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Closed Door

IPS Closed-Door Discussion on Economic, Business Implications and Financial Costs of COVID-19

Every crisis creates economic losses, as reflected during the Asian Financial Crisis, the Global Financial Crisis (GFC) as well as the current COVID–19 pandemic. According to the Asian Development Bank, the coronavirus pandemic could cost the global economy between US$5.8 to US$8.8 trillion, equivalent to between 6.4 to 9.7 per cent of global economic output. This is due to the policy measures implemented to slow the spread of COVID-19 (i.e., social distancing) that has paralysed economic activities. In addition, the huge uncertainty and mounting losses due to COVID-19 has created economic shocks on a global scale. Businesses are used to uncertainty but policymakers would need to assess who should bear the economic risks of this uncertainty. 

Governments are assessing the scale of the economic shocks and implementing measures to save their economies from collapse. Banks and investors realise that many companies especially SMEs without adequate cash flow and reserves will default. Together with governments, banks and investors are trying to protect financial stability and public savings. The aim of the closed-door discussion is to examine the best approach or process at identification, quantification, allocation and financing of recovery. What useful lessons or experiences can we gather from previous crises that are applicable to the current and future crises? Some of the areas to be discussed during the discussion are outlined below. 

In terms of financial losses, revenues have collapsed drastically especially for the worst hit sectors such as travel, airlines and hospitality among others. Should the companies in question bear the brunt of these losses? Should the government assist to alleviate some of these losses because of border closures and social-distancing measures?  

Liquidity, or cash flow, is the “life blood” for companies, especially SMEs. With border closures, lockdowns and social-distancing measures, companies have gone bust and banks have seen their non-performing loans increasing. This is because, for loans allocated at either; Firstly, the individual level as worker or owner of an enterprise, they will bear the cost; or secondly, the institutional level as a bank, would now face losses as loans go bad. If banks were left completely on their own, they might cease to function and bring the entire economic system down with them. Therefore, quite often society does not force the banks to undertake the full brunt of the bad loans at that point in time even if they were responsible for their poor risk management strategies that were to blame for the losses, as seen in the GFC.

Regarding losses, initial steps for recovery would need losses to be identified, quantified, so that financial resources could be allocated to remedy them. The process of identification may not be transparent, for example for small businesses and micro enterprises. For the working population, when they are retrenched, forced to take no-pay leave or accept reduced income, these result in general household income loss.

How do we design a framework where losses can be quickly identified and quantified? This is to enable stakeholders such as insurance companies to play a role if proper insurance policies are structured and in place; and for the government to roll out budgetary assistance and or a national or international body that pools risks. 

On the debt recovery process, how will the losses be financed? If the state bears the costs, deficits will rise and future generations will be liable for their payments. Is this ethical? Should there be compulsory insurance schemes or structures in place to guard against a whole set of potential losses? Or should we aim to build up an international system of risk pooling? 

These questions are critical for defining a pathway of recovery for future crises, such as the rise of another pandemic or consequences of climate change like property losses due to wild fires, rampant flooding and rapidly rising sea levels.

Please click here to view the programme.

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Wed 31 March 2021
03:30 PM - 05:30 PM

Ms Cecile Thioro Niang

Ms Cecile Thioro Niang

Practice Manager, East Asia and Pacific, Finance, Competitiveness & Innovation, World Bank Group

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Mr Colin Wilson

Mr Colin Wilson

Past President, Institute and Faculty of Actuaries, and Deputy Government Actuary, United Kingdom

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Mr Sam Kok Weng

Mr Sam Kok Weng

Markets & Financial Services Leader, PwC Singapore

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Mr Timothy Colyer

Mr Timothy Colyer

Partner and Head, Oliver Wyman Indonesia

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Dr Faizal Yahya

Dr Faizal Yahya

Senior Research Fellow, Institute of Policy Studies

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Mr Manu Bhaskaran

Mr Manu Bhaskaran

Adjunct Senior Research Fellow, Institute of Policy Studies

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