What Policy Makers Around the World should be Preparing For

Context: Global lockdown followed by pandemic have failed in establishing a trade-off between lives and livelihoods.

Lockdown induced Economic Crisis

• Need to contain Covid will constrain post-lockdown period economic recovery 
• Capital flowing out of emerging markets
• Unprecedented downgrade by credit rating agencies is making borrowing difficult.
• Huge financial need of developing economies (collapses in tax revenues) for recovering economy and building healthcare infrastructure.
• Insufficient domestic financing can lead to triple crisis of currency, debt, and banking.
• Limited capacity of international financial institutions in funding economic crisis as result of inadequate rules and funding parameters.

Way Forward

• Restructure pre-pandemic debt: through sovereign debt restructuring mechanism 
• Pooling credit risk: US Federal Reserve and the European Central Bank should include emerging-market bonds in their asset-purchase programmes.
• Recapitalization: of International (World Bank) and the regional development banks.