As of March 17, 2022, more than 463 million people have been infected with COVID-19 and nearly 6.1 million people have died worldwide. This has been further compounded by an economic crisis caused by the disease’s disruption to the world economy, resulting in millions of people losing their livelihoods, exacerbating global poverty and inequality.
The International Monetary Fund (IMF) estimates that the world economy, as measured by real gross domestic product (real GDP), shrank by as much as 3.5% in 2020. The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI), which tracks large-cap and midcap companies in approximately 50 developed and emerging countries around the world, fell into a bear market during March 2020 and didn’t pass its pre-COVID-19 high until late August 2020.
As of April 2021, the IMF estimated that the world economy will grow by 6% in 2021 and 4.4% in 2022.
In response to this crisis, governments and central banks worldwide have enacted sweeping and sizable stimulus measures to counteract the disruption caused by the coronavirus and provide relief to those suffering from the pandemic.
After unprecedented stimulus measures, U.S. Federal Reserve (Fed) Chair Jerome Powell said in a March 2021 interview with NPR that the U.S. economy was on the path to recovery, comparing combined stimulus efforts by the Fed and Congress to the World War II battle of Dunkirk.
But the battle for the health of the global economy was not limited to the United States. We have compiled below a list of what each country or region has been doing. We divided each response into monetary policy, managed by central banks, and fiscal policy, managed by central governments.
In this article, due to the international nature of the conversation, all currencies are represented with their currency symbol, even the USD.
Researchers with the World Health Organization (WHO) are still investigating the exact origins of COVID-19. But according to an investigation headed by the WHO, we do know that live-animal markets, including the Huanan market in Wuhan, likely played a role at the start of the pandemic. Wuhan was the site of the first large-scale outbreak.
China, the world’s second-largest economy, responded with stimulus and relief efforts earlier than most countries. As a result, the Chinese experience has become a bellwether for many countries around the globe in terms of its COVID-19 response, lockdown measures, and economic stimulus, as well as the speed of the recovery.
China Monetary Policy
The People’s Bank of China (PBOC) was the first major central bank to act during the crisis. The PBOC refers to liquidity injections through repurchase agreements as “reverse repo operations,” though most other central banks refer to them as “repo operations.” They will be referred to as “repo operations” here for the sake of consistency.
The PBOC has cut a number of interest rates since the beginning of the crisis. It cut its benchmark one- and five-year prime rates twice—once on Feb. 20, 2020, and again on April 20, 2020. This brought the one-year rate down from 4.05% to 3.85% and the five-year rate down from from 4.75% to 4.65%. It also cut its one-year medium term lending facility (the rate at which it lends to banks) twice—once on Feb. 17, 2020, and again on April 15, 2020. This brought the interest rate for the lending facility down from 3.25% to 2.95%, the lowest level since it was introduced in 2014. On April 23, 2020, it lowered the interest rate on its targeted medium-term lending facility (TMLF), a loan program meant to shore up struggling parts of the economy, from 3.15% to 2.95%. On April 10, 2020, it cut its standing lending facility interest rates by 0.30%. On March 30, 2020, the PBOC cut the rate on its seven-day repo agreements from 2.40% to 2.2%. On June 18, 2020, it cut the rate on its 14-day repo agreements from 2.55% to 2.35%.
China first expanded repo operations on Feb. 3, 2020. Through both the repo operations and its medium-term lending facility, the central bank injected approximately USD$650 billion of liquidity into the economy as of June 11, 2020, according to the IMF. The PBOC has also expanded relending and rediscounting facilities by USD$254 billion as of June 11, 2020, to increase lending, especially to micro-, small-, and medium-sized firms and the agricultural sector.
On March 16, 2020, the PBOC lowered bank reserve requirements, freeing up about RMB 550 billion to be lent out. Reserve requirements were cut again on May 15, 2020. The PBOC cut the reserve ratio for small and medium-sized banks on April 15, 2020. It also cut the interest rate that it pays on excess reserves.
China Fiscal Policy
Data has been somewhat scarce when it comes to the exact nature of China’s official government stimulus and relief response.
While China had the only major economy that expanded last year, continued pace of growth is interdependent with broader global economic recovery.
After a year of sweeping stimulus measures and subsidies to support the economy and boost consumer spending, the Chinese government’s statements indicate that we can expect a phase of belt-tightening and a shift away from debt-driven growth.
As soon as mid-March 2020, many local governments in China began issuing prepaid spending vouchers to boost consumer spending, but the amounts are reportedly relatively small. The Chinese government asked banks to extend the terms of business loans and commercial landlords to reduce rents. Regional and local governments also have been increasing subsidies for certain auto purchases and raising the cap on the number of cars that can be owned in each locality. The government asked lenders to give smaller companies debt deferments from Jan. 25, 2020, to June 30, 2020. Banks have been asked to give forbearance on mortgage and other personal loans. On May 22, 2020, Chinese Premier Li Keqiang said banks could allow small businesses to only pay the interest on loans until the end of March 2021.
On May 22, 2020, the Chinese government unveiled a RMB 3.6 trillion stimulus package, which also contained funding for local governments to stop the spread of COVID-19 and business tax cuts. This was accompanied by the issue of special treasury bonds by Beijing for the first time since 2007, along with increasing the limit on special bonds that can be issued by local governments.
As of July 1, 2021, according to the IMF, an estimated RMB 4.9 trillion in discretionary fiscal measures, with another RMB 13 billion in “support outside the budget” such as tariff and fee cuts as well as loan guarantees to small- and medium-sized businesses, had been announced, including total funding to fight the virus, and which includes:
- Increased epidemic prevention spending.
- Production of medical equipment.
- Moving up unemployment payments.
- Social security tax relief.
Overall, the Chinese government is following a “cautious approach to the withdrawal of fiscal policy support as they look to ensure the economy’s sustained recovery from the coronavirus shock,” according to Fitch Ratings. Analysts estimate that the country’s consolidated fiscal deficit will be 7.5% of GDP in 2021, compared to 9% last year. Fitch Ratings also forecasts the government debt-to-GDP ratio will increase to about 57% by the end of the year.
In a departure from previous years, in March 2021, the Chinese government called for closer scrutiny of the debt-to-GDP ratio and reduction of debt levels at the local government level in particular.
Hong Kong was already facing tough economic headwinds before the 2020 pandemic because of unrelated public protests throughout 2019. Hong Kong rolled out stimulus fairly early, including a universal cash payments, similar to the one later included in the U.S. Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Hong Kong Monetary Policy
The Hong Kong Monetary Authority (HKMA), while not technically a central bank, sets monetary policy for Hong Kong. The HKMA links the value of the Hong Kong dollar to the fixed exchange rate against the U.S. dollar within a certain range. This means that the HKMA follows interest rate changes by the U.S. Fed to maintain the currency peg.
On March 4 and March 16 in 2020, the HKMA announced reductions in the benchmark interest rate, by 0.50% to 1.5% and 0.64% to 0.86%, following the Fed’s interest rate reductions. Also on March 16, 2020, the HKMA lowered capital requirements to allow banks to lend more.
On April 29, 2021, the HKMA spokesman said the market expected the move by the U.S. Fed to keep rates unchanged.
In 2020, the Hong Kong economy shrunk by 6.1%, an economic contraction that the HKMA acknowledged was the “most severe one on record” in an annual report published on April 28, 2021.
Hong Kong Fiscal Policy
Hong Kong released three major fiscal stimulus and relief packages in the first half of 2020, with some smaller additional stimulus measures in the fall. The first, on Feb. 21, 2020, established the HK$30 billion Anti-Epidemic Fund and included the following efforts:
- HK$12.6 billion for subsidies to the retail, restaurant, and transportation sectors.
- HK$4.7 billion for increased hospital funding.
