Coronavirus, also called COVID-19, has caused a crisis for the global economy and markets. With an escalating number of confirmed cases globally, the World Health Organization has declared the virus to be a global pandemic, meaning that it will have a sustained global impact. Many countries' economies already were slowing before the pandemic, and now COVID-19 threatens to push them into a steep recession. It pushed the U.S. stock market, the world's largest, into bear market territory in March. While U.S. markets have once again hit new highs, unemployment remains high and GDP growth looks like it will be severely impacted across the globe.
In response to this crisis, governments and central banks worldwide have enacted sweeping and sizable fiscal and monetary stimulus measures to counteract the disruption caused by coronavirus. Note that all amounts have been converted to U.S. Dollars at the time of writing, and therefore may have changed slightly due to changing exchange rates. Here is a list of what each country or region is doing:
The U.S., the world's largest economy, went into recession in February of 2020. It has taken a broad range of steps to combat the economic disruption caused by COVID-19. Congress passed trillions of dollars in fiscal programs, while the U.S. central bank, the Federal Reserve, added trillions of dollars in monetary stimulus. The Federal Reserve extended the duration of some of its lending programs through March 31, 2021, but Treasury Secretary Steven Mnuchin refused to authorize the reauthorization of several of its other programs, so they were forced to end them at the end of 2020.
The Fed's stimulus measures have fallen into three basic categories: interest rate cuts, loans and asset purchases, and regulation changes. The Fed cut its benchmark interest rate, the fed funds rate, twice during March 2020, once by 0.50% and a second time by 1.00% This lowered the fed funds rate, which is expressed as a range, from 1.50%-1.75% to 0.00%-0.25%. This is notable because the Fed hadn’t moved interest rates in increments greater than 0.25% since it cut them during the Great Recession. On March 15, 2020, the Fed also cut its "discount rate," another key interest rate, by 1.5%, down to 0.25%.
Loans and asset purchase intervention has been more extensive, covering a wide array of programs. The simplest asset purchasing program has been the quantitative easing (QE) program, in which the Fed directly buys assets like U.S. Treasurys and mortgage-backed securities (MBS). The Fed, which originally created the program during the Great Recession, restarted it on March 15, 2020. The scale of the program has been open-ended, with the Fed saying it would buy "in the amounts needed to support the smooth functioning of markets."
The Fed enormously expanded its repo operations on March 12, 2020, by $1.5 trillion dollars, then adding another $500 billion on March 16, to ensure there was enough liquidity in the money markets. Repo operations have effectively allowed the Federal Reserve to loan money to banks, by purchasing treasurys from them, and selling them back to the banks at a later date.
Besides direct asset purchases, the Fed set up several programs that opened up new, specific lines of credit to financial institutions. On March 20, 2020, it relaunched a Great Recession-era program, the Primary Dealer Credit Facility (PDCF), which has given loans to primary dealers backed by a wide variety of securities as collateral. There is no set limit to the amount of credit it will issue, but it will only run until March 31, 2021 unless it is extended further.
To add more liquidity to money markets, the Fed launched the Money Market Mutual Fund Liquidity Facility (MMLF) on March 18, 2020. This program lends money to financial institutions so they can buy money market mutual funds. The MMLF is similar to the AMLF program launched in 2008 after the collapse of Lehman Brothers caused a major money market fund to fail. The program does not have a specific lending limit, but is currently scheduled to end on March 31, 2021. The Treasury Department gave the MMLF $10 billion of debt credit protection for the program. On June 5, 2020, the Federal Reserve said that participation in the MMLF wouldn't affect the liquidity coverage ratio of participating banks.
To help small businesses, in concert with the CARES Act, the Fed launched the Paycheck Protection Program Lending Facility (PPPLF) on April 9, 2020. This program lends money to banks so that they can, in turn, lend money to small businesses through the Paycheck Protection Program. On April 30, 2020, the program expanded the types of lenders who can participate in the program. There is no current limit to the amount of credit that can be extended through the program, but it will stop extending credit to the program on March 31, 2021. On June 5, 2020, the Federal Reserve said that participation in the PPPLF wouldn't affect the liquidity coverage ratio of participating banks.
The Fed created several new programs that establish legal entities known as special purpose vehicles to make specific loans or purchase assets indirectly. On March 17, 2020, the Fed established the Commercial Paper Funding Facility (CPFF), which purchases short-term debt known as commercial paper to ensure those markets stay liquid. On March 23, 2020, the Fed broadened the variety of commercial paper it would lower the pricing of the debt it buys. This is actually a relaunch of a program begun during the Great Recession, when many businesses were hurt as liquidity in the commercial paper markets dried up. While it has no set limit on the amount it will purchase, the CPFF will stop purchasing debt on March 31, 2021, and the SPV will continue to be funded until its assets mature. The Treasury Department made a $10 billion equity investment in the CPFF from its Exchange Stabilization fund.
On March 23, 2020, the Fed created the Primary Market Corporate Credit Facility (PMCCF) to buy corporate bonds to ensure corporations can get credit. At the same time, it created the related Secondary Market Corporate Credit Facility (SMCCF), which bought up corporate bonds and bond ETFs on the secondary market. The SMCCF started purchasing bond ETFs on May 12, 2020, and said it would begin purchasing individual bonds to create a "broad, diversified market index" of individual U.S. corporate bonds starting on June 16, 2020. The combined purchase limit for the programs was $750 billion, up from an initial $200 billion. The Treasury Department contributed a total of $75 billion in initial capital to these two programs from the ESF, $50 billion for the PMCCF, and $25 billion for the SMCCF. The premise was that this program made banks more willing to lend to corporations, because they knew that they could sell the loans to the Fed. Both programs stopped purchasing bonds on December 31, 2020, and they will continue to be funded until their holdings are sold or mature.
Also on March 23, the Fed resurrected an old program from the Great Recession, the Term Asset-Back Securities Loan Facility (TALF). It made up to $100 billion in loans to companies and took asset-backed securities (ABS) as collateral. This included a variety of securities, such as those based on auto loans, commercial mortgages, or student loans. The Federal Reserve expanded the types of ABS that could be purchased on April 9, 2020. The Treasury Department’s ESF made a $10 billion initial equity investment in the SPV. It stopped extending credit on December 31, 2020.
