As confirmed cases of the novel coronavirus (COVID-19) exceeded 5 million, as of May 27, governments around the world are easing the restrictions imposed on their populations to combat the spread of the virus.

But the economic impact of the total breakdown in economic activity has resulted in the International Monetary Fund projecting negative global growth for 2020 and calling this “the worst economic fallout since the Great Depression”.

Hence, as was expected, governmental authorities around the world have announced several economic support measures – both fiscal and monetary – to help businesses survive and families put food on the table. These include direct payments transfers to individuals, and limitless loans to struggling businesses, with the total response stimulus ranging from 0.9 percent of the GDP to as high as 18.2 percent, in some cases.

Below we take a look at the economic response of Indian and New Zealand Governments to the COVID-19 pandemic, from March till the last week.

Economic response of the Indian Government to the COVID-19 pandemic (till last week)

Fiscal measures

The Government on March 26, announced a stimulus package valued at approximately 0.8 percent of GDP. The key elements of the package are: in-kind (food; cooking gas) and cash transfers to lower-income households; insurance coverage for workers in the healthcare sector; and wage support to low-wage workers (in some cases for those still working, and in other cases by easing the criteria for receiving benefits in the event of job loss).

These measures are in addition to a previous commitment by the Indian Prime Minister that an additional 150 billion rupees (about 0.1 percent of GDP) will be devoted to health infrastructure, including for testing facilities for COVID-19, personal protective equipment, isolation beds, ICU beds and ventilators.

Several measures to ease the tax compliance burden across a range of sectors have also been announced, including postponing some tax-filing and other compliance deadlines.

Notably, between May 13 -17, the Indian Finance Minister announced new measures targeting businesses (about 2.7 percent of GDP),expanding support for poor households, especially migrants and farmers (about 1.5 percent of GDP), targeted support for the agricultural sector (about 0.7 percent of GDP), and some expansion of existing programs providing work opportunities to low-wage labourers (about 0.2 percent of GDP).

Key elements of the business-support package are:

• various financial sector measures for micro, small, and medium-sized enterprises and non-bank financial companies;

• liquidity injection for electricity distribution companies; and

• a reduction in up-front tax deductions for workers.

Additional support to migrants and farmers will mainly be in the form of providing concessional credit to farmers, as well as a credit facility for street vendors and an expansion of food provision for non-ration card holders (mainly migrants).

The main measure for the agricultural sector is support for infrastructure development.

Monetary measures

On March 27, the Reserve Bank of India (RBI) reduced the repo and reverse repo rates by 75 and 90 basis points (bps) to 4.4 and 4.0 percent, respectively.

The Central Bank also announced liquidity measures to the tune of 3.7 trillion Rupees (1.8 percent of GDP) across three measures comprising:

• Long Term Repo Operations (LTROs),

• a cash reserve ratio (CRR) cut of 100 bps, and

• an increase in marginal standing facility (MSF) to 3 percent of the Statutory Liquidity Ratio (SLR).

Earlier in February, the RBI has provided relief to both borrowers and lenders, allowing companies a three-month moratorium on loan repayments and the Securities and Exchange Board of India (SEBI) temporarily relaxed the norms related to debt default on rated instruments. At the same time, the implementation of the net stable funding ratio and the last stage of the phased-in implementation of the capital conservation buffers were delayed by six months.

Earlier, the RBI introduced regulatory measures to promote credit flows to the retail sector and micro, small, and medium enterprises (MSMEs) and provided regulatory forbearance on asset classification of loans to MSMEs and real estate developers. CRR maintenance for all additional retail loans has been exempted, and the priority sector classification for bank loans to NBFCs has been extended for on-lending for FY 2020/21.

During April 17-20, the RBI reduced the reverse repo by 25 bps to 3.75 percent, and announced:

• a TLTRO-2.0 for an initial amount of around 0.2 percent of GDP, in extension of the initial TLTRO program of around 0.4 percent of GDP (funds to be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs);

• special refinance facilities of around 0.2 percent of GDP for rural banks, housing finance companies, and small and medium-sized enterprises;

• a temporary reduction of the Liquidity Coverage Ratio (LCR) from 100 to 80 percent and restriction on banks from making dividend payouts to conserve capital;

• a standstill on asset classifications during the three-month loan moratorium period with 10 percent provisioning requirement, and an extension of the time period for resolution timeline of large accounts under default by 90 days.

