Stimulus/relief measures

Grave financial crises seem to bring out the best in leaders of the world's richest countries, especially the G20, as once again the group of major economies has pledged to inject fiscal spending worth $5 trillion into the global economy to limit economic losses from the coronavirus and "do whatever it takes to overcome the pandemic." This is the same amount they pledged in 2009, along with other large-scale credit and liquidity guarantees, to deal with the recession caused by the Subprime Crisis. And indeed this is the first time since then that there has been such unity among world leaders and language used about trade so conciliatory. This money will be directed towards implementing and funding all sorts of health measures necessary to halt the spread of the virus. And perhaps even more importantly, there was also a commitment to ensure the flow of important medical supplies across borders and resolve supply chain disruptions as most countries have understandably enforced export bans on medical equipment.
"We are strongly committed to presenting a united front against this common threat," the joint statement said after it took G20 leaders only 90 minutes, via video conference, to come to complete agreement. And international financial markets seemed to take them for their word as risk aversion eased quickly and investors moved out of traditional safe havens like the US dollar, Japanese yen and gold. Asia-Pacific markets broadly breathed a sigh of relief as well, with Pakistan's PSX up 3.09 percent on Friday, Japan's Nikkei stock index rising 3.65 percent and Australian shares in the green by 2.02 percent. Clearly, investors have come to the conclusion that global leaders are finally on the right path to controlling the coronavirus outbreak and bringing everybody's lives back to normal. The first part of the response will be doing what is possible to stop the virus from spreading any further, which will require regular injections of liquidity to keep markets from closing. That is why the $5 trillion pledge will go a long way in helping matters. And the second, once adequate containment has been achieved, will be directing all attention towards reviving economies everywhere; hence some welcome return of risk appetite in the market.
All this, of course, is not to say that things have already intrinsically changed or there has been a major reversal in the market's overall downward trend. Such a retracement is often what is called a bear market bounce, and another bear run could well come next week. But it does indicate that the global thinking is now right. At this point the world is just at the initial stages of enforcing a wide-ranging lockdown; which is why the G20's initiative has come at just the right time. Fortunately for countries like Pakistan, which have fragile economies, the worst fears about the ability to financially afford the lockdown will now be eased; at least for a while. All efforts must now be made to arrange and disperse this $5 trillion fund as soon as possible to ensure that neither the direction, nor the market confidence, is lost.
It is important to note that this is not a typical financial downturn. It can still not be said with any sort of certainty that there is anything fundamentally wrong with the international financial system. Even as a global slowdown looms, and the US "may well be in recession," according to Federal Reserve (American central bank) Chairman Jerome Powell, the contraction owes to an exogenous shock not systemic economic failure. And once that shock is controlled all economies are expected to slowly open and grow once again. But only progress in limiting the spread of the virus will determine when that turnaround can come. That much cannot be stressed enough. Till then, appropriate stimulus/relief packages will be needed to keep people alive and businesses from collapsing. The sooner this stage is completed the stronger the subsequent rebound is expected to be. The G20's initiative, just like the World Bank and IMF's suggestions about poor country debt relief just a few days ago - both meant to help with liquidity constraints - is definitely a major contribution in the war against the coronavirus.
As for the under developed and poor countries that have hardly any capacity to extend the needed stimulus/relief packages the only way possible for their economies to stave off a total collapse is debt relief through write offs and rescheduling plus outright grants by the developed economies through multilateral institutions and also bilaterally. Without such help these countries will not be able to cope with the pandemic and all efforts to eradicate this menace from the globe would prove futile without any semblance of success.