On April 9, 2020, the Fed announced the Main Street Lending Program, which set up an SPV to purchase up to $600 billion in small and medium-sized business loans. Under the plan, the Fed has purchased a 95% stake of each loan, with the bank keeping 5%. To qualify, businesses have needed to have 15,000 or fewer employees or have $5 billion or less in 2019 revenue. On July 17, 2020, the Fed extended the program to nonprofit organizations that don't have endowments larger than $3 billion, have either fewer than 15,000 employees or less than $5 billion in 2019 revenue, and meet a number of other additional requirements. The program has purchased stakes in both new loans and loan extensions, and under the CARES Act, the Treasury Department has planned to make a $75 billion equity investment in the SPV. The terms of the loans were 5 years, with interest deferred for one year and principal payments deferred for two. The Fed reduced the minimum size of the loans the program would purchase on October 30, 2020. It continued to purchase stakes in loans until Jan. 8, 2020, and it will continue to be funded until its assets mature or are sold.
Also on April 9, 2020, the Fed announced the Municipal Liquidity Facility (MLF), which purchased up to $500 billion of short term notes issued by the following government entities: U.S. states and Washington, D.C.; counties with at least 500,000 people; cities with at least 250,000 people; multi-state entities, which the Fed defined as an entity that was created by a compact between two or more states; and up to two revenue bond issuers per state, such as airports or utilities. In addition, smaller states could designate their largest city and/or county (depending on the size of the state) to qualify for the facility even if it didn't meet the population requirement. On August 11, 2020, interest rates for tax-exempt notes were lowered by 0.5 percentage points. The difference in rates between taxable and tax-exempt notes was also lowered. Under the CARES Act, the Treasury Department made an initial equity investment of $35 billion to the SPV. It stopped purchasing notes on Dec. 31, 2020, and the Fed will continue to fund it until its assets mature or are sold.
On November 19, 2020, Treasury Secretary Mnuchin announced he would not authorize extending most of the Fed lending facilities that use Treasury funds beyond their December expiration dates. The facilities that were not extended include the Main Street Lending Facility, the Municipal Liquidity Facility, the Primary and Secondary Market Corporate Credit Facilities, and the Term Asset-Backed Securities Lending Facility. This means that these five facilities all expired at year-end 2020 under their current authorizations.
Additionally, the Fed made regulation changes to further add liquidity to the markets. For instance, the Federal Reserve made a number of technical changes to hold on to less capital so they can lend more. It temporarily removed the asset restrictions it placed on Wells Fargo after their fake account scandal, so that Wells Fargo could lend more.
On Dec. 16, the Federal Reserve announced that its policy of quantitative easing would continue “until substantial further progress has been made” towards inflation and employment goals. The Fed expects this progress to take years based on projections they also released that day.
Throughout March and April 2020, the U.S. government passed three main relief packages, and one supplemental one, totaling nearly $2.8 trillion.
The first relief package, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, since nicknamed Phase One, was signed into law on March 6, 2020. It allocated $8.3 billion to do the following:
- Fund research for a vaccine.
- Give money to state and local governments to fight the spread of the virus.
- Allocate money to help with efforts to stop the virus's spread overseas.
The second relief package, the Families First Coronavirus Response Act (FFCRA) or Phase Two, was signed into law on March 18, 2020. It allocated $3.4 billion in relief and included the following provisions:
- Providing money for families who rely on free school lunches in light of widespread school closures.
- Mandating companies with fewer than 500 employees provide paid sick leave for those suffering from COVID-19, as well as providing a tax credit to help employers cover those costs.
- Providing nearly $1 billion in additional unemployment insurance money for states, as well as loans to states to fund unemployment insurance.
- Funding and cost waivers to make COVID-19 testing free for all.
Separately, on March 18, 2020, the Federal Housing Administration (FHA) and Federal Housing Finance Agency (FHFA) implemented foreclosure and eviction moratoriums for single-family homes whose mortgages are FHA insured or backed by Fannie Mae or Freddie Mac. The programs have been extended and the FHA moratorium is set to end on Feb. 28, 2021, while the FHFA moratorium is set to end on Jan. 31, 2021.
The third, and by far the largest, relief package was signed into law on March 27, 2020. By nominal dollar amount, it is the largest single relief package in U.S. history. This law, called the Coronavirus Aid, Relief, and Economic Security Act and nicknamed the CARES Act or Phase Three, appropriated $2.3 trillion for many different efforts:
- One-time, direct cash payment of $1,200 per person, plus $500 per child.
- Expansion of unemployment benefits to include people furloughed, gig workers, and freelancers until Dec. 31, 2020.
- Additional $600 of unemployment per week until July 31, 2020.
- Waived early withdrawal penalties for 401(k)’s for amounts of up to $100,000 until Dec. 31, 2020.
- Mortgage forbearance and a moratorium on foreclosures on federally-backed mortgages for 180 days.
- $500 billion in government lending to companies affected by the pandemic.
- $367 billion in loans and grants to small businesses through the Paycheck Protection Program (PPP) and expanded Economic Injury Disaster Loan (EIDL) program.
- More than $130 billion for hospitals and health care provides.
- $150 billion in grants to state and local governments.
- Almost $60 billion for schools and universities.
A supplementary stimulus package, nicknamed Phase 3.5, was signed into law on April 24, 2020. It appropriated $484 billion, mostly to replenish the PPP and the EIDL, and contains additional funding for hospitals and COVID-19 testing.
Another supplementary measure, the Paycheck Protection Program Flexibility Act of 2020, which modifies the PPP, was signed into law on June 5, 2020. It made the following changes to the program:
- It allowed businesses 24 weeks to spend the money, up from eight.
- It lowered the requirements for loan forgiveness: businesses now need to spend only 60% of their PPP funds on payroll, instead of 75% previously.
- The payment deferment period was extended from six months, to when the borrower finds out the amount of their loan forgiveness.
- It allowed businesses that received PPP loans to delay paying payroll taxes.
- It allowed businesses loan forgiveness if they don't rehire workers who refused good-faith offers of re-employment or are unable to restore operations to levels before the COVID-19 pandemic.
- It gave businesses until the end of the year to restore their payrolls to pre-crisis levels.
- It increased the loan maturity of PPP loans taken out after June 5 to five years.
- It extended the time borrowers have to pay back unforgiven parts of the loan.