On April 27, the RBI announced a special liquidity facility for mutual funds (SLF-MF) of Rs 500 billion and a fixed-rate 90-day repo operation for banks exclusively for meeting the liquidity requirements of mutual funds, along with regulatory easing for liquidity support availed under the facility; and the SEBI reduced broker turnover fees and filing fees on offer documents for public issue, rights issue and buyback of shares by 50 percent.

On April 30, the RBI extended the regulatory benefits under the SLF-MF scheme to all banks, irrespective of whether they avail funding from the RBI or deploy their own resources under the scheme.

In summary, the RBI’s policy measures since February 8, represent liquidity injection of around 4 percent of GDP.

Economic response of New Zealand Government to the COVID-19 pandemic (till last week)

Fiscal measures

With this year’s budget and previous fiscal packages, the government has announced fiscal measures amounting to a total of $62.1 billion (20.7 percent of GDP) through FY2023-24, of which $20.5 billion will be disbursed by end-June.

The total amount includes the $50 billion COVID-19 Response and Recovery Fund, a majority of which is yet to be allocated to specific spending programs.

Already specified fiscal measures include:

(i) healthcare-related spending to reinforce capacity ($0.5 billion or 0.2 percent of GDP);

(ii) a permanent increase in social spending to protect vulnerable people (total $2.4 billion or 0.8 percent of GDP);

(iii) a lump sum 12-week wage subsidy to support employers severely affected by the impact of COVID-19 ($15.2 billion or 5.1 percent of GDP);

(iv) a permanent change in business taxes to help cashflow ($2.8 billion or 0.9 percent of GDP);

(v) a temporary tax loss carry-back scheme ($3.1 billion or 1 percent of GDP); and

(vi) support for the aviation sector ($0.6 billion or 0.2 percent of GDP).

The government has also approved a $0.9 billion debt funding agreement (convertible to equity) with Air New Zealand to ensure continued freight operations, domestic flights and limited international flights.

The New Zealand government also provides loans of up to $100,000 to small businesses that employ 50 or less employees. In addition, on March 28, the government announced temporary removal of tariffs on all medical and hygiene imports needed for the COVID-19 response.

Monetary measures

The Reserve Bank of New Zealand (RBNZ) kept the official cash rate (OCR) unchanged at 0.25 percent on May 13 and signalled its intention to keep the OCR at this level for at least a year.

The OCR was reduced by 75 basis points to 0.25 percent on March 17.

The RBNZ has also announced a near doubling of the Large-Scale Asset Purchase program (LSAP) to purchase government bonds and Local Government Funding Agency (LGFA) in the secondary market up to $60 billion over the next 12 months. The RBNZ has doubled the overdraft on the crown settlement account to $10 billion for April-June to meet the government’s short-term cash needs.

The RBNZ is also introducing a Term Lending Facility (TLF), a longer-term funding scheme for banks at 0.25 percent for up to 3 years duration, available to use for six months from May 26. Access to the TLF is linked to each banks’ lending under the Business Finance Guarantee Scheme (see below) and will require approved eligible collateral.

The RBNZ has reduced bank’s core funding ratio requirement to 50 percent from 75 percent to help banks make credit available.

To further support the stability of the financial system, the start date for a regulatory change requiring higher capital for banks has been postponed for 12 months, to July 2021 (to support up to about NZ$47 billion of additional lending), with other regulatory initiatives in the pipeline also put on hold for at least six months.

The RNBZ has also agreed with the banks that during this period there will be no dividend payments on ordinary shares and redemption of non-CET1 capital instruments. The RBNZ has removed, effective as of May 1, mortgage loan-to-value ratio (LVR) restrictions for the next 12 months.

The New Zealand government, the RBNZ, and the New Zealand Bankers Association have also announced a number of financial measures to support SMEs and homeowners. These include six-month principal and interest repayment deferrals to mortgage holders and SMEs affected by COVID-19 and a NZ$6.25 billion Business Finance Guarantee Scheme for SME loans, in which the government covers 80 percent of the credit risk. *All information above is courtesy the International Monetary Fund.

*All information above is courtesy the International Monetary Fund