COVID-19: Central banks can’t open suspended factories, govts need to scale up resources, says UN body

Amidst central banks around the globe aggressively cutting interest rates as a defence to their economies against COVID-19, a United Nations body Wednesday said monetary policy’s role is limited in directly dealing with the virus as it cannot open suspended factories, heal the sick or end travel restrictions.

In the context of the COVID-19 pandemic, the fiscal measures can play an important role to contain or mitigate its spread and alleviate its adverse impacts on economies. Fiscal resources need to be scaled up and allocated to health responders to screen for symptoms, monitor the spread and care for infected people, the United Nations Economic and Social Commission for Asia and Pacific (UNESCAP) said in a report today.

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For this purpose, it lauded the anti-epidemic expenditure that forms a part of the Budgets of China and Hong Kong.

It, nevertheless, said monetary policy can facilitate stimulative aspects of fiscal policy to support activities in pandemic control and sustain business operations in a targeted way. But warned that policy rates close to historical lows in many countries along with rising global debt levels could limit the policy space for countering any further downturns.

The good news, it said, was that the Asia and Pacific region still has ample policy space. Relatively low levels of fiscal deficit and public debt (as a share of GDP) provide room for this round of fiscal stimulus, while relatively low inflation also gives comfort for policymakers to cut interest rates.

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“However, monetary and fiscal stimulus packages are expected to reduce the policy space for future shocks; hence, attention should also be paid to sustainability aspects of these measures after dealing with the pandemic,” the report said.