- HK$1.5 billion for increased mask production.
- HK$1 billion to purchase masks internationally.
Hong Kong announced a HK$120 billion fiscal stimulus package as part of its 2020–2021 budget on Feb. 26, 2020. It includes:
- A HK$10,000 cash subsidy to all adult permanent residents. (This was extended to low-income and nonpermanent residents on March 3, 2020.)
- Paying one month’s rent for people living in public housing.
- Cutting payroll, income, property, and business taxes.
- Low-interest, government-guaranteed loans for businesses.
- An extra month’s worth of payments to people collecting old-age or disability benefits.
On April 8, 2020, a HK$137.5 billion stimulus and relief package was announced, including:
- HK$80 billion to provide wage subsidies to employers of 50% of an employee’s monthly wages for six months, capped at HK$18,000.
- HK$21 billion to support particularly hard-hit sectors of the economy.
- A six-month, 75% rent reduction to people and companies renting from the government.
- Deferred payroll and business profit taxes for three months.
On June 11, 2020, the wage subsidy in the April relief package was expanded to include construction workers who were excluded from the original package because they were not official full-time employees, even though they were working on a long-term basis in the sector. This would give HK$3.1 billion in wage subsidies to employers provided that they do not lay off these employees for six months after receiving the money. Employers can receive up to HK$36,000 per employee.
On Sept. 15, 2020, Hong Kong announced an additional HK$24 billion in stimulus spending. This includes direct spending to support impacted industries, new spending on preventive health measures, and rent support payments.
On April 28, 2021, Hong Kong lawmakers approved a budget providing an additional HK$120 billion in stimulus funding to support economic recovery from COVID-19. These measures include electronic spending vouchers for city residents and additional healthcare spending.
Continued stimulus plans have cut into Hong Kong’s reserves, but analysts at Fitch Ratings project a “gradual reduction” in fiscal deficit.
“Fitch forecasts the [Hong Kong fiscal] deficit will moderate to 4.7% of GDP in FY21 and 2.0% in FY22, excluding bond proceeds, following a record deficit of 10.4% in FY20,” according to Fitch’s report on April 15, 2021.
Japan entered the pandemic with a somewhat depressed economy, already struggling with deflation and low growth, so the pandemic has only compounded its problems. The economy contracted 4.8% in 2020, the first in over a decade.
More than a year into the pandemic, the world’s third-biggest economy remains proactive in supporting companies and households with additional stimulus measures.
Japan Monetary Policy
The Bank of Japan (BOJ), the nation’s central bank, launched a raft of major stimulus provisions as early as March 16, 2020. It substantially increased quantitative easing (QE), doubling the rate at which it was purchasing exchange-traded funds (ETFs) from ¥6 trillion a year to ¥12 trillion. It also increased purchases of corporate bonds and commercial paper. On the same day, the BOJ announced a new program of zero-interest loans to increase lending to businesses impacted by the virus.
A second wave of monetary stimulus was introduced on April 27, 2020. The stimulus consists of three parts. First, the central bank increased its holdings of corporate bonds and commercial paper from ¥1 trillion to ¥7.5 trillion. The BOJ said it would increase the maximum amount of corporate bonds and commercial paper that it would purchase from each issuer. And the bank would now purchase bonds with up to five years of remaining maturity, up from three. Second, the BOJ expanded the new lending program that it announced in March 2020 to include more potential participants and allow more types of collateral. Finally, the central bank said it would purchase as many government bonds as needed with no upper limit.
On May 22, 2020, the BOJ’s lending program was expanded to provide one-year zero-interest loans to financial institutions to either lend to small- and medium-sized businesses that have been affected by COVID-19 or make loans as part of government relief measures.
Among corporate bond purchases, commercial paper purchases, and its special lending programs, the BOJ said it would provide just over ¥110 trillion in liquidity.
On April 27, 2021, the BOJ signaled extending the pandemic relief program beyond September, in response to a third state of emergency in Tokyo and other cities and the threat of prolonged economic recovery. The BOJ kept the short-term interest rate target at −0.1%.
Japan Fiscal Policy
On the fiscal end, Japan passed four spending bills. The first provision, a package of small business loans worth ¥500 billion, passed in February 2020.
On March 11, 2020, the second spending bill of ¥1.6 trillion passed, increasing funding for business loans. It also included ¥430 billion for programs to boost mask production and to prevent the virus from spreading in nursing homes.
The third stimulus package of ¥117.1 trillion passed on April 7, 2020. Its most prominent provision was a ¥100,000 payment that any resident of Japan could apply for. Small- and medium-sized businesses, as well as freelancers, could apply for payments of up to ¥1 million if their incomes had been significantly affected by the virus. The package also included ¥26 trillion tax deferments for businesses and increased funding for medical supplies.
The fourth stimulus package of ¥120 trillion was announced on May 27, 2020. It included the following provisions:
- Rent subsidies for individuals and for small- and medium-sized businesses.
- A one-time ¥200,000 yen payment to each frontline medical worker.
- Additional subsidies to businesses hit by the pandemic.
- The creation of a ¥10 trillion yen emergency fund for a possible second wave of infections.
In December 2020, Japan unveiled an additional ¥73.6 trillion spending plan, which included loan guarantees for small businesses as well as spending initiatives meant to cut down carbon emissions and foster digital innovation.
On April 30, 2021, Japan’s government said it would boost aid to firms with large-scale facilities, such as department stores and malls.
Japan’s total spending to support its economy in the aftermath of the COVID-19 pandemic is estimated at USD$3.58 trillion.
European Union (EU)
A rise in new cases in the fall of 2020 resulted in new restrictions and business closures in countries across Europe, including Germany, France, Austria, Spain, Italy, and others. In turn, renewed restrictions have sparked protests in some countries over the economic destruction already imposed by previous lockdowns, and increased demands for further stimulus and relief measures.
EU Monetary Policy (European Central Bank)
Unlike the U.S. Fed, the European Central Bank (ECB) has had little room to lower interest rates. Its deposit interest rate is negative, and its refinancing interest rate is at zero. This means that it had to rely on other monetary policy tools to respond to the current pandemic.
While its benchmark interest rates have remained the same, on March 12, 2020, it lowered the interest rate on, and eased lending requirements for, its targeted longer-term refinancing operations (TLTRO III), a program of long-term loans to banks to keep liquidity steady. It followed up with a second TLTRO III interest rate cut on April 30, 2020. This is not one of its benchmark interest rates. To further boost credit, on April 30, 2020, it announced a new series of longer-term refinancing operations called “pandemic emergency longer-term refinancing operations” (PELTROs) to provide additional lending liquidity.
Throughout the spring and summer of 2020, the ECB activated or created currency swaps with the central banks of Denmark, Croatia, Bulgaria, and Romania. All of these are European countries that do not use the euro, and the swaps help ensure that there are enough euros available in those countries for euro-denominated financing. On June 25, 2020, the ECB created the Eurosystem repo facility for central banks (EUREP), which provides euro-denominated liquidity for central banks outside the eurozone, in addition to what is provided by the aforementioned swaps. It will last until the end of June 2021.
Also, the ECB has substantially increased its bond-buying program. On March 12, 2020, it announced an additional €120 billion in bond purchases during 2020. Then, on March 19, 2020, it announced an asset-purchase program called the Pandemic Emergency Purchase Program (PEPP), purchasing roughly €750 billion in bonds and commercial paper throughout 2020. One notable feature is that Greek government bonds will be eligible for purchase as part of this program. These bonds are normally excluded from bond-buying due to Greece’s credit rating. On June 4, 2020, the ECB announced that PEPP would be expanded by €600 billion to a total of €1,350 billon, and that the length of the program would be extended at least until the end of June 2021. At the time, the ECB said that it planned to “conduct net asset purchases under the PEPP until it judges that the coronavirus crisis phase is over."
