Sustainable economic recovery cannot be achieved unless we defeat the pandemic. It is necessary that the timing of the action be understood to have a lot of impact in this fight against COVID-19. At this time that is entering a very depressing winter in terms of loss of lives, the infection that is gaining territory day by day, as well as the panic that accompanies this pandemic campaign, let us all act together, forgetting for a while that political elections are coming to us.
The main priority of the policy now is the fight against Covid-19 according to the possibilities and chances for help that everyone has.
However, the main and addressing actions remain with the government budget and decision-making, as this situation that is already returning to occupy once again everyone's days requires public spending to treat the affected, test the infected and track contacts, as one of the moments more important than ever before.
This coming year should be the moment that should end the war with the health and economic crisis, caused by the pandemic, serve to recover the economy and give another shape to the entire economic space.
This means increasing efforts to purchase and distribute these health solutions, especially in poor areas. It also means that after the removal of fiscal restrictions on all medical goods and services, including those related to vaccines, attention is paid to to the public and private health sector. In some cases, the fiscal incentives undertaken by the government have ended up to the detriment of cost reduction for the people. The health system is facing a precarious situation mainly due to limited budgetary capacity to respond to the crisis.
Economic and financial uncertainties remain high, even expressed in forecasts that exceed the possibilities of a budget in normal time. Moreover, much of the fiscal policy support is now gradually fading. Many anti-covid social assistance lines, such as money transfers to the needy people, job support and increased unemployment benefits are expected to be out of the budget by the end of next year.
Meanwhile, job losses from the crisis are projected to continue. According to official data, only during the 9 months of 2020 it is estimated that are lost up to 33 thousand jobs and are estimated to be at risk a little more than this number even though the reopening of the economy has recovered a number up to 20 thousand jobs.
The 2021 budget has already been approved after listening to a few of the comments of each of us and listening many times more to the budget requests of government institutions. However, there is room for further fiscal support next year beyond what is currently budgeted. For the 2021 budget, which is adopted in the context of a limited fiscal space it will be essential to set priorities that are dictated by the pandemic and to reallocate spending to protect the most vulnerable.
Limiting liquidity for people consumption was becoming serious before the economics of each of them were hit by the effects of Covid-19.
The Ministry of Finance mentioned days before, that October 2020 registered a turnover of goods and services similar to October 2019. This fact shows, among other things, that the economy is at least accumulating reserves for the uncertain winter that is entering for a while. Meanwhile, the value of labor has decreased in its entirety, because the economy does not increase but decreases and this cost is directly followed more by the value of labor than by the value of capital. If it stops the flow of income to people it translates de facto into curbing the flow of expenditures.
"This crisis is a race between supply and demand," says Professor Surico. "At first glance it looks like a classic blow to the supply side, as the breakdown of the supply chain, followed by quarantine and social distancing reduce the number of working hours. But the uncertainty in people's health, in their finances and business perspective restrains people's spending and as a result the demand side is hit."
In this way, the recession should serve to dictate lower prices of goods and services. Unfortunately, this phenomenon has not happened or is happening in Albania. Even the prices of private sector health services in some cases are rising significantly. This is the end of normal capitalist history, to justify fiscal relief in the face of lower prices, as our private market does not transmit this policy in the same direction as the government decision. However, for a good part of the economy, in case of closure, the supply of goods and services will decrease, as consumers (workers) will be forced to further reduce consumption.
Businesses are already wary of investing, but they also do not have the funds to do so. Some sectors are being hit harder than others. If we assume a decline of 6.4% of GDP in 2020 and this would be followed by the beginning of 2021 (in case of a quarantine of up to two-three months), the economic downturn may continue to worsen the indicators even further than forecast. For comparison, total gross output in 1997 fell by -10.9%. Compared to what we have experienced so far this record of 1997 (after that of 1991) has not yet been reached, but no one has the ability to calculate how it will go until the end of the pandemic duration.
Like the economy, which does not suffer the same effects, employees do not suffer the same effects from the pandemic.
The biggest beneficiaries are likely to be those who are able to work from home, or spend a few hours working to achieve their goals. Unskilled employees are the part that gains the least, or loses the most from this situation. They are the most vulnerable part of hiring and being fired at the earliest opportunity when business situations and their economic opportunities deteriorate.
If we want to harness and increase the full potential of the digital economy that has begun with some government initiatives, we need to support employees with large training schemes, moving from today’s shrinking economic sectors to the expanding and growing sectors with perspective for the future. Social spending is absolutely essential, including increased investment in higher quality training, rehabilitation and education.
The impact of the pandemic is being felt not only on the GDP indicator, but also on people’s lives. We have already seen a huge increase in the demand for health services, but for the mental ones it is still not known how much the increase in demand is. Stress levels for people at home with children, for those who try to work at home and at school, can be high. Alcohol consumption seems to have increased, as in the absence of data on imports, production and consumption, based on indirect data, such as that of higher prices than before shows an increase in demand, as the price trend in our country increases whenever there is an increase in consumption.
The extreme of the situation requires significant and large-scale fiscal and monetary policy measures. This translates into more public health spending, as the situation itself has made this spending category inevitable. Tax reliefs and tax exemptions have been proven locally, but also centrally. Interest rates have been lowered and there is the possibility of quantitative easing although this topic still remains taboo in wide-ranging expert discussion.
While the government has very little opportunity to put cash in the hands of the people, which they could spend, the topic of putting money into circulation out of the ordinary can be the best and real sign of optimizing consumer demand.
This approach can be compared to a prepaid debit card which expires at the end of the pandemic while orienting people's spending not as defined by the card issuer, but by daily needs. It is the same as an experiment, which is unlikely to have the conditions another time to test it. Debt should not scare us as the increase will eventually restore public finances, if followed by decision-making to print money. The fear of this decision can be justified by the fact that the problem is deflation, not inflation.
The central bank can raise interest rates and attract liquidity in a timely manner by creating scenarios ready to face any inflationary pressures. Meanwhile, if public finances do not interact or mismanage their share of implementation this can lead to hyperinflation, but this is not the concern to justify passivity and expectation.
Public debt with a record high is one of the major legacies of crises. Addressing this challenge over the medium term will be critical, including a reversal of tax policy to mobilize revenue in a fair way. But for Albania with high debt burden and low tax burden, action is now needed, including access to more grants, concessional loans and debt relief from the effects of these actions.
In this context, on the other hand, efforts should be continued to strengthen rule-based trade, to promote a regional taxation system, where everyone pays their fair share, and among other things, the financial security network needs to be strengthened. Without these, inequality will worsen and the regional economy will face even greater challenges in the period ahead.
Anyhow, whatever priority policies are chosen, they should be now and expressed as comprehensive packages and not as separate actions. A loss beyond 10% of GDP is an extraordinary shock.
Politics used to be necessary to regulate the economic cycle, but now it is economics that is most needed to test and fix the problems of politics