Stopping the Health Crisis from Becoming a Debt Crisis

The international economic policy issue is: How to stop the health crisis from turning into a global debt crisis? This is not idle scaremongering. In the past 50 years, there have been four episodes in which debt rose sharply around the world. The first three ended with financial crises and human misery. We are in the fourth, which is already larger, steeper and more widespread than the first three. We are on the road that leads to a global financial crisis and are running towards it.

The health costs of COVID-19—new hospitals, staff, medical equipment, and the development and deployment of vaccines and treatment—are high, perhaps as much as 1%–2% of the gross domestic product (GDP). But, twice or thrice are the costs of mitigating the economic effects of prolonged and perhaps repeated “lockdowns.” In April alone, unemployment jumped by 18 million in the Organisation for Economic Cooperation and Development countries to 55 million or from 5.5% of the labour force in March to 8.4% in April. Beyond the automatic stabilisers of unemployment benefits, Britain and Canada, for instance, have income replacement that come to around 75% of previous wages. In Barbados, where living off 70% of median incomes is hard, and where tourism employs 40% of employees and has been shut down beyond the 26-week term of unemployment benefits, the government is helping firms finance 80% of wages through a preference share scheme.