A third piece of supplementary legislation was passed on July 4, 2020, which extended the deadline for small businesses to apply for the PPP from June 30, 2020, to August 8, 2020. At the time the bill was signed into law, $130 billion of PPP funding remained unallocated.
The Trump administration enacted a number of other measures to provide fiscal stimulus in Spring 2020. On March 13, 2020, Trump announced a state of emergency, which freed up $50 billion in emergency aid for states, cities, and territories.
On March 17, 2020, Treasury Secretary Steven Mnuchin extended the deadline for paying both individual and business taxes to July 15, an effort which he claimed would free up $300 billion in liquidity. On March 20, 2020, Mnuchin also extended the date to file taxes to July 15.
On March 20, 2020, the Secretary of Education Betsy DeVos suspended student loan payments and interest accrual for federally-held student debt. This suspension of payments and interest was extended through Sept. 30, 2020, as part of the CARES Act. On Dec. 4, 2020, the Department of Education announced it would extend federally-held student loan forbearance again through January 31, 2021.
On April 19, 2020, the Trump administration said businesses could delay payment of tariffs for 90 days if they have suspended operations during March and April and if they "demonstrate significant financial hardship."
On August 10, 2020, President Trump signed four executive actions to provide additional COVID-19 relief. The first action created the Lost Wages Assistance Program (LWA), which would roll out a $400-per-week payment to those currently receiving more than $100 a week in unemployment benefits. The plan called for $300 to be paid by the federal government and $100 by state governments. The program was retroactive through August 1, when the $600 unemployment benefits expansion ended. The program was set to last through December 6, or until the funds are exhausted, and the benefits were meant to be available immediately, according to Treasury Secretary Steven Mnuchin.
The program was to be funded by up to $44 billion in money taken from the Federal Emergency Management Agency's (FEMA) disaster relief fund. President Trump said the states should use the remaining aid given to them under the federal CARES Act to fund these payments, even though many states had already allocated these funds and state budgets are under intense strain.
Because the president cannot expand unemployment insurance without congressional approval, states had to scramble to build new systems to handle the LWA benefits. This caused delays and meant that actual payment of the benefits were not rolled out for weeks or months in many states. Alaska and New Jersey became the last states to begin paying out LWA benefits in October. Meanwhile, the benefits in some states that began paying out quickly had already begun to run out in September. The program ultimately had enough money for each state to pay out for six weeks, although the end date of the program varied depending on when they began paying them out.
A second executive action extended the moratorium on payments and interest accrual on student loans held by the government until the end of 2020. The moratorium was previously set to expire on September 30. It was once again extended to Jan. 31, 2021, by the Department of Education.
A third action instructed the Department of the Treasury and the Department of Housing and Urban Development (HUD) to help provide temporary assistance to homeowners and renters. The action directed HUD to “promote the ability of renters and homeowners to avoid eviction or foreclosure.” Notably, the order did not extend the CARES Act's federal eviction moratorium, which expired July 24. The executive action also instructed the Federal Housing Financing Agency (FHFA), which oversees Fannie Mae and Freddie Mac, to "review all existing authorities and resources that may be used to prevent evictions and foreclosures for renters and homeowners."
A fourth executive action deferred payroll taxes for Americans earning less than $100,000 per year for the period from September 1 to December 31 of 2020. The taxes will still need to be paid back in 2021.
On September 1, 2020, the Centers for Disease Control (CDC) announced an emergency eviction moratorium through December 31, 2020. The goal was to keep millions of Americans sheltering in their current homes instead of moving, thus helping to prevent the further spread of COVID-19. It applied to people who met five conditions:
- You had to have made your "best efforts" to obtain government rental assistance.
- You couldn't expect to make more than $99,000 in 2020 as an individual, or $198,000 if married.
- You had to have been laid off, had "extraordinary" out-of-pocket medical expenses (more than 7.5% of adjusted gross income), or had a "substantial" loss of household income.
- You needed to do everything you could to make "timely" partial payments as close to the rent you owe as "circumstances may permit."
- Eviction would "likely" lead you to be homeless, or have to move to a place where you'd be crowded close with other people.
People who met these conditions were to write a signed declaration that this was the case and give it to their landlord. If you met the conditions, it applied to all landlords and residential renters in the country except for jurisdictions that had local moratoriums with the same or better protection for renters, as well as American Samoa, unless that territory reports COVID-19 cases, in which case it would then apply there. It also did not apply to hotels, motels, and Airbnb rentals.
Renters could still be evicted for other reasons such as criminal behavior or destruction of property. Notably, the order only delayed rent payments and did not compensate landlords for delayed rent. It also did not prevent landlords from applying penalties or interest of any amount due in January, nor did it state limits on what those could be. It's possible some tenants may be required to pay all rent plus interest and penalties in January. The law included significant penalties for landlords who ignore the order, which took effect on September 4, 2020.
On Dec. 21, 2020, the U.S. Congress passed a $900 billion stimulus and relief bill attached to the main omnibus budget bill. President Trump signed the bill on December 27, 2020, but he urged Congress to increase the direct stimulus payments from $600 to $2,000. Here's what it included, as of December 28:
- Direct payments of $600 per person including for dependents 16 and under. The payments will be available to individuals making up to $75,000 per year.
- 11 weeks of expanded unemployment benefits starting on Dec. 27, 2020. The benefits would be expanded by $300 a week. The Pandemic Unemployment Assistance (PUA) program for self-employed and contract workers and the Pandemic Emergency Unemployment Compensation (PEUC) for people who have exhausted their unemployment have also been extended.
- $325 billion in help for small business loans including $284 billion in forgivable PPP loans, $20 billion for EIDL grant for businesses operating in low-income areas, and $15 billion for live cultural venues.
- An extension of the CDC eviction moratorium through Jan. 31, 2021.
- $45 billion for transportation funding including $15 billion in airline payroll support, $14 billion for transit, and $10 billion for state highways.
- $69 billion to public health measures including $22 billion in aid to states for testing and tracing, $20 billion to the Biomedical Advanced Research and Development Authority (BARDA), $9 billion to the Centers for Disease Control (CDC) and state governments for vaccine distribution, and $9 billion to support healthcare providers.
- $82 billion in education funding including a $54.3 billion K-12 Emergency Relief Fund and a $22.7 billion Higher Education Emergency Relief Fund.
- $25 billion in emergency rent assistance.
- $26 billion in nutrition and agriculture funding including a 15% increase in Supplemental Nutrition Assistance Program (SNAP) benefits and food bank funding.