The ECB also took steps to increase liquidity. On March 12, 2020, it temporarily lowered the level of capital that banks need to hold to allow them to increase lending. On April 7, 2020, it broadened what could be used as collateral for ECB refinancing operations. The ECB said these measures were temporary and would be “re-assessed before the end of 2020.” On April 22, 2020, it allowed assets that have had their credit rating downgraded after April 7, 2020, to be used as collateral for ECB refinancing operations until September 2021.
On Dec. 10, 2020, the ECB announced another raft of stimulus, including the following measures:
- Expanding the PEPP by €500 billion, to a total of €1,850 billion.
- Extending the purchasing horizon for the PEPP until at least the end of March 2022.
- Extending reinvestment of payments from maturing bonds in the PEPP until at least the end of 2023.
- Extending the period of more favorable TLTRO III refinancing by 12 months until June 22, 2021, and conducting three additional operations from June 2021 to December 2021.
- Raising the borrowing limit that counterparties in TLTRO III can borrow from 50% to 55% of all their eligible loans.
- Extending “collateral easing measures” to allow banks more liquidity until June 22, 2021.
- Offering four additional PELTROs in 2021.
The ECB issued a statement on April 22, 2021, saying it will “continue to conduct net asset purchases under the PEPP program with a total envelope of €1,850 billion until at least the end of March 2022."
It also kept the interest rates on the main refinancing operations, marginal lending facility, and deposit facility unchanged. And the ECB will continue net purchases under the asset purchase program (APP) at €20 billion per month.
EU Fiscal Policy
On May 27, 2020, the European Union unveiled its first fiscal stimulus proposal, funded by bonds issued by the EU rather than by the governments of its member states. This €806.9 billion package is called “Next Generation EU.” After negotiations, the final package included €338 billion in grants and €385.8 billion in loans. The package initially was approved on July 21, 2020, but was held up in review by the vetoes of Poland and Hungary. The package was finally fully passed on Dec. 9, 2020.
More than a year into the pandemic, Germany is still struggling to keep a new wave of infections under control. In April 2021, the German parliament approved amendments to the Infection Protection Act to enable the federal government with more power over regional curfews and other measures.
Germany Fiscal Policy
As a eurozone country, Germany’s monetary policy is conducted by the ECB. The only Germany-specific relief items passed by the government are related to fiscal policy. To that end, Germany rolled out a broad series of aggressive fiscal stimulus and relief measures. Its efforts are, by far, the largest of any country in Europe in overall size and as a percent of the country’s overall GDP.
Its largest relief measure by far was its Economic Stabilization Fund, announced on March 23, 2020. This €600 billion fund offers €400 billion in loan guarantees, €100 billion to buy equity stakes in struggling companies, and €100 billion to the German Development Bank to refinance loans to businesses. This was accompanied by an expansion in the types of loans that the development bank can offer.
Also on March 23, 2020, Germany passed a €156 billion supplementary budget, suspending existing government debt rules, to help fund additional COVID-19-related spending, including the following:
- A €50 billion emergency liquidity program for small businesses, self-employed people, freelancers, and farmers. Those categories of people and companies can apply to receive up to €15,000 to cover operating costs.
- Increased spending on personal protective equipment (PPE), vaccine research, and other public health measures.
- Expanded childcare benefits for low-income parents and easier access to welfare for the self-employed.
- Expanded funding of worksharing payments. (Worksharing is where companies lower employee hours as an alternative to layoffs. Employees are then partially, or fully, compensated by the government.) In August 2020, the government extended these wage subsidies through the end of 2021.
On June 3, 2020, the German government announced another stimulus package worth €130 billion. Among other things, the package includes the following:
- A value-added tax (VAT) cut. The normal VAT rate will be cut from 19% to 16% on all goods. The new rate took effect on July 1, 2020, and lasts until Dec. 31, 2020. The reduced VAT rate, which applies to essentials such as food, was cut from 7% to 5%. These tax cuts are estimated to cost about €20 billion.
- €4.3 billion to give parents one-time cash payments of €300 per child.
- €5.3 billion to shore up the German social safety net programs.
- €11 billion in reductions to renewable energy fees for 2021 and 2022.
- €8 billion in business tax cuts.
- €25 billon in aid to small- and medium-sized businesses to make up for virus-related losses.
- €1.9 billion in aid to cultural and nonprofit organizations.
- €10 billion in aid to local governments.
- €3 billion in aid to schools.
On March 19, 2020, the German Ministry of Finance announced that taxpayers who can prove they are directly and significantly affected by the COVID-19 pandemic can apply to defer or lower their taxes that they would owe through Dec. 31, 2020. In addition, on May 6, 2020, the VAT for restaurants and catering services was reduced from 19% to 7%.
On April 27, 2021, the German government adopted the German Recovery and Resilience Plan (DARP), with the country expecting to receive grants of about €28 billion to support energy-efficient transportation and buildings as well as digital transformation policies.
India has suffered from an extremely severe second wave of the pandemic, with new daily cases spiking to a record-breaking 400,000 in early May 2021. The second wave was likely exacerbated by the more infectious Delta variant of the virus, which seems to have first emerged in India. This has led to a wave of new lockdowns.
India Monetary Policy
India’s monetary policy has been less constrained than its fiscal policy, because it is not as tied to India’s standing with foreign credit agencies.
On March 27, 2020, India’s central bank, the Reserve Bank of India (RBI), lowered its repo rate, the bank’s benchmark interest rate, by 0.75% to 4.4%, and lowered the reverse repo rate by 0.9% to 4%. On April 17, 2020, it further lowered reverse repo rates, by 0.25% to 3.75%. The RBI followed this up with another 0.4% cut to both rates at its May 2020 meeting, reducing the repo rate to 4% and the reverse repo rate to 3.35%, along with reiterating an explicit commitment to maintain an accommodation monetary policy stance for as long as necessary. At the same meeting, it also lowered the interest rate of its Marginal Standing Facility (MSF) by 0.4%. The MSF is another short-term liquidity line to banks.
The bank injected ₹374,000 crore (1 crore equals 10 million) into the financial system on March 27, 2020, by a combination of loosening capital restrictions and reserve ratios, as well as launching a “targeted long term repo operation” (TLTRO). The TLTRO allows repurchase agreements on investment-grade bonds, commercial paper, and another debt instrument called nonconvertible debentures (NCDs).
The RBI increased its lending facility for state governments on April 1, 2020, and raised the ability of state governments to overdraft on April 7, 2020. Another ₹50,000 crore TLTRO—TLTRO 2.0, targeted at smaller financial institutions—was launched on April 17, 2020. It followed this up on April 27, 2020, with the creation of the Special Liquidity Facility for Mutual Funds (SLF-MF), which will lend up to ₹50,000 crore to purchase mutual funds.
The RBI has also extended special liquidity facilities for national lending institutions. On April 17, 2020, the RBI established special refinance facilities totaling ₹50,000 crore for the National Bank for Agriculture and Rural Development (NABARD), the Small Industries Development Bank of India (SIDBI), and the National Housing Bank (NHB).
In May 2020, the RBI extended the facility for SIDBI by ₹15,000 crore and established a line of credit worth ₹15,000 crore to the Export-Import Bank of India to support its U.S. dollar funding activities. On Aug. 6, 2020, the RBI extended its special lending facilities to NHB and NABARD each by ₹5,000 crore. The RBI allowed all banks to permit three-month deferments of payment for loans on March 27, 2020. In May 2020, it extended this period through Aug. 31, 2020. On April 17, 2020, the bank allowed a moratorium from March 1, 2020, to May 31, 2020, on the classification of assets as nonperforming. Normally, loans are classified as nonperforming after 90 days of being overdue on payments.
