BUSINESS MONDAY - need for balance

The magnitude of the current recession and the pace at which rebound occurs will depend quite a bit on how successful countries are in fighting COVID-19 virus.

So says Professor Dr. Justin Robinson, Dean of the Faculty of Social Sciences and Chief Executive Officer of the Sagicor Cave Hill School of Business (CHSB), who is warning regional countries to ensure that whatever steps are taken to fight the health crisis, do not in turn hurt the economic health of their countries.

He made the comments as he spoke during a recently held webinar hosted by CHSB on the topic ‘Planning Now and For the Future – Economic and Financial Outlook’, focusing on the COVID-19 pandemic.

Referring to projections from the International Monetary Fund (IMF), Robinson noted that the GDP growth forecasts for 2020 only have Guyana to grow at this time, with the estimate at 60 per cent, while Aruba is expected to be the worst hit, with a decline of 15 per cent. He said that on average the IMF is projecting decline in economic growth in the region of about five to six percent.

“Interestingly, the IMF is predicting a large rebound of growth in 2021, the IMF has all the economies rebounding back to positive growth. They are predicting what you call a V shaped recession – you have a sharp decline and then you go back up quite quickly,” he said.

The university professor, noting that the economic crisis is largely driven by the fact that countries have had to shut down their economies to fight the virus, said the extent to which there is an effective public health response and they are able to bring the virus under control, will directly impact the depth of the recession and the speed of the rebound.

Robinson said that the other important factor to be considered is the nature of the government interventions and how good they are at mitigating the economic impact during the downturn. Ideally, the professor said, if a country is shut down for a health crisis, it is expected that when the health crisis passes, the country should be able to rebound quickly. But, he warned, if during that down period a great deal of damage is done, with a number of companies and persons going bankrupt, when the health crisis passes the capacity of the economy to rebound could be limited.With that in mind, he said government responses in this crisis should follow three general principles, to be timely, targeted and temporary.

“Governments need to move fast in a crisis. The speed of the response is critical so that you don’t lose productive capacity. So speed is important. It should also be targeted – governments in the Caribbean only have so much money to help address this, and that needs to be spent in the areas of greatest impact and need, in the sense that the limited ammunition cannot be wasted. And, also the response should be temporary, so that when the crisis ends you can roll back that spending, otherwise you create structural deficits and debt problems. So you want responses that are temporary - in a sense the cure shouldn’t be one that creates long term health problems for the economy,” he contended.

In that vein, he said that for the Caribbean countries in terms of their targeted responses, any money used at this time should go towards building up the public health environment including the healthcare and testing capabilities. He also said that assistance should be extended to households first, as any money governments give to households will “naturally flow” into the hands of business, while suggesting that in the reverse, that money might not get to households in the same way.

However, he noted that some businesses will be especially vulnerable and should be targeted by the State in order to minimise corporate bankruptcies, which would negatively impact the economy. He made the point while noting that this COVID-19 environment present opportunities for new businesses and entrepreneurs to emerge and he said they should be supported. (JRT)