Is a systemic financial crisis likely, maybe along the lines of the 2008 crisis 12 years ago?
The World Bank‘s India Chief says the two crises cannot be compared. In an interview to Times Now, Junaid Kamal Ahmad talked about how the coronavirus impact is different from the financial meltdown of ’08, saying, “what is really different is the financial shock was an attack on the demand side of the economy. Here it is a supply shock. It is a health shock.”
While in 2008, economies simply needed to be stimulated for demand to rise, and for the crisis to end, this time around it isn’t as simple.
Countries around the world now face a fine balancing act of slowing an economy down to deal with a health crisis, while not holding it too far back that a rebound would become difficult.
“In order to address the health shock you actually have to hold back the economy. If you do not hold back the economy, you cannot practice social distancing,” Ahmad said.
It is this sequencing that is extremely important, and countries around the world are doing it differently, Ahmad said, giving the examples of US, Sweden and India.
In the United States, the federal government has used a bottom-up approach, where different states are slowly being locked down separately. This then adds up to the whole country under some version of restricted movement.
Sweden on the other hand, has asked citizens to actually honor the system themselves and observe social distancing and go into lockdown mode.
India, by far, has taken the most drastic step, shutting 1.3 billion people in their homes which is “unprecedented, unheard of” according to Ahmad.
Every country’s main goal now is to flatten the curve in terms of health but the real challenge lies in getting the economy back on track as quickly as possible.
To help with this, the World Bank approved a fast-track $1 billion India COVID-19 Emergency Response and Health Systems Preparedness Project to help India prevent, detect, and respond to the COVID-19 pandemic and strengthen its public health preparedness.
“What we have done is followed India’s lead and put out a billion dollars into that health expenditure supporting the public health system to actually deal with this health crisis immediately so that the economy can come back as soon as possible,” Ahmad said.
This is the largest ever health sector support from the Bank to India. This new support will cover all states and Union Territories across India and address the needs of infected people, at-risk populations, medical and emergency personnel and service providers, medical and testing facilities, and national and animal health agencies.