The COVID-19 pandemic is believed to have started in China, as it had the earliest, large outbreak in Wuhan. As a result, China responded with stimulus and relief efforts earlier than most countries. This means China may be a useful leading indicator of how both the lockdown and its associated economic downturn will shake out, and the speed of the recovery.
China's central bank, the People's Bank of China (PBOC), has implemented several policy measures aimed at providing monetary stimulus. It was the first major central bank to act during the crisis. The People's Bank of China 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 in February 16, 2020 and then again on April 19, 2020. This brought the one-year rate down from 4.15% to 3.85% and the five-year rate down from from 4.80% to 4.65%. It also cut its one-year medium term lending facility (the rate at which it lends to banks) twice, once February 16, 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, it lowered the interest rate on its targeted medium-term lending facility, a loan program meant to shore up struggling parts of the economy, from 3.15% to 2.95%. On April 10, it cut its standing lending facility interest rates by 0.30%. The PBOC cut the rate on its seven-day repo agreements on March 29, 2020 from 2.40% to 2.2%. On June 17, 2020, it cut the rate on its 14-day repo agreements from 2.55% to 2.35%.
China first expanded repo operations on February 3, 2020. Through both the repo operations and its medium-term lending facility, the central bank injected approximately $650 billion of liquidity into the economy as of June 11, 2020 according to the IMF. The PBOC has also expanded re-lending and re-discounting facilities by $254 billion as of June 11, 2020, in order to increase lending, especially to micro, small, and medium sized firms and the agricultural sector.
On March 13, the PBOC lowered bank reserve requirements, freeing up about $79 billion to be lent out. Reserve requirements were cut again on May 25, 2020. The PBOC cut the reserve ratio for small and medium-sized banks April 3. It also cut the interest rate it pays on excess reserves.
Data has been somewhat scarce when it comes to the exact nature of China’s official government stimulus and relief response.
As of mid-March 2020, many local governments in China have been giving out prepaid spending vouchers to boost consumer spending, but the amounts are reportedly relatively small. The Chinese government has asked banks to extend the terms of business loans and commercial landlords to reduce rents. Regional and local governments have also 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 January 25 to June 30, 2020. Banks have been asked to give forbearance on mortgage and other personal loans. On May 22, Chinese Premier Li Keqiang said banks can allow small businesses to only pay the interest on loans until the end of March 2021.
As of Nov. 5, 2020, according to the IMF, an estimated $732 billion in discretionary fiscal measures, with another $198 billion in "support outside the budget" such as tariff and fee cuts as well as loan guarantees to small and medium sized businesses, have been announced including total funding to fight the virus and includes:
- Increase epidemic prevention spending.
- Production of medical equipment.
- Moving up unemployment payments.
- Social security tax relief.
On May 22, 2020, the government of China unveiled its first major stimulus package. The $506 billion package was accompanied by the issuing 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. Unlike many countries, which have rolled out substantially bigger stimulus packages this year than during the Great Recession, China's is smaller than the $572 billion package it passed then. Among other things, the package contains funding for local governments to stop the virus spread and business tax cuts.
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. CARES Act.
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 Federal Reserve to maintain the currency peg.
On March 4 and March 16, 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, the HKMA lowered capital requirements to allow banks to lend more.
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 February 21, 2020, establishing the $3.9 billion Anti-epidemic Fund, it included the following efforts:
- $1.6 billion for subsidies to the retail, restaurant, and transportation sectors.
- $600 million for increased hospital funding.
- $190 million for increased mask production.
- $130 million to purchase masks internationally.
Hong Kong announced a $15.5 fiscal stimulus package as part of its 2020-2021 budget on February 26, 2020. It includes:
- A $1,200 cash subsidy to all adult permanent residents. (This was extended to low-income and non-permanent 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.
- Extra month's worth of payments to people collecting old-age or disability benefits.
On April 8, a $17.7 billion stimulus and relief package was announced, including:
- $10 billion to provide wage subsidies to employers of 50% of employee’s monthly wages for 6 months, capped at $1,161.
- $2.7 billion to support particularly hard hit sectors of the economy.
- Giving a six-month, 75% rent reduction to people and companies renting from the government.
- Deferring payroll and business profit taxes for three months.
On June 11, the wage subsidy for 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 $400 million in wage subsidies to employers provided they do not lay off these employees for six months after receiving the money. Employers can receive to $4644 per employee.
On September 14, 2020 Hong Kong announced and additional $3.1 billion in stimulus spending. This includes direct spending to support impacted industries, new spending on preventive health measures, and rent support payments.
Japan came into the pandemic with a somewhat depressed economy, already struggling with deflation and low growth, so the pandemic has own compounded its problems.
On the monetary side of things, the Bank of Japan, the nation's central bank, launched a major raft of stimulus on March 16, 2020. It substantially increased QE, doubling the rate at which it was purchasing ETFs from $56 billion a year to $112 billion. It also increased purchases of corporate bonds and commercial paper. On the same day, the Bank of Japan announced a new program of zero-interest loans to increase lending to businesses hurt by the virus.
A second wave of monetary stimulus was launched on April 27, 2020. The stimulus consists of three parts. First, the central bank would increase its holdings of corporate bonds and commercial paper from $65 billion to $187 billion. The BOJ said it would increase the maximum amount of corporate bonds and commercial paper it would purchase from each issuer. And the bank would now purchase bonds with up to 5 years remaining maturity, up from 3. Second, the BOJ expanded the new lending program it announced in March 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 Bank of Japan's lending program was expanded to provide 1-year zero-interest loans to financial institutions to lend to either small and medium sized businesses that have been affected by COVID-19, or to make loans as part of government relief measures.
Between corporate bond purchases, commercial paper purchases, and its special lending programs, the Bank of Japan says it will provide just over $1 trillion in liquidity.
On the fiscal end, Japan passed four spending bills. The first, a package of small business loans worth $4.6 billion, passed on February. On March 11, 2020, the second spending bill of $15 billion passed, increasing funding for business loans. It also included $4 billion for programs to boost mask production and to prevent the virus from spreading in nursing homes.
The third stimulus package of $989 billion passed on April 7, 2020. Its most prominent provision was a $930 payment that any resident of Japan can apply for. Small and medium-sized businesses, as well as freelancers, can apply for payments of up to $18,534 if their incomes have been significantly affected by the virus. The package also included $241 billion in tax deferments for businesses and increased funding for medical supplies.
