OECD view on rebuilding global health and wealth

 

The coronavirus pandemic is causing large-scale loss of life and severe human suffering. It is a public health crisis without precedent in living memory, which is testing our collective capacity to respond.

The most urgent priority is to minimise the loss of life and health.  The COVID-19 crisis has sadly laid bare stark weaknesses in health care systems, from the number of intensive-care beds to the size of the workforce, the inability to provide enough masks and to deploy testing in some countries, and deficiencies in the research for and supply of drugs and vaccines.

The stringent measures being applied, which are essential to contain the virus, are now thrusting our economies into an unprecedented deep freeze, from which emergence will not be straightforward or automatic. It could be seen as the third and greatest economic, financial and social shock of the 21st Century, after 9/11 and the global financial crisis of 2008. 

This shock has hit economies in two ways, both halting production in affected countries, hitting supply chains across the world; and in a steep drop in consumption through collapsing confidence. 

In many places ambitious initial economic responses are underway, and this is commendable. But only a combined, coordinated international effort will meet the challenge. The world needs decisive and ambitious actions to mitigate the economic downturn and the likely jobs crisis, and to protect the most vulnerable. This is all about people: older people and the young, women and men, those on low income or no income, those who were already facing a difficult situation and who will be hit hardest.

Now is the time for large-scale responses

The sheer magnitude of the current shock introduces an unprecedented complexity to economic forecasting. The OECD Interim Economic Outlook, released on 2 March 2020, made a first attempt to take stock of the likely impact of COVID-19 on global growth, but it now looks like we have already moved well beyond even the more severe scenario envisaged then. 

While it is too early to tell how far-reaching an impact COVID-19 will have on many less wealthy countries, particularly those in sub-Saharan Africa, it is clear that even if they are fortunate enough to escape the brunt of the health crisis, they will suffer economically, just as they did after the 2008 crash. 

Now is arguably the time for immediate, large-scale and co-ordinated actions to ensure the global economy is ready for a quick and vigorous restart. Actions need to be taken at sub-national, national and international levels. They must be launched at once, taking into account different time horizons and imperatives, which should be:

  1. the immediate need to address the public health crisis;
  2. the subsequent need to get the economy up and running again; and
  3. the longer-term need for new policy approaches to repair the damage and ensure that we are better prepared for future shocks. 

It is encouraging that many major efforts and initiatives have already been announced, but greater international co-ordination is fundamental to ensuring these initiatives produce the best results, reassure markets and support the most vulnerable countries. 

Four-pronged recommendation

The OECD is calling for a sizeable, credible, internationally co-ordinated four-pronged effort to provide the necessary resources to deal with the immediate public health emergency; to buffer the economic shock; and develop a path towards recovery. These are:

  1. Governments should ensure more international co-operation in responding to the health challenge. Co-ordination in the scientific effort needs to be complemented by measures to ensure that vaccines and treatments, after being developed and produced, get to people as quickly as possible. Had a vaccine for the SARS-CoV-1 been developed at the time, it would have accelerated the development of one for the current outbreak, given that the two viruses are 80% similar. Today, regulatory agencies (the FDA in the US, the European EMA, among others) should work together to remove regulatory hurdles for vaccines and treatments.
  2. Governments should advance joint policies, rather than taking them in an uncoordinated way. They should finance an immediate buffer to economies to cushion the negative impact and speed up the recovery. This includes immediate spending on:
      1. Healthcare: extensive testing; treatment for all patients, regardless of whether they are insured or not; support for healthcare workers; return of healthcare retirees, while protecting high-risk groups; the enhanced provision of masks, ICUs and respirators.
      2. People: short-term employment schemes, reduced requirements to benefit from unemployment insurance, cash transfers to the self-employed and support to the most vulnerable.
      3. Firms: charges and tax payment delays, temporary VAT reductions or deferrals, enhanced access to working capital through credit lines or state guarantees, special support packages for SMEs, especially those in services and tourism.
      4. A planned investment programme: co-ordinated among countries, notably in health research, development and infrastructures, should be given priority after the height of the crisis. 
  3. Central Banks have already launched bold actions to support the economy, but financial regulation and supervision is another area where co-ordination could produce better outcomes. The economic dislocation caused by the COVID-19 crisis is hitting the functioning of financial markets, banks’ incomes and balance sheets. A co-ordinated approach to monitoring, diagnosing emerging strains and taking regulatory action would yield much more positive results than disjointed and inconsistent responses.
  4. Everything must be done to restore confidence. While the key to that is bringing the virus outbreak under control, it would also help to address the factors that were sapping confidence even before COVID-19 appeared, including by removing trade restrictions.

Cool heads, individual and collective discipline, a heightened sense of solidarity and a shared sense of purpose will allow us to overcome these unexpected and challenging circumstances.

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