On May 5, 2021, the RBI announced an additional round of COVID-19 stimulus funding, with the central bank opening a liquidity window of ₹50,000 crore with tenors of up to three years at the repo rate that will be available until March 31, 2022, according to the central bank. This new stimulus would allow Indian banks to lend money to hospitals, manufacturers and distributors of COVID-19 vaccines as well as providers of medical oxygen and other COVID-19 relief. The RBI’s measures also included helping micro-, small- and medium-sized businesses, allowing some borrowers to extend their repayment period.
India Fiscal Policy
Rather than increasing government spending, India’s stimulus packages have leaned heavily on measures to increase liquidity, such as loosening bank lending restrictions or sending tax rebates early. Actual new spending has made up only a small portion of the Indian government’s stimulus.
On March 26, 2020, the Indian government announced a ₹170,000 crore spending plan to help the nation’s poor cope with the pandemic. It included the following provisions:
- Free grain and other staples for poor families for three months.
- Expanded insurance for healthcare workers.
- One-time cash payments of ₹1,000 to 30 million senior citizens.
- Expedited scheduled cash payments to 87 million farmers as part of an existing program.
- Free cooking gas to women in rural areas for three months.
- Establishing a fund to help construction workers affected by the quarantine.
On May 13, 2020, Prime Minister Narendra Modi announced a new stimulus package called the “Self-Reliant India” program. While he claimed it would be ₹2 million crore (10% of India's GDP), that total included previously spent money and monetary stimulus. The package was to be released in five separate parts, some of which included general reform measures and law changes not related to the pandemic.
The first part was focused on small- and medium-sized businesses. It included direct extensions of loans to businesses, full and partial loan guarantees to different types of businesses, extending various tax filing deadlines, and a reduction in payroll taxes.
The second portion addressed the needs of the poor, especially migrant and farmworkers. It included extensions of more credit to farmers, programs to provide food for migrant workers and allow them easier access to welfare benefits, and reforms to make minimum wage laws apply to more workers more uniformly.
The third related to agriculture in general and included funding for farm supply chain and infrastructure improvements, as well as reform of agricultural regulation to make it easier for farmers to stockpile and sell crops.
The fourth part targeted modernizing India’s economy, including loosening regulations in the coal and mineral mining sector to increase private-sector involvement, changing military procurement regulations, easing airline and airport regulations, and privatization of power utilities.
The fifth part focused mainly on reforming business regulation, increasing state government borrowing limits, increasing funding to a work program for rural workers.
On June 12, 2020, the Indian government halved the interest that taxpayers owed on late goods and services taxes (GST) for the months of February, March, and April in 2020. The interest cut applied to filers as long as they filed by September 2020. In addition, the deadline for filing May, June, and July 2020 returns was extended to September 2020 without any fees or interest.
On June 30, 2020, the Indian government announced that it would spend ₹90,000 crore to extend the the free grain distribution program until the end of November 2020. Modi said this would provide good aid to 800 million Indians.
On Oct. 12, 2020, India announced a ₹73,000 crore package of new relief spending. Measures included ₹25,000 crore in direct infrastructure spending, ₹12,000 crore interest-free loans to Indian states, and a plan to allow public-sector employees to cash out leave time to spend on consumer goods in an effort to boost spending.
On Nov. 9, 2020, India approved almost ₹2 million crore in tax incentives over the next five years for companies building new manufacturing and export businesses in India.
On Nov. 12, 2020, India announced ₹265,000 crore in additional stimulus measures, including subsidies to companies that hire new employees, tax breaks for homebuyers, and government-subsidized bank loans to sectors of the economy that were most affected by the pandemic, such as the auto industry.
On June 28, 2021, India announced another stimulus plan of ₹6.29 million crore with three main goals of "economic relief from the pandemic, strengthening public health, and impetus for growth and employment."
United Kingdom (U.K.)
Unlike Germany, France, and Italy, where monetary policies are set by the ECB, the United Kingdom has its own central bank.
As the U.K. tightened restrictions on the population and the economy in the face of rising COVID-19 cases along with other European nations, it also had Brexit to grapple with. When the pandemic began, the U.K. was still renegotiating its trade relationship with the EU and undergoing a massive change to its laws and trading relations, which further complicated the country’s response to the pandemic. All of this took a heavy toll on the U.K.’s economy. The U.K. economy shrank by 10% in 2020, the largest decline in over three centuries.
U.K. Monetary Policy
The Bank of England (BoE) has taken a number of steps to try to mitigate the pandemic and the resulting economic crisis, using all of its tools, and bringing rates down to record lows.
The BoE cut its benchmark interest rate twice: on March 11, 2020, from 0.75% to 0.25%, and on March 19, 2020, from 0.25% to 0.1%.
On March 24, 2020, the BoE activated its Contingent Term Repo Facility (CTFR), an additional three-month repo operation on top of existing ones. A one-month facility was added on March 30, 2020. Both the one- and three-month facilities were subsequently extended, but later allowed to expire. The one-month facility held final operations on June 26, 2020, and the three-month facility held final operations on May 28, 2020.
On March 19, 2020, the BoE announced it would restart QE with £645 billion in government and nonfinancial, investment-grade corporate bonds. On June 5, 2020, the BoE expanded what kinds of bonds it could purchase in its QE program. The BoE expanded its bond purchases by another £100 billion billion on June 18, 2020. On Nov. 5, 2020, the BoE expanded its target for government bond purchases by an additional £150 billion.
The BoE has launched a number of additional lending and asset-purchasing programs to extend credit during the crisis. On March 11, 2020, the BoE announced the Term Funding Scheme, which offers additional incentives for small- and medium-sized enterprises (TFSME). This scheme offers loans from the BoE to banks using the banks’ loans to businesses as collateral for the central bank. Banks will receive more money if they lend to small- and medium-sized businesses. The TFSME began operating on April 15, 2020.
On March 17, 2020, the BoE launched the Covid Corporate Financing Facility (CCFF), which will purchase commercial paper for at least 12 months. There is no stated limit on the purchases. The program was updated on May 19, 2020, allowing businesses to repay the debt early. The new rules say that any businesses that want to issue commercial paper with a maturity past May 19, 2021, need to draw up a plan showing how they’ll reduce dividends, buybacks, and executive pay while the debt is still outstanding.
As for regulatory changes, on March 11, 2020, the BoE allowed banks to use a reserve they call a “countercyclical capital buffer.” The buffer is money kept in reserve to increase banks’ resistance to global financial shocks, allowing nearly £190 billion in new loans. It also canceled the 2020 bank stress test. However, on July 28, 2020, the Prudential Regulatory Authority of the BoE also reiterated its expectation that banks suspend dividends, buybacks, and cash bonuses to senior staff through the end of 2020 and announced plans to assess financial firms’ distribution plans beyond 2020 as well.
On April 9, 2020, the BoE announced that it would lend directly to the government if bond markets are insufficient to meet fiscal requirements during the COVID-19 crisis.
At the start of May 2021, the BoE maintained the pace of its bond buying without expanding the size of its stimulus program, as a result of successful vaccination efforts. The BoE also kept its benchmark interest rate at 0.1%. The BoE also expects the U.K. economy to grow by 7.2% in 2021 compared to 4% projected earlier.
U.K. Fiscal Policy
The U.K. fiscal policy has come in six packages. The first, announced on March 11, 2020, allocated nearly £30 billion in fiscal stimulus and relief in the U.K. budget. Among other things, it included:
- A tax cut for retailers.
- Cash grants to small businesses.
- A mandate to provide sick pay for people who need to self-isolate, and a subsidy to cover the costs of sick pay for small businesses.
- Expanded access to government benefits for the self-employed and unemployed.