The fourth stimulus package of $1.1 trillion was announced on Wednesday May 27. it includes, among other things:
- Rent subsidies for individuals as well as small and medium sized businesses.
- A one-time $1,860 payment to each front line medical worker.
- Increase subsidies to businesses hit by the pandemic.
- The creation of a $93 billion emergency fund for a possible second wave of infections.
After a slowdown in Covid-19 during the summer, countries across Europe saw a rise in new cases in the fall and responded with new restrictions and business closures, including Germany, France, Austria, Spain, Italy, and others. Renewed restrictions have in turn sparked widespread protests over the economic destruction already imposed by previous lockdowns, and increased demands for further stimulus and relief measures.
Monetary Policy (European Central Bank)
Unlike the Federal Reserve, the European Central Bank has had little room to lower interest rates. Its deposit interest rate is negative and refinancing interest rate is at 0. This means it has 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 the “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 previously mentioned swaps. It will last until June 2021.
The ECB has substantially increased its bond-buying program. On March 12, 2020, it announced an additional $128 billion in bond purchases during 2020. Then, on March 19, 2020, it announced an asset-purchase program called the Pandemic Emergency Purchase Program (PEPP), which will purchase roughly $800 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 the country's credit rating. On June 4, 2020, the ECB announced that PEPP would be expanded by $680 billion to a total of $1.5 trillion, and that the length of the program also would be extended at least until the end of June 2021. The ECB said that it "will 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 Central Bank says these measures are temporary and will be “re-assessed before the end of 2020.” On April 22, it allowed assets that have had their credit rating downgraded after April 7 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:
- An expansion of the PEPP program by $605 billion to a total of $2.24 trillion.
- Extending the purchasing horizon for PEPP until at least the end of Mach 2022
- Extend reinvestment of payments from maturing bonds in PEPP until at least the end of 2023.
- Extend the period of more favorable TLTRO III refinancing by 12 months until June 22, and conduct three additional operations between June and December 2021.
- Raise the borrowing limit that counterparties in TLTRO III can borrow rom 50% to 55% of all their eligible loans
- Extend "collateral easing measures" to allow banks more liquidity until June 22.
- Offer four additional PELTROs in 2021.
On May 27, 2020, the European Union unveiled its first fiscal stimulus proposal, funded by bonds issued by the EU itself, rather than by individual governments of its member states. This $860 billion package is called "Next Generation EU." After negotiations, the final package included $450 billion in grants and $410 billion in loans. The package was initally 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.
As a Eurozone country, Germany’s monetary policy is conducted by the European Central Bank. 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.
Far and away its largest relief measure was its Economic Stabilization Fund, announced on March 23, 2020. This $650 billion fund offers $432 billion in loan guarantees, $108 billion to buy equity stakes in struggling companies, and $108 billion to the German Development Bank to refinance loans to businesses. This was accompanied by an expansion in the types of loans the development bank can offer.
Also on March 23, Germany passed a $168 billion supplementary budget, suspending existing government debt rules, to help fund additional COVID-19 related spending including the following:
- A $54 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 $16,200 to cover operating costs.
- Increased spending on PPE, vaccine research, and other public health measures.
- Expanded child care benefits for low-income parents and easier access to welfare for the self-employed.
- Expanded funding of worksharing payments (Worksharing is where companies lower employees hours as an alternative to layoffs. Employees are then partially, or fully, compensated by the government) In August, the government extended these wage subsidies through the end of 2021.
On June 3, 2020, the German government announced another stimulus package worth $146 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, and lasts until December 31, 2020. The reduced value-added tax rate, which applies to essentials such as food, was cut from 7% to 5%. These tax cuts are estimated to cost about $22.5.
- $4.3 billion to give parents one-time cash payments of $337 per child.
- $6 billion to shore up the German social safety net programs.
- $12.4 billion in reductions to renewable energy fees for 2021 and 2022.
- $9 billion in business tax cuts.
- $28.1 billion in aid to small- and medium-sized businesses to make up for virus-related losses.
- $2.1 billion in aid to cultural and non-profit organizations.
- $11.2 billion in aid to local governments.
- $4.5 billion in aid to schools.
On March 19, 2020, the Germany 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 December 31, 2020. In addition on May 6, 2020, the value added tax for restaurants and catering services has been reduced from 19% to 7%.
Indian’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 also lowered the reverse repo rate by 0.9% to 4%. It lowered reverse repo rates on April 17 further, 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 this 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 $49 billion into the financial system on March 27 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 non-convertible debentures (NCDs).
The RBI increased its lending facility for state governments on April 1, 2020, and it raised the ability of state governments to overdraft on April 7. Another $6.6 billion TLTRO, targeted at smaller financial institutions, TLTRO 2.0, was launched on April 17. It followed this up on April 27, with the creation of the Special Liquidity Facility for Mutual Funds (SLF-MF), which will lend up to $6.6 billion to purchase mutual funds.
The RBI has also extended special liquidity facilities for national lending institutions. On April 17 the RBI established special refinance facilities totaling $6.7 billion 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 the RBI extended the facility for SIDBI by $2.0 billion and established a line of credit worth $2.0 billion to the Export-Import Bank of India to support its U.S. dollar funding activities. In August 6, 2020 the RBI extended its special lending facilities to NHB and NABARD each by $0.7 billion.
The RBI allowed all banks to permit three-month deferments of payment for loans on March 27, 2020. In May it extended this period through 31 August. On April 17, the bank allowed a moratorium from March 1 to May 31 on the classification of assets as non-performing. Normally loans are classified as non-performing after 90-days of being overdue on payments.
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 Indian government stimulus.
On March 26, 2020, Indian announced a $22.5 billion spending plan to help the nation's poor better cope with the pandemic, included in it are:
- Free grain and other staples for poor families for three months.
- Expanded insurance for health care workers.
- One-time cash payments of $13.31 to 30 million senior citizens.
- Pushing up 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, Prime Minister Narendra Modi announced a new stimulus package called the "Self-Reliant India," program. While he claimed it would be $266 billion, but that total includes previously spent money and monetary stimulus. The actual fiscal spending may be as small as $27 billion. The package will be released in 5 separate parts, some of which include general reform measures and law changes not related to the pandemic.
