While the new Covid-19 variant has everyone spooked, cautious minds are waiting for analysis of more definitive data on the variant’s transmissibility, severity and vaccine-evasion properties. By several accounts, dissemination of such analysis may come within a fortnight. In the interim, governments have a time window to dust off their Covid-19 playbooks and see how they can respond to a likely Pandemic 2.0.

A key question that has been circulating among global policymakers and market analysts concerns the fiscal capability of the governments to allocate emergency funds to stave off a crisis should Omicron confirm the worst fears that have been associated with it. This also pertains to applying any lessons (hopefully) learned by each country after administering the bulk of Covid-19 relief in the year 2020. Will the governments be doing more of the same? Or will they ago about it differently this time?

Unlike the pandemic’s early months, the current situation doesn’t give straightforward fiscal answers. First year of the pandemic wasn’t inflationary as such, for supply-side was able to satiate dropping demand. Second year has been inflationary so far, as demand-side was bolstered in rich countries amid supply-side bottlenecks. Now if Omicron materialized for the worse, supply-side disruptions may become acute in the third pandemic year. And if one adds further government-induced consumer spending to the mix, it may cause destabilizing inflation. Talk about being on a tightrope!

The fiscal responses from top economic powerhouses – the United States and China – will be closely watched, as they will set the tone. The European Union, which rolled out a €750 billion Pandemic Recovery Fund earlier this year, may have to expedite approvals. It also remains to be seen if the multilateral lenders – from the IMF to the World Bank to regional development banks – will have the appetite to reprise their role as proactive lenders, just as they did during early pandemic days.

The Biden administration will be in a bind, as it has already enacted two significant spending plans (first on Covid-19 recovery, and later on infrastructure) this year. Another large bill – Build Back Better – is in the works. The Republican opposition is up in arms, linking rising US inflation with higher spending under Biden. With likelihood of fresh legislation low unless Covid-19 got really bad there, the Biden administration may have to re-program spending to meet urgent relief requirements.

Over in China, the so-called “Covid-zero strategy” has strict health protocols and travel restriction already in place, regardless of variant of concern. This implies that the businesses and the general population have adjusted to the painful pandemic way of life. And therefore, if Omicron posed elevated threat, the need for government spending in China may not be as large, compared with the requirements posed by potential disruptions and lockdowns in the largely-open Western countries.

Here in Pakistan, the government will be fiscally-hamstrung if circumstances demanded a Covid-19 relief program from internal resources. Assistance from donors may be a bit hard to come by, considering massive irregularities in the federal government’s Covid-19 expenditures have recently been reported by the Auditor General of Pakistan. Therefore, policymakers better hope that Omicron does not force large-scale lockdowns or economic disruptions. About the only tool they have left is to rejuvenate the Covid-19 immunization drive, as the mask-wearing directives to the public fall flat.