COVID-19 fallouts…IDB predicts region will suffer economic shock of historic proportions

Apr 13, 2020 News

– proposes help to vulnerable households, incentives to businesses

In light of the sharp contraction that will result from the COVID-19 pandemic, the Inter-American Development Bank (IDB) has proposed several economic policies which can be used by its borrowing members to cushion the effects.
The policies are outlined in its 2020 Latin American and Caribbean Macroeconomic Report which was coordinated by Victoria Nuguer, IDB’s Research Economist, and Andrew Powell, Principal Advisor in the IDB’s Research Department (RES).
The report which analyzes growth scenarios amid coronavirus pandemic, notes that Latin America and the Caribbean will see sharp growth reductions between -1.8 percent and -5.5 percent of Gross Domestic Product (GDP) in 2020.
The financial institution noted that the economic damage will carry into 2021 and 2022 unless governments implement well-focused programs to offset the impacts.
The report includes four external shock scenarios: moderate, strong, severe and extreme. The severe scenario would imply a 12.2 percent loss of the region’s GDP over three years and the extreme scenario would mean a loss of 14.4 percent.
According to the IDB, the use of scenarios rather than a single growth number estimate is to help policymakers better grasp the profound uncertainties and unprecedented nature of the pandemic. Currently, the financial institution said that the risks are skewed towards the lower end of the range.
In his invited comment, IDB Chief Economist, Eric Parrado said that the region will suffer an economic shock of historic proportions.
Parrado said that countries should be saving lives by ensuring social distancing and providing their health sectors with adequate resources. The Chief Economist also said that complementary and temporary economic interventions can support economies during the partial, organized shut-downs.
Parrado said: “We need to preserve the core of our economies to improve the chances of a quick rebound. Providing relief to those more vulnerable households that have lost their sources of income, helping and giving incentives to firms to reduce liquidations and avoid separation from their employees, and extending liquidity to banks so they be part of the solution, can all work in that direction.”
CALIBRATED POLICIES
Given the uncertainties around the nature of the virus, its spread and how it can be contained, the IDB explained that its report seeks to help countries navigate this uncertain terrain and try to reduce the economic costs.
It was keen to note, however, that financing may be a constraint.
In this regard, the bank said that countries can seek greater efficiencies, divert non-essential spending, and borrow and tap central bank balance sheets to some degree.
It said, however, that interventions should be calibrated carefully and evaluated to ensure they reach their intended beneficiaries. The financial institution said, too, that policymakers should consider how such policies will be phased out to ensure fiscal sustainability beyond the Coronavirus crisis.
Further to this, the IDB said it is making an unprecedented effort to provide additional resources to countries, acting together with its multilateral partners.
In this regard, it was revealed that the bank is making up to US$12 billion available in 2020 to help countries cope with the coronavirus impacts, and IDB Invest – the IDB Group’s private sector arm – an additional US $5 billion.
The IDB has also launched an information hub highlighting the Bank’s research and priority areas to support countries in the face of the coronavirus crisis, including strengthening public health preparations, providing safety nets for vulnerable populations, improving economic productivity and employment, and fiscal policies to improve economic impacts.
Founded in 1959, the Inter-American Development Bank’s mission has been to improve lives. It has also been one of the main sources of long-term financing for the economic, social, and institutional development of Latin America and the Caribbean. The IDB also conducts cutting-edge research projects and offers policy advice, technical assistance, and training to public and private clients throughout the region.

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