The first part is focused on small and medium sized businesses. It includes among other things, 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 deals with help to the poor, especially migrant and farm workers. It includes extensions of more credit to farmers, programs to provide food for migrant workers and allow them to more easily access welfare benefits, and reforms to make minimum wage laws apply to more workers, more uniformly.
The third relates to agriculture in general and includes funding for farm supply chain and infrastructure improvements and reform of agricultural regulation to make it easier for farmers to stockpile and sell crops.
The fourth part is about modernizing India's economy and includes loosening regulations in the coal and mineral mining sector to increase private-sector involvement, changing military procurement regulations, easing airline and airport regulations, and the privatization of power utilities.
The fifth part focuses 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 taxpayers owed on late goods and services taxes (GST) for the months of February, March, and April. The interest cut applied to filers with taxes balances of up to $670,000 as long as they filed September of 2020. In addition, the deadline for filing May, June, and July returns was also extended to September without an fees or interest.
On June 30, 2020, the Indian government announced that it would spend $12.1 billion to extend the the free grain distribution program until the end of November. The Indian Prime Minister, Narendra Modi, said this would provide good aid to 800 million Indians.
On October 12, 2020, India announced a $10 billion package of new relief spending. Measures include $3.4 billion in direct infrastructure spending, $1.6 billion in 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 consumption spending.
On November 9, 2020, India approved $19 billion in tax incentives over the next five years for companies who build new manufacturing and export businesses in India.
This was followed up on November 12, 2020, when India announced $35.5 billion in new stimulus measures including subsidies to companies that hire new employees and tax breaks for home buyers, and government subsidized bank loans to sectors of the economy that are struggling due to the pandemic, such as the auto industry.
The United Kingdom
The United Kingdom differs from the other large European economies in two major ways. The first is that it has its own central bank, unlike Germany, France, and Italy. Those countries' monetary policy is run by the European Central Bank. The other is that the U.K. is undergoing a possibly massive change to its laws and trading relations due to Brexit, and was in the process of renegotiating its trade relationship with the EU when the pandemic started. Like other European countries, the U.K has re-tightened restrictions on the population and the economy in the face of rising Covid-19 case in the fall, increasing the urgency of further economic stimulus.
The Bank of England 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 Bank of England (BoE) cut its benchmark interest rate twice. On March 11, 2020, the bank cut it from 0.75% to 0.25%. And on March 19, 2020, it was lowered from 0.25% to 0.1%.
On March 24, 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. Both the one-month and three-month facilities were subsequently extended, but later allowed to expire. The one-month facility held final operations on June 26, and the three-month facility held final operations on May 28.
On March 19, 2020, the BoE announced it would restart QE with $246 billion in government and non-financial, 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 $124 billion on June 18, 2020. On November 5, 2020 the Bank expanded its target for government bond purchases by an additional $197 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, 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 needs 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 "counter-cyclical capital buffer." The buffer is money kept in reserve to increase banks' resistance to global financial shocks, allowing nearly $390 billion in new loans. It also cancelled the 2020 bank stress test. However, on 28 July, 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.
The U.K. fiscal policy has come in six packages. The first, announced on March 11, 2020, allocated nearly $37 billion in fiscal stimulus and relief in the U.K. budget. Among other things, it includes:
- 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 wave, unveiled on March 17, 2020, included $379 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 $23 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:
- A program to issue grants to companies covering up to 80% of worker's salaries if companies keep them on payrolls rather than lay them off. It will be up to $3,046 a month per person. The program is backdated to March 1, and will last three months unless it is extended. It is expected to cost $95.1 billion.
- $8.5 billion to increase the tax credits for the poor and unemployed, giving each person roughly $1,200 more a year.
- $1.2 billion in additional funds to increase the low-income housing benefit.
- Deferring the next quarter of Value Added tax, estimated to be about $36.6 billion.
The fourth package, announced on March 26, 2020, gave cash grants of up to $3,080 for self employed people making up to $61,600 a year. The payments will continue monthly for at least three months.
A fifth stimulus and relief package worth $37.6 billion was announced on July 8, 2020. Among other things, it contains:
- $2.5 billion to create a job program for people under 25. The program would create six-month government subsidized job placements for people under 25 who are currently on unemployment.
- Up to $11.3 billion offer businesses a $1255 bonus for each employee they bring back from furlough.
- $2 billion in training and apprenticeship programs.
- A 6 month sales tax cut from 20% to 5%.
- A program called "Eat Out to Help Out" which discounts certain restaurant meals by up to $12.50 a person from Monday to Wednesday during August.
- $3.8 billion investment in green infrastructure.
- $7.3 billion in construction and general infrastructure.
- A measure which raises the value of homes that can be purchased without paying taxes on the transaction from $156,760 to $628,000 until March 2021.
The sixth package, announced on September 24, 2020, includes wage subsidies of up to $907 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 of 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, the Transportation Secretary, Grant Shapps, announced that $0.2 billion dollars of additional funding would be provided to keep bus service running. On May 2, Communities Secretary, Robert Jenrick announced that $80 million will be given to support charities for survivors of domestic abuse, sexual violence, vulnerable children and their families, and victims of modern slavery.
As a Eurozone country, France’s monetary policy is conducted by the European Central Bank. 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 $323 billion in loan guarantees.
On April 17, 2020, all business tax filings for May were postponed until June 30, and businesses may request deferment of payment for May taxes. Large companies will only be granted deferments 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, French Finance Minister, Bruno Le Maire announced a $49 billion aid package, that was expanded to $119 billion on April 15, the aid package includes the following:
- $8.7 billion in increased spending on health supplies and bolstering the health care system.
- $26 billion in increased funding for work-sharing wage supports.
- $7.6 billion in direct payments for the self employed and very small businesses.
- Postponement of rent and utilities for small and medium 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 $154.6 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 September 3, 2020, France announced another $118.4 billion in stimulus. The stimulus package will be spent over two years and focuses on supporting economic growth. It includes $41.5 billion for businesses to "make the French economy more competitive," and $35.5 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 October 29, 2020 French Finance Minister Bruno Le Maire announced another $23.7 billion in aid to small businesses, wage subsidies for furloughed workers, and extended funding for direct and guaranteed loans to businesses through June 2021.
As a Eurozone country, Italy’s monetary policy is conducted by the European Central Bank. 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 announced on March 16, 2020, the Italian government announced its first stimulus package, the “Cura Italia” (Care Italy) law. It contains roughly $27 billion focused on four main “pillars.”
