Surviving this crisis requires a two-pronged approach. The first stab is to get cash to businesses and people quickly to help them meet their basic needs and survive.
In parallel, we move quickly to repurpose funds from discretionary spending and plough them into testing and critical technology that will ease the burden on the health system. We don’t use all our ammunition, but focus on critical needs – what Justin Ram, director of economics at the Caribbean Development Bank, calls “economic triage.”
We husband our resources closely. Then, boom. We announce a large stimulus package at the point when we are past the worst of the pandemic, and we can start easing restrictions. This is when people will actually be able to spend stimulus money and it will have the greatest bang for its buck.
First, we must survive. The government has swiftly moved to guarantee 80 per cent of laid-off and furloughed workers’ income. But there will be a lag of weeks while these forms wind their way through the bureaucracy. The forms themselves are physical and require employers to fill out sections (again physically). How can this be done if all your employer’s other workers are at home? Making this form digital is essential.
Then there are the companies themselves. They still have costs that need to be covered. Bank and utility forbearance is helping. Landlords are being understanding. But many companies are operating with barely a month or two of cash; and there is little question that a lockdown of some sort will continue for several months at a minimum.
Either way, we need to immediately bridge the gap for people and companies to survive. The economic consensus is clear: we need immediate, unconditional cash transfers to bridge the gap until grants become available – what economists call “helicopter money.”
We can worry about the moral consequences of handouts and incentives later. This is not the time for lectures from society. It is a crisis.
In parallel, companies are on the brink. Taxing companies now to fund salary grants will feed a cycle of unemployment. The State will end up carrying the burden as companies collapse. Deferring their tax obligations is the only hope that many companies have to survive.
Again, we must put aside questions of moral hazard. There may be liquid companies that take advantage of this. But they will swiftly hit liquidity crunches of their own and be forced to lay off more employees if their clients go bust.
The bigger-picture message is that we must look past companies “taking advantage” of this if we are to reduce the overall burden on the State.
The good news is that we can find the money. There are still discretionary projects that can be delayed and short-term financing from multilateral organisations that can fill the gap, until we can secure long-term borrowing and tap the Heritage and Stabilisation Fund (HSF).
We don’t need to worry as much about our credit ratings. Standard & Poor’s has already factored into their recent credit rating downgrade that we will borrow an additional $12.2 billion this year. So far we will need an additional $9 billion – less than S&P projections. There are still discretionary budgets that remain untouched.
That doesn’t even factor in the US$6.5 billion buffer of the HSF. Development banks can help provide emergency short-term funding, and we can issue short term bridge financing backed by the HSF.
Giving out short-term cash will also be a significant revenue-raising opportunity in the medium term. If combined with a tax amnesty for those signing up, this could bring tens of thousands of people into the formal economy and onto the tax rolls for the future.
The final survival move is the most critical. The government has already moved to bring in more testing machines and to accredit private labs. All excellent measures.
We must now go one step further. Repeated mass testing of hundreds of thousands, combined with mass contact tracing, may run into the hundreds of millions of dollars. But it could allow us to move from countrywide to targeted quarantines, with batches of people allowed to return to work. The policy would more than pay for itself. We need to start seriously considering this as it becomes clear the lockdown will move into months.
The government has in almost every major respect taken the right decisions to save lives and the economy during this crisis. If it can now inject an IV drip of liquidity, and use mass testing to taper the quarantine in the medium term, then dammit, we will we have more than a fighting chance.
Kiran Mathur Mohammed is a social entrepreneur, economist and businessman. He is a former banker and a graduate of the University of Edinburgh.