the number of people who get sick (morbidity) or die (mortality). It almost wholly depends on the indirect effects of the decisions that many millions of individuals make to minimise their chance of catching the virus and the decision of governments on how to react to the threat. The World Bank cautioned that 90 per cent of economic losses during any outbreak arise from the public reaction. "Panic is always bad for the economy," the World Bank warns.
Understanding the potential economic costs has to consider a plethora of issues. Some of these issues relate to the microeconomic level of households, firms, or government. In contrast, others relate to the macroeconomic level, including the aggregate impact of a disease on a country's current gross domestic product (GDP) or its future growth prospects.
The impact of coronavirus shocks and stresses on national economies can be described by considering the impact of health expenditures, labour and productivity losses, and effects on human, physical, and financial capital formation. The former imposes economic costs in the form of increased health expenditures for almost all groups of economic agents. Health status can impact labour productivity and economic growth through direct, indirect, and demographic ways. Studies show improved health conditions directly contribute to better economic growth by increasing worker productivity (direct impact). Improved health conditions have a significantly strong correlation with lower absenteeism and worker turnover (indirect impacts). Coronavirus infection is to a great extent related to changes in the incentives to human capital formation, savings, and returns to investments, research finds.
At the microeconomic level, assessing the impacts of coronavirus at the household level has to consider many issues. The effect of disease and injury on the household has two immediate potential effects: reducing productive activity and consuming more health services or goods (at the expense of other products and services). Other issues that have negative consequences include expenditures on health by households; labour and productivity losses; effects on human, physical and financial capital formation; non-market impacts; and economic welfare losses. Non-market consequences entail a repository of knowledge, experiences, and social networks. Loss of housing, happiness levels, and leisure time are some key factors that lead to economic welfare losses.
The microeconomic impact of coronavirus might be observed at the level of the firm such as private or publicly-traded, non-profit or for-profit, corporate or non-corporate partnerships, and sole proprietorships. The impact of the disease on the firm can be mapped through their financial effects on firm operating, investing, and financing activities, for example, producing goods and services and purchasing physical capital. Moreover, expenditures on health by firms, labour, and productivity losses, the opportunity cost of reduced investment, and non-market impacts are some important areas where the COVID-19 may have substantial consequences at the firms.
At the governmental level, COVID-19 can have a significant impact, such as expenditures on health by government and labour and productivity loss. The government has to increase spending for the health services and goods consumed by patients (including primary health care, medical equipment, diagnostic tests), but also non-patient cost components such as planning and administration of health programs, training, and health education, and health prevention and promotion activities. President Donald Trump recently signed an $8.3 billion emergency coronavirus spending package to combat its spread. Coronavirus reduces the productivity and efficiency of the government workforce as the governments (including ministries, banks, insurance, share markets, and academic institutions) are stifled by coronavirus inertia.
POTENTIAL ECONOMIC REMEDIES: The COVID-19 outbreak is one of the most widespread health problems facing the world today. In this situation, policymakers and government leaders are exploring short- and medium-term economic remedies for the coronavirus. Several measures, if needed, have to be employed to keep the pace of the current economic growth (i.e., GDP growth around 7.80 per cent) of Bangladesh. The government may consider providing fiscal stimulus to deal with the impact of coronavirus pandamic.
The government can, if needed, allow factories and industries to suspend payments of some social/standard charges and taxes. For instance, Britain launched a 30 billion-pound economic stimulus plan aimed at warding off the risk of a coronavirus recession. The Bank of England cut interest rates by half a percentage point. It offered banks cheaper funding and a reduction in capital buffers in an emergency move to bolster Britain's economy against disruption caused by the COVID-19 outbreak. A financial package of measures can be set to support small and mid-sized firms to cope with the fallout of the coronavirus outbreak. The government must take critical steps to ensure companies hit by the coronavirus outbreak do not face a financial squeeze.
The government can ramp up funding support for virus-hit regions, and Bangladesh Bank can cut its key rates, including the benchmark lending rate. It can urge banks to give cheap loans and payment relief to exposed factories and industries. Similar to the Chinese strategy, the government can modify the environmental supervision of companies to help the resumption of production disrupted by the coronavirus epidemic, giving firms more time to rectify ecological problems.
The executive authority can instruct to defer tax payments without interest or penalties for specific individuals and businesses negatively impacted. Capital and liquidity package can be provided to the firms affected by the coronavirus by providing low-interest loans to small businesses.
In sum, the world is at a crossroads. Preparing a "Coronavirus Action Plan" is indispensable to map what the health care system in Bangladesh can do to prevent the coronavirus outbreak, and what it plans to do next. A well-planned action plan can be a crucial instrument to minimise the potential economic cost of coronavirus pandemic.
Ranjan Roy, PhD is an Associate Professor, Department of Agricultural Extension and Information System at Sher-e-Bangla Agricultural University, Dhaka.