The first is $3.5 billion to strengthen the Italian healthcare system and buy personal protective equipment.
The second is $11.2 billion to help protect workers. It includes strengthening unemployment benefits, a $650 allowance to the self employed and seasonal workers for March, extended parental leave or $650 to pay for babysitting, as well as extending paid leave for those taking care of disabled relatives. Also included in this pillar are funds for hiring 1,000 additional doctors, and for paying police overtime. Families can apply for a suspension of mortgage payments, if the pandemic threatens their livelihood.
The third plan involves $5.5 billion to increase business and household liquidity. This includes, among other things:
- A moratorium on loan repayments for small- and medium-sized enterprises (SMEs).
- Increasing the SME Guarantee fund that helps SME’s get credit.
- $500 million in loan guarantees for the Italian state investment bank for large businesses to get loans.
The fourth pillar includes $1.7 billion for suspending tax payments and giving out tax incentives. All businesses, the self employed, as well as 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 $433,500 a year was suspended for both March and April, 2020.
Audits, tax litigation, and coercive collection of taxes are suspended until June, 2020. All expenses for sanitation, worker protection, or virus containment are eligible for a 50% tax credit. Stores and small businesses closed due to the emergency will receive a tax credit equal to 60% of March, 2020’s rent. Workers still working who make less than $43,400 a year will get a $108 bonus payout.
The law also includes $4.9 billion to support “Central and Local Public Administrations, including Municipalities.”
The second stimulus package was announced on April 6, and was considerably larger than the first. This “Restore Liquidity” law will offer $432 billion in loan guarantees from the government and from its state investment bank and export bank.
A third $59.6 billion package was approved on May 13, 2020. It includes the following, among other things:
- $28.8 billion in help for employees and the self employed. This includes additional funding for wage supports, and payments of $450 to $900 a month for those with no income but who are otherwise not covered by social welfare programs.
- A measure allowing undocumented migrants to get temporary work papers to work as farm laborers or carers.
- $4.5 billion in regional business tax cuts.
- Up to $16.9 billion in loan guarantees for bonds to support banks to support financial stability.
On October 26, 2020, Italy passed a fourth stimulus package worth $6.4 billion. It includes $2.9 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.
Brazil had a number of statutory limitations on its fiscal spending, and so fiscal relief and stimulus packages required significant alteration of the country’s existing fiscal rules.
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, by 0.75% to 3%, a record low number. Over the summer the Bank continued to lower its target for the benchmark interest rate, to 2.25% on June 17 and to 2.00% on August 5.
On March 26, the BCB announced a series of measures that would add $227 billion in liquidity to credit markets. These include:
- Lowering reserve requirements.
- Expanding one-year repo operations.
- Announced a set of dollar-denominated repo operations.
- New lines of credit to banks.
On March 27, 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, 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.
Brazil announced $30 billion in fiscal stimulus on March 16, 2020. The package isn't new spending. The Brazilian government said it will 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 $40 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 $120 a month on March 24, 2020, and is estimated to transfer roughly $9 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) allowing the government to spend past its previously set spending limits.
On March 22, 2020, the Brazilian Development Bank suspended payments for small businesses and expanded its credit to small businesses by $1 billion, as well as increasing the credit limit for each borrower. On March 24, it provided $11 billion in additional liquidity and granted six-month extensions for repayment of debts. On March 27, it announced $1 billion in credit for startups.
The federal government announced a $8.7 billion plan to support state and local governments on March 23, including additional funding for public health services and suspension or renegotiation of state and local debts. This was expanded by another $13.5 billion on April 14.
On March 27, 2020, the Brazilian government announced $8 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, the Brazilian government enacted several additional policies to offer relief to the public. For instance:
- Low-income families were exempted from paying their electricity bills for three-months on April 8.
- The next day, Brazil allocated approximately $7.5 billion for housing credits, incentives to renegotiate mortgages, and cover 90-day mortgage deferments.
- Brazil allocated $800 million to support indigenous Brazilian communities on April 13.
- On April 20, 2020, the Brazilian government announced a $1.3 billion credit line to small, micro-sized, and individual entrepreneurs.
- On April 22, a 90-day deferment on installment payments was extended to people who are behind on taxes.
On May 28, Brazil established a new program directing $10.7 billion in aid to state, local, and federal district governments for efforts to combat the coronavirus.
In June, the Brazilian government launched two new business loan guarantee programs, the Emergency Credit Access Program and the Operations Guarantee Fund, together guaranteeing up to $6.4 billion in new small, medium-sized and micro enterprise loans.
On July 24, Brazil authorized the release of up to $7.5 billion in worker severance and social security funds to allow workers to access some of their publicly managed retirement funds immediately as cash.
Canada, the world's tenth 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 $75 billion relief package that includes expanded unemployment insurance and wage subsidies.
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, 2020, bringing the rate from 1.75% to 0.25%. On July 15, 2020, the Bank announced reiterated its intent to maintain the current interest rate and quantitative easing policies until it achieves its 2.0% inflation target.
On March 12, 2020, the BOC added 6-month and 12-month repo operations, in addition to its existing 1-month and 3-month repo agreements . On March 18, 2020, BOC expanded the types of securities that could be used as collateral for repo operations. Then on March 20, it announced it was increasing the frequency of its repo operations to at least twice-weekly, from once a week. The BOC announced it was activating its Contingent Term Repo Facility on April 3, 2020, which offers extra 1-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 provides loans to a wider array of banks and accepts 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, based on improving economic data, the Bank 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 $2.1 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 purchase mortgage bonds, bankers acceptances, money market securities from provincial governments, and commercial paper. In April, it announced a provincial-government-bond buying program that will hold up to $35.5 billion in bonds and a $7.1 billion corporate bond buying program, both of which will start in early May, 2020.
On March 18, the BOC asked retailers to continue accepting cash to ensure there was 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 $214 billion.
Canada has launched an escalating series of measures. The first, announced on March 11, 2020, contained $781 million dollars to support research, help provincial governments, and invest in such public health measures as mask purchases. On March 13, the government announced a $7.1 billion business loans program. It announced a $75 billion relief package on March 25. It contained, among other things, the following:
- Sending a monthly $1,420 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 $213 per child.
- One-time $284 payment to low-income individuals.
