Pandemic says: Economic forecasts need to be revamped

The spread of Covid-19 has heralded a community of health and economic crises that will begin to capture the economy, employment, financial market and businesses in its wake. Large and small companies are realizing they will face low incomes in the coming months, while some (1/3 of businesses) have debt to pay. Naturally, this has set in motion all economic and financial forecasters for a task that is largely unknown: to re-program the three time economic program series -short, medium and long term ones.

The current pandemic, with a truly viral spread, has already had its first impact on economic forecasts for 2020. They are changing day by day in every country affected by the disease. Amid fears of a brutal recession, governments are adopting and implementing rescue packages at a rate that goes even beyond the financial crisis of 2007-2010


In theory, the budget should never run out of liquidity, as money can be printed and distributed directly where it is most needed.
When all businesses face the same economic shock, they need a large increase in the supply of liquidity. If businesses are desperate for money demand, this trend has potential mitigating effects on the local financial system and so more regional and broader, as markets interact and are interconnected with many relationships and invisible effects, other than those that have been made public.

Meanwhile, as we write, read and speak, the needs and demands of businesses and citizens continue to grow. While the market today does not offer a large category of goods and services, many firms, especially small businesses, can suffer a sharp decline in revenue, having problems with their liquidity. Firms linked to the economy chain will record higher liquidity constraints, increasing their risk of bankruptcy.
That's one reason why in the past week the amount of money made available by the crisis that has hit will go to consumption as a "cure" for the economy.
In these times of questioning that no one has ready answers, perhaps this amount promised by the budget is not enough and the time is actually now to act with an increased amount of money, to create security for the business, but also for the panicked citizens. The promised amounts of direct money supply, amounting to several billion ALL, are little compared to the demand and consumption, which should be added at this time of panic epidemics and foreign exchange spending.

But where will this money come from, because in theory it is enough to say the thought and close the cycle?

In developed countries, the fastest way for investors and businesses to raise money is to sell liquid assets. In a world of exchange-traded capital and all the necessary capital market mechanisms and logistics, investors are the first to respond with this approach. Their priority is to liquidate holdings of risky assets. Markets move in the same direction.

Meanwhile, companies and banks tend to hold their liquid assets (money and similar) in Treasury bills or even corporate bonds for greater security. This approach is an address that can produce a changing and ancillary situation for the economy in Albania, Kosovo and the region. In the meantime, accessing services and delivering products online by creating a communications and distribution infrastructure (dedicated applications and sites) is a future savings and temporary replacement of that part of the economy that has stopped.

But so far our government's efforts to stem the spread through blocking the people inside home are leading to lower consumption of services, such as restaurants, entertainment, and other activities that to some extent include transportation and construction. These activities make up more than 1/2 of the economy. They will also adversely affect household consumption of goods. Moreover, families may delay purchasing decisions due to the uncertainty created by the pandemic.

On the other hand, the supply of money for employee payment constitutes only 20 percent of business expenses. Other expenses, such as rent, supplier payments, loan payments, etc. are integral to business continuity. If a supply chain stops, it is not enough to just reimburse it. Mandatory monetary commitments and other mechanisms are needed for all interconnected businesses to operate when the economy begins to move again.
The bitter prediction is that the coming crisis is costing too much right now and the pressure of restrictions may be a repressive factor for an economically unstable future.

After some time, the government may not have the ability to accommodate businesses and consumers in a better economic reality. Ordinary people may not tolerate the economic and social upheaval that can be generated by changing circumstances.

But how can we keep alive the need to solidify together to cope with this current situation?

While this difficult economic situation, which is a recurring for Albania after the shock of the earthquake in 2019, seems to have put the government in trouble trying to use companies and consumers to distribute millions of euros in loans and credit guarantees. No one can be sure how well this rescue scheme will work. Encouraging banks to lend has reduced to some extent the risk that banks can borrow from the central bank below the rate at which they are compensated for deposits. Albanian business is much more frustrated than the need to lend business for several months. The demand for money will continue even after removing the insulation.

But if enough liquidity is created, then the long-term damage to the real economy will be minimized.
So, if businesses know that they can get money whenever they need it, they may not need as much motivation for the future once the pandemic is brought under control. A more tangible approach for businesses would be to actually sit down to a national dialogue on comprehensive communication between taxpayers, accounting associations, fiscal associations, business associations, and business consulting offices, as well as a parallel dialogue with IMF, WB etc. to harmonize national approaches with international ones.

It is urgently needed to stimulate discussion among experts outside and within government by building dedicated communication bridges as soon as possible to convey experiences and opinions. It is at least the second time that in times of national disaster all bodies created for the sake of solidarity do not say and be alive for anything. Thus, e.g. where are the various councils at ministries, institutes, et. All this shows that at least they exist only for the purpose they must be for the facade, but not to serve the purpose why they were created. Meanwhile it is time for an exhaustive analysis of a monetary approach, but also in line with fiscal constraints and revised policies, about direct supply of money to vulnerable groups.

This will bring added value to people's perception that there is more hope in this time of crisis, beyond the usual budgetary measures for difficult situations.
In support of a more prosperous restart of the economy, it may be possible to analyze and program also the tax tools, i.e. VAT refunds (part or all) as well as the ability to offset tax liabilities as an alternative mechanism helping businesses continue to pay people even if they cannot be on the job due to quarantines, closures or limited operations.

Because precision is needed to align business needs with government solutions, it is faster than expected to announce the benefit categories and conditions for fiscal amnesty for everyone to know how to behave and respond. The administration should clarify the tax situation for each taxpayer in detail so that every business file can be cleaned and a known situation.

Every government in these circumstances, and those that will come after, must be ready to think deeply that much will change for each social stratum and category.

Tirane, March 2020