The second round, unveiled on March 17, 2020, included £330 billion in business loans and loan guarantees. These loan schemes have been divided into the Coronavirus Business Interruption Loan Scheme (CBILS), for small- and medium-sized businesses, and the Coronavirus Large Business Interruption Loans Scheme (CLBILS), for larger businesses. This package also contained £20 billion in business tax cuts and grant funding to businesses hit worst by the virus, such as retail and hotel businesses.
The third package, announced on March 20, 2020, included the following:
- A program to issue grants to companies covering up to 80% of workers’ salaries if companies keep them on payrolls rather than lay them off. It will be up to £2,500 a month per person. The program is backdated to March 1, 2020, and will last three months unless it is extended.
- Approximately £7 billion to increase the tax credits for the poor and unemployed, giving each person roughly £1,040 more a year.
- £1 billion in additional funds to increase the low-income housing benefit.
- 5.7 million self-employed businesses benefited from the VAT deferment to the following quarter as well as the deferment of July 2020's income tax payment to January 2021.
The fourth package, announced on March 26, 2020, gave cash grants of up to £2,500 for self-employed people making up to £50,000 a year. The payments will continue monthly for at least three months.
A fifth stimulus and relief package worth £30 billion was announced on July 8, 2020. Among other things, it contains:
- £2.1 billion to create a job program for people under age 25. The program would create six-month government subsidized job placements for people under age 25 who are currently on unemployment.
- Up to £9.4 billion offering businesses a £1,000 bonus for each employee whom they bring back from furlough.
- £1.6 billion in training and apprenticeship programs.
- A six-month sales tax cut from 20% to 5%.
- A program called “Eat Out to Help Out” that discounts certain restaurant meals by up to £10 a person from Monday to Wednesday during August 2020.
- £3.1 billion investment in green infrastructure.
- £5.6 billion in construction and general infrastructure.
- A measure that raises the value of homes that can be purchased without paying taxes on the transaction, from £125,000 to £500,000 until March 2021.
The sixth package, announced on Sept. 24, 2020, includes wage subsidies of up to £697.92 a month for workers facing reduced hours, the extension of Self Employment Income Support Scheme grants to small businesses through April 2021, the extension of the loans under previous packages through the end of November 2020, and the extension of the 15% VAT cut for hospitality and tourism businesses through March 2021.
The U.K. also passed a handful of smaller measures throughout the spring of 2020. On March 23, it announced a measure ensuring that no commercial tenant can be evicted if they miss a payment through June 30, 2020. On April 3, Transportation Secretary Grant Shapps announced that £400 million of additional funding would be provided to keep bus service running. On May 2, Communities Secretary Robert Jenrick announced that £76 million will be given to support charities for survivors of domestic abuse, sexual violence, vulnerable children and their families, and victims of modern slavery.
According to Chancellor Rishi Sunak, the government plans to increase the corporate tax rate from 19% to 25% in April 2023.
In March 2021, the U.K. government announced that there would be £65 billion in new COVID-19 stimulus and relief over the 2021–2022 fiscal year, including the following:
- A boost to social security and welfare payments through September 2021.
- £5 billion in new business grants to help them reopen.
- Incentive grants to businesses that delay opening as COVID-19 restrictions are eased.
- Extension of the 5% VAT reduction through Sept. 30, 2021.
- Extension of the job retention scheme through the end of September.
This brings the total of U.K. pandemic-related stimulus spending to £407 billion.
France Fiscal Policy
As a eurozone country, France’s monetary policy is conducted by the ECB. The only France-specific relief items passed by the government are related to fiscal policy. France’s biggest COVID-19 relief measure is a package of loan guarantees to help businesses survive the crisis. The current package includes €315 billion in loan guarantees, with the overall cost of COVID-19 estimated to total at €424 billion by the end of 2022.
On April 23, 2020, all business tax filings for May 2020 were postponed until June 30, 2020, and businesses may request deferment of payment for May 2020 taxes. Large companies will be granted deferments only if they issue no dividends or buybacks until the end of 2020. The tax filing calendar for individuals has been pushed back by 10 days.
On March 17, 2020, French Finance Minister Bruno Le Maire announced a €45 billion aid package, which was expanded to €110 billion on April 15, 2020. The aid package includes the following:
- €8 billion in increased spending on health supplies and bolstering the healthcare system.
- €31 billion in increased funding for work-sharing wage supports.
- €2 billion in direct payments for the self-employed and very small businesses.
- Postponement of rent and utilities for small- and medium-sized enterprises.
- Extending unemployment benefits.
- Funds for bailout loans to businesses.
On June 10, 2020, the French government increased the size of its stimulus package further, to €136 billion. The additional fund will go to wage supports, tax deferrals, and support to sectors that have been hurt particularly badly by the pandemic, such as tourism and aerospace.
On Sept. 3, 2020, France announced another €100 billion in stimulus. The stimulus package will be spent over two years and focuses on supporting economic growth. It includes €35 billion for businesses to “make the French economy more competitive,” and €30 billion to transition the French economy away from fossil fuels. The remaining money will be spent on job support and training programs to promote consumer confidence and create 160,000 jobs.
On Oct. 29, 2020, Le Maire announced another €20 billion in aid to small businesses, wage subsidies for furloughed workers, and extended funding for direct and guaranteed loans to businesses through June 2021.
French public investment bank Bpifrance estimates 5.5% to 7.5% of France’s COVID-19 loans will default.
On May 26, 2021, French officials committed an additional €15 billion in emergency funds, which are aimed to support the restaurants, hotels, and other industries most impacted by COVID-19 and tourism.
Still, the government is eyeing a “gradual exit” and return to normalcy. Le Maire said in early May 2021 that the government is targeting 5% economic growth this year and ruling out a second stimulus package.
Italy Fiscal Policy
As a eurozone country, Italy’s monetary policy is conducted by the ECB. The only Italy-specific relief items passed by the government are related to fiscal policy. Italy has launched four separate stimulus packages.
The first stimulus and relief package was unveiled on March 16, 2020, with the Italian government announcing it and calling it the Cura Italia (Care Italy) law. It contained roughly €25 billion in provisions, focused on four main “pillars.”
The first was €3.2 billion to strengthen the Italian healthcare system and address the shortage of PPE. The second was €10.3 billion to help protect workers. It included raising unemployment benefits, providing a €600 allowance to the self-employed and seasonal workers for March 2020, extending parental leave or €600 in babysitting pay, and extending paid leave for those taking care of disabled relatives. Also included in this pillar were funds for hiring 1,000 additional doctors and for overtime police payments. Families could also apply for a suspension of mortgage payments if the pandemic threatened their livelihood.
The third pillar involved €5.1 billion to increase business and household liquidity. This included, among other things:
- A moratorium on loan repayments for small- and medium-sized enterprises (SMEs).
- Increasing the SME Guarantee fund that helps SMEs get credit.
- €500 million in loan guarantees for the Italian state investment bank for large businesses to get loans.
The fourth pillar includes €1.6 billion for suspending tax payments and giving out tax incentives. All businesses, the self-employed, and individual taxpayers who work in sectors hit by the pandemic had taxes and social security contributions suspended in March 2020. Withholding taxes on the salaries paid to self-employed people with a revenue less than €400 a year was suspended for both March and April of 2020.
Audits, tax litigation, and coercive collection of taxes were suspended until June 2020. All expenses for sanitation, worker protection, or virus containment were eligible for a 50% tax credit. Stores and small businesses closed due to the emergency received a tax credit equal to 60% of March 2020 rent. Among those who were still employed, workers making less than €40,000 a year were eligible to receive a €100 bonus payout.
The law also included €4.5 billion to support “Central and Local Public Administrations, including Municipalities.”
The second, considerably larger stimulus package followed on April 6, 2020. This “Restore Liquidity” law offered €400 billion in loan guarantees from the government and from the state investment bank and export bank.
