Shaping the macro-economy in response to COVID-19: a responsible economic stimulus, a stable financial sector, and a revival in exports
Programs and partnerships
This project aims to contribute to the knowledge on macroeconomic policies that are key for responses to the COVID-19 pandemic in low-income countries. The impacts of the pandemic on the economies of these countries is significant, contributing to growing poverty and hunger.Read more
This project aims to contribute to the knowledge on macroeconomic policies that are key for responses to the COVID-19 pandemic in low-income countries. The impacts of the pandemic on the economies of these countries is significant, contributing to growing poverty and hunger. There is an urgent need for credible data, analysis, and advice for the economic policies and the fiscal and monetary measures required to mitigate the impacts and promote an inclusive and sustainable recovery.
The project will be led by the Overseas Development Institute in the UK, in collaboration with think tanks in Bangladesh, Sri Lanka, Kenya, Tanzania, and Peru, and the network Southern Voice. This partnership will develop credible evidence that can support national and international policies in response to the pandemic, focusing on macroeconomic performance, growth scenarios, and macroeconomic policy options, with a focus on gender equality and climate change outcomes.
Kenya experienced overall macro stability and modest growth of 5.5% for the period 2017 to 2019. The onset of COVID 19 pandemic in March 2020 however subdued the economy owing to swift containment measures that were imposed to limit the spread of the pandemic. As a result, Kenya suffered its first recession in nearly two decades. The government responded fast by instituting a broad range of macroeconomic policy interventions. It launched the 8-Point Economic Stimulus Programme targeted towards building back a better and resilient economy. This policy was chosen to estimate the socio-economic effects of the stimulus. Using available evidence of fiscal multipliers, we came up with three scenarios: (i) untargeted total expansionary fiscal stimulus and (ii) targeted sectoral public spending and (iii) hypothetical reallocation to targeted sectoral with high multiplier effect. Results of the scenario building exercise highlight that fiscal stimulus could contribute to Kenya’s growth over the short-term, but the impact greatly improves if measures are targeted to sectors with higher multiplier effects. In medium to long term, focus on environment and green investment could result to higher socio-economic effects.
Bangladesh, like most of the countries in the world, had to restrict mobility and economic activities to tackle the spread of the COVID-19 virus. Indeed, the pandemic has been exerting pressure on the economy through both global and domestic shocks leading to a detrimental impact on major macroeconomic correlates of the country. The present study urges that Bangladesh will need to pursue a countercyclical fiscal policy stance in the face of deceleration in aggregate demand. The study further maintains that greater fiscal resources should be directed towards those people, households and enterprises having a higher propensity to consume and invest. From this perspective, the study strongly advocates for direct cash transfers, food support, and enhanced public expenditures in health and education rather than a general increase in public expenditures and subsidised credit flow.
This paper takes a comprehensive look at the economic impact of COVID-19 and explores the public policy choices to engineer economic recovery. It also maps the behaviour of key economic variables using indicators including growth, exports, poverty, gender, climate change, public finance, and the trade regime.