Conventional policy not enough to address virus fallout — study

MANILA, Philippines — Conventional policy response may not be sufficient to address the economic fallout from the spread of the new coronavirus disease, according to UK-based Oxford Economics. 

In a report, the macroeconomy research firm said governments would need to implement more targeted approaches on protecting the incomes of sick workers and vulnerable groups like the self-employed as these may not be immediately addressed by conventional policy responses. 

It said conventional policy can also do relatively little to offset the negative supply shock resulting from sickness, absenteeism, and isolation. 

This impact may be worsened still further by policies aimed at stemming the spread of the virus such as school closures. 

“Interest rate cuts also won’t do much for firms and households that need to service debts or meet other financial obligations while facing a sharp drop in their income due to sliding demand or inability to work. It may not be easy to borrow against future income given the uncertain situation, and firms and households may have insufficient liquid assets to tide themselves over,” Oxford Economics said. 

 It said that while it still makes sense to ease fiscal and monetary policy conventionally, policymakers should implement a range of targeted interventions such as ensuring health services are properly funded. 

“This means prompt payment of sickness benefits and potentially their extension to groups not always covered,” the research company said.

“Governments could also consider allowing those unable to work to defer payments of taxes and social contributions,” the firm said.

Governments can also support hard-hit sectors with bridge loans, especially where they’re economically important. 

Policymakers also need to talk to banks about not calling in loans to firms and households facing short-term cash crises and extending existing loan facilities without penalty, it said. 

“Such moves would be especially useful given the large share of short-term lending in total loans and in particular for small and medium enterprises,” said Oxford Economics. 

“Once the virus starts to come under control, it could make sense to speed the recovery by granting tax breaks to workers for overtime and suspending overtime/working hours restrictions,” it said. 

In the Philippines, the impact of the spread of the 2019 coronavirus disease is still mostly felt in the travel and tourism sector because of the loss of Chinese tourists.