The third, €55 billion package was approved on May 13, 2020. It included the following provisions:
- €25.6 billion in benefits for employees and the self-employed. This included additional funding for wage support and payments of €400 to €800 a month for those with no income and otherwise not covered by social welfare programs.
- A measure allowing undocumented migrants to get temporary work papers to work as farm laborers or carers.
- €4 billion in regional business tax cuts.
- Up to €15 billion in loan guarantees for bonds to support banks to support financial stability.
On Oct. 26, 2020, Italy passed a fourth stimulus package worth €5.4 billion. It included €2.4 billion in one-time payments to businesses, subsidies and tax cuts for rent and housing, and an 18-week extension of wage supports enacted under the prior stimulus plan.
On May 20, 2021, Italy approved a new economic stimulus of €40 billion, €17 billion of which will be grants to companies most impacted by the pandemic. Other measures in the bill include additional healthcare funding and tax breaks to companies to encourage hiring.
Brazil had a number of statutory limitations on its fiscal spending, so fiscal relief and stimulus packages required significant alteration of the country’s existing fiscal rules. After case numbers fell in the summer and fall of 2020, a severe second wave of the virus hit Brazil in late 2020 and has not subsided.
Brazil Monetary Policy
On March 18, 2020, the Central Bank of Brazil (BCB) lowered the benchmark interest rate by 0.5% to 3.75%. It was lowered again on May 6, 2020, by 0.75% to 3%, a record low number. Over the summer, the BCB continued to lower its target for the benchmark interest rate, to 2.25% on June 17, 2020, and to 2.00% on Aug. 5, 2020.
On March 26, 2020, the BCB announced a series of measures that would add R$1.2 trillion in liquidity to credit markets. These include:
- Lowering reserve requirements.
- Expanding one-year repo operations.
- Announcing a set of dollar-denominated repo operations.
- New lines of credit to banks.
On March 27, 2020, the BCB further reduced capital requirements, both by reducing a required capital buffer and by lowering the loan-loss provision required for refinancing loans for the next six months.
On April 24, 2020, the BCB expanded the lending limit for lenders involved in its Special Temporary Liquidity Line backed by Guaranteed Financial Letters (LTEL-LFG). It also extended the settlement period for foreign exchange transactions related to imports and exports.
On May 5, 2021, the BCB raised its benchmark interest rate by 75 basis points to 3.5% and signaled another hike in June.
On May 27, 2021, the BCB issued a regional report saying the national economy should recover with a combination of “maintenance of monetary stimuli...the resumption of government stimuli, and the reduction of the pandemic impacts resulting from the rollout of the vaccination process."
As expected, on June 16, 2021, the BCB raised its benchmark interest rate by another 75 basis points to 4.25%.
Brazil Fiscal Policy
Brazil announced R$150 billion in fiscal stimulus on March 16, 2020. The package isn’t new spending. The Brazilian government said it would not relax its tight fiscal rules, so the package is made up of deferrals, payments that are moved up in the year, and money that will need to be moved from elsewhere in the budget. Included in this plan is:
- Moving payments for retirees up to May from December.
- Three-month deferral for small- and medium-sized businesses.
- Expansion of cash aid to the poorest families.
On March 18, 2020, Brazil announced that it would pay R$200 a month for three months to informal workers, the unemployed, and self-employed people who are part of low-income families. This program was expanded to R$600 a month on March 24, 2020, and is estimated to transfer roughly R$45 billion to upward of 24 million people. In addition, the import duties on medical supplies were reduced to zero.
Things significantly expanded when the Brazilian government officially declared a state of calamity on March 20, 2020 (it was first requested on March 18, 2020), allowing the government to spend past its previously set spending limits. The state of calamity is effective until the end of December 2020.
On March 22, 2020, the Brazilian Development Bank suspended payments for small businesses and expanded its credit to small businesses by R$5 billion, as well as increasing the credit limit for each borrower. On March 24, 2020, it provided R$55 billion in additional liquidity and granted six-month extensions for repayment of debts. On March 27, 2020, it announced R$5 billion in credit for start-ups.
On March 23, 2020, the federal government announced a R$17 billion plan to support state and local governments, including additional funding for public health services and suspension or renegotiation of state and local debts.
On March 27, 2020, the Brazilian government announced R$40 billion in credit to small- and medium-sized companies to pay wages as long as they don’t lay off employees. Some 85% of that money originated with the government, and 15% came from private banks.
In April 2020, the Brazilian government enacted several additional policies to offer relief to the public. For instance:
- On April 8, 2020, low-income families were exempted from paying their electricity bills for three months.
- The next day, Brazil allocated approximately R$43 billion for housing credits, incentives to renegotiate mortgages, and to cover 90-day mortgage deferments.
- Brazil allocated R$4.7 billion to support indigenous Brazilian communities on April 13, 2020.
- On April 20, 2020, the Brazilian government announced a R$7.5 billion credit line to small-sized, micro-sized, and individual entrepreneurs.
- On April 22, 2020, a 90-day deferment on installment payments was extended to people who are behind on taxes.
On May 28, 2020, Brazil established a new program directing R$60.15 billion in aid to state, local, and federal district governments for efforts to combat the coronavirus.
In June 2020, the Brazilian government launched two new business loan guarantee programs—the Emergency Credit Access Program, and the Operations Guarantee Fund—together guaranteeing up to R$35.9 billion in new small-, medium-, and micro-sized enterprise loans.
On July 24, 2020, Brazil authorized the release of up to R$42 billion in worker severance and social security funds to allow workers to access some of their publicly managed retirement funds immediately as cash.
In March 2021, Brazil approved another R$44 billion stimulus package to support its economy.
Canada, the world’s 9th largest economy, has made several major moves to combat the economic stresses of COVID-19. Its central bank has embarked on its first-ever QE program, while its government has rolled out a major CAD$107 billion relief package that includes expanded unemployment insurance and wage subsidies.
Canada Monetary Policy
Canada’s central bank, the Bank of Canada (BOC), has cut its benchmark interest rate three times since early March 2020. Specifically, these cuts, which each lowered the rate by 0.5%, occurred on March 4, March 13, and March 27 of 2020, bringing the rate from 1.75% to 0.25%. On July 15, 2020, the BOC reiterated its intent to maintain the current interest rate and QE policies until it achieves its 2.0% inflation target.
On March 12, 2020, the BOC added six- and 12-month repo operations, in addition to its existing one- and three-month repo agreements. On March 18, 2020, the BOC expanded the types of securities that could be used as collateral for repo operations. Then on March 20, 2020, it announced it was increasing the frequency of its repo operations to at least twice weekly, from once a week. On April 3, 2020, the BOC announced it was activating its Contingent Term Repo Facility, which offers extra one-month repo agreements and is activated to “counter severe market-wide liquidity stresses.”
A bank lending program, called the Standing Liquidity Facility, was expanded. It provided loans to a wider array of banks and accepted a wider array of collateral than repo programs. It also launched a program, originally announced in 2019, called the Standing Term Liquidity Facility, which would provide loans to an even wider array of banks and accept an even wider array of collateral than the Standing Liquidity Facility. In June 2020, based on improving economic data, the BOC began to slow the pace of its repo and bank asset purchase operations.
The BOC has announced its first-ever QE programs. Throughout March 2020, the BOC announced programs to purchase CAD$5 billion in government bonds each week until “the economic recovery is well underway.” Throughout the month, it announced a series of open-ended purchasing programs for purchasing mortgage bonds, bankers acceptances, money market securities from provincial governments, and commercial paper. In April 2020, it announced a provincial government bond buying program that will hold up to CAD$50 billion in bonds and a CAD$10 billion corporate bond buying program, both of which started in early May 2020.
On March 18, 2020, the BOC asked retailers to continue accepting cash to ensure no disruption in the cash supply. In addition, the Office of the Superintendent of Financial Institutions (OSFI), Canada’s financial regulatory body, lowered bank reserve requirements, thus allowing banks to lend an additional CAD$300 billion.
Canada Fiscal Policy
Canada has launched an escalating series of fiscal stimulus and relief measures. The first, announced on March 11, 2020, contained CAD$1.1 billion to support research, help provincial governments, and invest in public health measures such as mask purchases. On March 13, 2020, the government announced a CAD$10 billion business loans program. It announced a CAD$107 billion relief package on March 25, 2020.
It contained, among other things, the following:
- Sending a monthly CAD$1200 payment every four weeks for up to 28 weeks to people who have lost their income due to COVID-19.
- Increasing the Canada Child Benefit for 2020 by an extra CAD$300 per child.
- One-time CAD$400 payment to low-income individuals (CAD$600 to couples).
- Extension on filing both U.S. and corporate income taxes until June 1, 2020, and payment of taxes until Sept. 1, 2020.
- Allowing lenders to offer payment deferrals for up to six months for government-insured mortgages.
- A program lasting from March 15, 2020, to June 6, 2020, covering 75% of wages up to CAD$847 a week for businesses that have suffered a revenue decline of 15% or more.
- A 10% wage subsidy for small businesses not eligible for the above subsidy.
- 65% rent relief for small businesses that have had to close or lost 70% of their revenue from COVID-19.
- Deferred sales tax and import duty payments until June 30, 2020.
In addition, the Canada Mortgage and Housing Corporation (CMHC), a government-owned corporation that works to provide housing, announced on March 16, 2020, that it will purchase up to CAD$50 billion in insured mortgages. This amount was increased to CAD$150 billion on March 26, 2020.
In April 2021, Canada’s government allocated CAD$101.4 billion in new spending over three years to support economic recovery. More than half of this year’s budget will be allocated to COVID-19 recovery measures like wage and rent subsidies. The budget also includes a new program to help companies with recruitment.
The Russian economy contracted by an estimated 3.1% in 2020, with Fitch Ratings forecasting a GDP growth of 3.0% this year due to the ongoing impact of COVID-19 and the latest wave of U.S. sanctions.
“Lockdown measures have been less far-reaching than in many countries, and a sizeable fiscal stimulus, positive contribution from net trade, and Russia’s relatively small service sector helped cushion the impact of a sharp fall in domestic demand and drag from oil production cuts under the OPEC plus agreement,” according to Fitch analysts.
Russia is an important global oil supplier, making up one of the top five sources of U.S. total petroleum imports in 2020.
Russia Monetary Policy
During the pandemic, Russian regulators have implemented a series of measures to support the economy through the COVID-19 crisis.
On April 24, 2020, the Russian central bank, the Bank of Russia, cut its benchmark interest rate by 0.5% to 5.5%. After holding the key rate steady in May 2020, the bank cut it to 4.5% in June 2020 and 4.25% in July 2020. The Bank of Russia raised its benchmark interest rate by 0.25% to 4.5% in March 2021, citing recovering demand in a number of sectors. On April 23, 2021, and again on June 11, 2021, the benchmark rate was twice raised by 0.5%—first to 5.0%, and then to 5.5%.
On March 27, 2020, the Bank of Russia allocated RUB 500 billion from its SME lending facility to specifically help banks make loans to small- and medium-sized enterprises so that those SMEs can pay wages to their employees during the crisis.
On April 3, 2020, this lending program allowed banks above a certain credit rating to be given loans without collateral. The interest rate for this lending facility was lowered from 4% to 3.5% on April 24, 2020. The bank allocated another RUB 50 billion to SME emergency lending on May 15, 2020, and cut the rate to 2.5% in June 2020, then to 2.25% in July 2020.
In March 2020, the Bank of Russia implemented regulatory changes to increase lending, including allowing banks to hold a lower capital buffer. These were followed up on April 3, 2020, by further lowered capital requirements, expanded collateral that banks can use for central bank refinancing, and suspended enforcement actions against securities traders for violating disclosure requirements from March 1, 2020, to Jan. 1, 2021. On April 10, 2020, banks were given the option to not reassess the creditworthiness of loans in sectors hurt badly by the pandemic for the purpose of balance sheet quality, as well as allowing nongovernmental pension funds to not reassess the value of assets acquired before March 1, 2020.
Following the announcement of the latest U.S. sanctions on Russia’s sovereign debt market, analysts at Morgan Stanley expect the central bank to raise interest rates by 50 basis points at its next meeting.
The new sanctions, which ban American financial institutions from participating in the primary market for Russian sovereign bonds, went into effect on June 14, 2021.
Inflation, which accelerated to 5.8% in March 2021, remains a risk. Analysts view devaluation of the ruble as the likely outcome of the sanctions for Russian consumers.
Russia Fiscal Policy
Russia announced it was creating a RUB 300 billion fund to help its economy during the COVID-19 crisis on March 20, 2020. On April 7, 2020, President Vladimir Putin announced that families with children would receive monthly payments of RUB 5,000 a month per family through June 2020.
On April 15, 2020, the Russian government announced a second stimulus package including:
- RUB 12,130-a-month payments to SMEs for each employee in April and May, provided they keep 90% of their workforce.
- RUB 200 billion for regional governments.
- RUB 23 billion for airlines.
On June 2, 2020, Russia announced a third round of stimulus spending valued at RUB 5 trillion. The plan includes business tax holidays, funding already announced expansions to social welfare payments, government guarantees for loans to SMEs, fiscal transfers to regional governments, and direct spending on infrastructure. However, it is not clear how much of this plan represents new spending and how much is existing spending reallocated from other parts of the budget or pushed up to be spent sooner.
Russia borrowed a record RUB 5.3 trillion in 2020 from its sovereign wealth fund.
South Korea was struck by and responded to the COVID-19 pandemic of 2020 early, when some Western nations had not yet seen large infection rates. South Korea avoided a general lockdown of the economy and instead pursued a campaign of aggressive testing and local containment of infection clusters.
South Korea Monetary Policy
The Bank of Korea (BOK), the South Korean central bank, cut interest rates by 0.5% on March 17, 2020, down to 0.75%. It also lowered the interest rate on its Bank Intermediated Lending Support Facility from 0.5%–0.75% down to 0.25%. On May 28, 2020, the BOK lowered its benchmark rate another 0.25% to 0.50%.
On March 26, 2020, the BOK adopted a weekly repurchase facility with no limit to how much liquidity it will supply. It also broadened the collateral that can be used for repo operations, and it expanded the list of banks and nonbank institutions to which it would offer repo agreements. It further broadened the allowable collateral for repo operations on April 9, 2020, effective on April 14.
On Feb. 27, 2020, it raised the ceiling on its Bank Intermediated Lending Support Facility by ₩30 trillion to promote loans to small- and medium-sized enterprises. It also allocated ₩1 trillion to increase bank loans to startups. It says that this liquidity will lead to twice that amount in increased bank lending. It launched a new lending facility, the Corporate Bond-Backed Lending Facility, on April 16, 2020. It authorized lending up to ₩10 trillion to banks, using corporate bonds as collateral. This program initially was set to run for three months, but it was extended repeatedly until it ended in February 2021.
On March 12, 2020, the BOK expanded the types of collateral that banks can provide for BOK loans. On March 26, 2020, it loosened the restrictions and regulations on foreign exchange trading to expand capital flows. On March 31, 2020, it lowered the capital and reserve requirements for South Korean banks.
South Korea Fiscal Policy
South Korea announced an ₩11.7 trillion billion stimulus and relief package on March 3, 2020. Among other things, it includes:
- ₩2.3 trillion to medical funding for hospitals and quarantine efforts.
- ₩2.4 trillion in small- and medium-sized business subsidies to help companies pay workers.
- Childcare subsidies.
- Job retraining for people who have lost their jobs (it is unclear if this is specific to COVID-19 job losses).
On March 23, 2020, South Korea launched an ₩100 trillion won package to rescue failing companies, a package that had doubled in size since it was originally proposed on March 18, 2020. The full package included ₩25.5 trillion in loan guarantees and low-interest loans to South Korean companies and ₩29.1 trillion in asset purchases and loans to stabilize the stock and bond markets.
On March 30, 2020, the South Korean government announced that it would defer or exempt payment for pension and health industry contributions, as well as electrical bills for low-income families, small- and medium-sized enterprises, and some self-employed people. It included payments of up to ₩1 million per family for individuals and families in the lower 70% of income brackets.
On April 8, 2020, South Korea unveiled ₩36 trillion of additional financing for exporters and ₩17.7 trillion in additional liquidity for domestic companies, including prepaying for government contracts and purchases.
On April 23, 2020, the South Korean government announced another ₩85 trillion stimulus and relief package. It included:
- ₩40 trillion for a program of loans, loan guarantees, and investments in businesses in sectors hit worst by the pandemic.
- ₩35 trillion in additional support for financial markets to increase corporate bond purchases, including companies with lower credit ratings, as well as offering liquidity to “micro-business owners.”
- ₩10 trillion to shore up unemployment benefits.
The South Korean parliament passed a third round of fiscal stimulus on July 3, 2020, which will provide ₩35.1 trillion in additional relief funding.
On Sept. 22, 2020, South Korea approved a fourth supplemental budget package of ₩7.8 trillion, which includes ₩3.9 trillion for small business relief and ₩1.5 trillion for employment subsidies.
As South Korea is following a K-shaped recovery and ongoing concerns about the pace of normalization, the government continues to provide fiscal and monetary support. The South Korean government approved additional targeted measures, which make up 0.8% of the GDP.
After managing to flatten the curve of infection earlier in 2020, Australia’s government began relaxing the lockdown in May 2020. However, renewed fears over the summer led to harsh regional lockdowns in hotspots, including Victoria and the city of Melbourne. As of the second quarter of 2020, Australia officially entered recession for the first time in almost 30 years.
Australia Monetary Policy
Australia’s central bank, the Reserve Bank of Australia (RBA), has taken fewer steps than some other countries to address the financial volatility in light of the pandemic. It lowered its three-year Australian Government Bond Yield Target rate twice in March 2020, down from 0.75% to 0.25%.
On Nov. 3, 2020, the RBA again cut its target overnight, interbank cash rate down to 0.10%. It also cut its three-year government bond yield target and interest rate on the Term Funding Facility down to 0.10%, and the Exchange Settlement interest rate down to 0%. At the same time, the RBA announced a new QE program to purchase AUD$100 billion in Australian government, state, and territorial bonds over the next six months.
On March 16, 2020, the RBA announced significantly expanded repo operations. On March 19, 2020, it started a AUD$90 billion Term Funding Facility to make loans to banks to allow them to expand business lending, especially to small- and medium-sized businesses. It also announced expanded bond purchases to lower the three-year treasury bond interest rate. On Sept. 1, 2020, the RBA extended and expanded the Term Funding Facility to AUD$200 billion total available funding, which borrowers will now have access to through June 2021.
On March 20, 2020, the Australian Banking Association announced that Australian banks would defer loan payments for six months for small businesses that had suffered from the pandemic. This came one day after the Australian Prudential Regulation Authority lowered capital requirements.
Australia Fiscal Policy
The Australian government launched three relief packages worth a total of roughly AUD$213.7 billion. The first, announced on March 12, 2020, contained AUD$17.6 billion in spending on the following:
- AUD$6.7 billion in payments of up to AUD$25,000 to small- and medium-sized businesses, to encourage hiring.
- AUD4.8 billion in one-time, AUD$750 payments to people collecting government benefits, including the elderly, the poor, and veterans.
- AUD$1 billion in business subsidies to businesses in industries, such as tourism, that have been hit hardest by COVID-19.
The second package, announced on March 22, 2020, contained AUD$66.1 billion in spending. Among other things, it authorized another AUD$31.9 billion in payments of up to AUD$100,000 to small businesses to cover wages and will guarantee 50% new loans made to small businesses. It also contained an additional AUD$550 welfare payment.
The third stimulus package, containing AUD$130 billion in spending, was announced on March 30, 2020; its landmark feature is a “JobKeeper payment.” This is a AUD$1,500 payment made to employers every two weeks to cover wages.
On July 21, 2020, the Australian government announced the extension of the JobKeeper subsidy through March 28, 2021.
On Oct. 6, 2020, the Australian Treasury released its 2020–2021 budget, which calls for a record budget deficit and AUD$299 billion in stimulus spending. Measures in the budget include:
- AUD$17.8 billion in personal income tax cuts.
- Expansion of the First Home Loan Deposit Scheme to guarantee home loans for an additional 10,000 home buyers.
- 100% deductibility of asset depreciation through June 2022 and loss carrybacks through 2022 for businesses under AUD$5 trillion in annual turnover.
- AUD$29.2 million in spending on broadband and AUD$4.5 billion 5G infrastructure.
An AUD$1.2 billion relief package for the tourism industry was announced on March 10, 2021. The program offered subsidies to Australians who traveled within Australia, to boost business for the industry. The package also contained loans and financial aid to tour companies and airlines.
As of September 2021, the Australian government had committed to spending AUD$311 billion to economic stimulus and relief programs during 2020, and another AUD$22 billion to support its healthcare system.
On March 15, 2020, the central banks of Canada, the U.K., Japan, the U.S., Switzerland, and the European Central Bank all agreed to lower the price of U.S. dollar liquidity swap line arrangements. These are a type of foreign currency swap that helps central banks ensure there is money available for people and businesses wanting to take out loans denominated in dollars, as opposed to the local currency. By decreasing the price of these swaps, it makes it easier and cheaper to borrow money in dollars outside the U.S. On March 19, 2020, the U.S. Fed announced it was establishing similar swaps with the central banks of Australia, Brazil, Denmark, South Korea, New Zealand, Singapore, and Sweden. On June 16, 2021, the program was extended through Dec. 31, 2021.
The International Monetary Fund has, as of April 8, 2021, provided the following stimulus and relief efforts:
- Doubled access to its Rapid Credit Facility and Rapid Financing Instrument to allow emergency funding to meet the expected USD$100 billion demand.
- Offered debt service relief from its Catastrophe Containment and Relief Trust to 29 of the poorest member nations.
- Called on bilateral creditors to allow the world’s poorest countries to suspend debt service payments.
- Established a short-term liquidity line for additional lending.
- Called for the creation of USD$650 billion in new special drawing rights (SPRs).
On March 3, 2020, the World Bank announced an initial package of up to USD$12 billion in loans for countries to help cope with the effects of the coronavirus. Some USD$8 billion of the funding is from new loans, and the remaining USD$4 billion is redirected from current lines of credit. This was expanded to USD$14 billion on March 17, 2020. The World Bank and its associate organizations have announced aid to a plethora of companies and countries around the world. The World Bank Group (the World Bank and its affiliate organizations) said it will be providing over USD$157 billion in financing over the next year, including:
- USD$50 billion in grants and financing with “highly concessional terms” from the International Development Agency.
- USD$8 billion from the International Finance Corporation to companies hurt by the pandemic.
- A USD$6.5 billion lending facility from the Multilateral Investment Guarantee Agency to support private lenders.
As of May 26, 2021, more than 100 developing countries have received relief through various World Bank projects initiated in response to COVID-19.