- Extension on filing both U.S. and corporate income taxes until June. 1, 2020, and payment of taxes until September 1, 2020.
- Allowing lenders to offer payment deferrals for up to six months for government-insured mortgages.
- A program lasting from March 15 to June 6, 2020, covering 75% of wages up to $600 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.
- 75% 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 $35.6 billion in insured mortgages. This amount was increased to $106 billion on March 26.
The Russian economy is heavily dependent on oil and gas exports, which means that the large drop in demand for oil due to quarantines and as a result of the Saudi-Russian oil price war was especially significant to the Russian economy. Because reporting on the Russian government’s response is restrictive and believed to be incomplete, the data below is less comprehensive than for other countries.
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, the Bank cut it to 4.5% in June and 4.25% in July. On March 27, the Bank of Russia allocated $2 billion from its SME lending facility to specifically help banks make loans to small- to medium-sized enterprises so that those SME’s can pay their employees wages during the crisis. On April 3, 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. The Bank allocated another $0.7 billion to SME emergency lending on May 15, 2020, and cut the rate to 2.5% in June and then 2.25% in July.
On March 10, 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 by further lowered capital requirements, expanded collateral banks can use for central-bank refinancing, and suspended enforcement actions against securities traders for violating disclosure requirements between March 1, 2020. and January 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 non-governmental pension funds to not reassess the value of assets acquired before March 1.
Russia announced it was creating a $4 billion fund to help its economy during the COVID-19 crisis on March 20, 2020. On April 7, President Putin announced that families with children would receive monthly payments of $67 per family through June 2020.
On April 15, the Russian government announced a second stimulus package including:
- $160 a month payments to SME’s for each employee in April and May, provided they keep 90% of their workforce.
- $2.6 billion for regional governments
- $300 million for airlines
On June 2, 2020, Russia announced a third round of stimulus spending valued at $66.4 billion. The plan includes business tax holidays, funding already announced expansions to social welfare payments, government guarantees for loans to SME's, 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 that has just been reallocated from other parts of the budget or pushed up to be spent sooner.
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.
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 Bank lowered it's benchmark rate another 0.25% to 0.50%.
On March 26, 2020, the Bank of Korea 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 expanded the list of banks and non-bank institutions it would offer repo agreements to. It further broadened the allowable collateral for repo operations on April 10, 2020.
On February 27, it raised the ceiling on its Bank Intermediated Lending Support Facility by $4.1 billion to promote loans to small- and medium-sized enterprises. It also allocated $820 million 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 lend to banks using corporate bonds as collateral and lend up to $8.2 billion. This program was initially set to run for three months, but on July 30, 2020 was extended to run for and additional three months.
On March 12, 2020, the Bank of Korea expanded the types of collateral that banks can provide for BOK loans. On March 26, it loosened the restrictions and regulations on foreign exchange trading in order to expand capital flows. On March 31, it lowered the capital and reserve requirements for Korean banks.
South Korea announced a $9.8 billion stimulus and relief package on March 3, 2020. Among other things it includes:
- $1.9 billion to medical funding for hospitals and quarantine efforts.
- $2.5 in small- and medium-sized business subsidies to help companies pay workers.
- Child-care 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 $80 billion package to rescue failing companies, a package that had doubled in size since it was originally proposed on March 18. The full package included $43 billion in loan guarantees and low-interest loans to Korean companies and $37 billion in asset purchases and loans to stabilize the stock and bond markets.
The 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 enterprises, and some self-employed people on March 30. It included payments of up to $820 per family for individuals and families in the lower 70% of income brackets.
South Korea unveiled $29.5 billion of additional financing for exporters on April 8, and $14.8 billion in additional liquidity for domestic companies, including prepaying for government contracts and purchases.
On April 22, the Korean government announced another $70 billion stimulus and relief package. It included:
- $32.8 for a program of loans, loan guarantees, and investments in businesses in sectors hit worst by the pandemic.
- $28.7 billion 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.”
- $8.2 billion to shore up unemployment benefits.
The South Korean Parliament passed a third round of fiscal stimulus on July 3, 2020, which will provide $29.5 billion in additional relief funding.
On September 22, 2020 South Korea approved a fourth supplemental budget package of $6.9 billion, which includes $3.4 for small business relief and $1.3 billion for employment subsidies.
After managing to flatten the curve of infection earlier in 2020, Australia's government began relaxing the lockdown in May. 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 2020, Australia officially entered recession for the first time in almost 30 years.
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 of 2020. It lowered its benchmark interest rate twice in March, down from 0.75% to 0.25%.
On November 3, 2020 the RBA again cut its target overnight, interbank cash rate down to 0.10%. It also cut its 3-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 quantitative easing program to purchase $72.7 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, it started a $58 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 September 1, 2020 the RBA extended and expanded the Term Funding Facility to $146.0 billion total available funding, which borrowers will now have access to through June, 2021.
On March 20, the Australian Banking Association announced Australian banks would defer loan payments for small businesses that had suffered from the pandemic for six months. The Australian Prudential Regulation Authority lowered capital requirements.
The Australian government launched three relief packages worth a total of roughly $140 billion. The first, announced on March 12, 2020, contained $11.4 billion in spending on the following:
- $4.4 billion in payments of up to $16,300 to small and medium-sized businesses to encourage hiring.
- $3.1 billion in one-time, $490 payments to people collecting government benefits, including the elderly, the poor, and veterans.
- $650 million in business subsidies to businesses in industries such as a tourism that have been hit hardest by COVID-19.
The second package, announced March 22, 2020, contained $43 billion in spending. It included, among other things, authorized another $16.5 billion in payments of up to $65,400 to small businesses to cover wages and $26.1 to guarantee loans of up to $164,000 to small businesses. It also contained an addition $490 welfare payment.
The third stimulus package, containing $85 billion in spending was announced on March 30, 2020, and its landmark feature is a “JobKeeper payment.” This is a $980 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 October 6, 2020 the Australian Treasury released its 2020-2021 budget, which calls for a record budget deficit and $218.1 billion in stimulus spending. Measures in the budget include:
- $12.9 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 carry-backs through 2022 for businesses under $3.6 billion in annual turnover.
- $3.3 billion in spending on broadband and 5G infrastructure.
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 who want 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. The Fed announced it was establishing similar swaps on March 19, 2020, with the central banks of Australia, Brazil, Denmark, South Korea, New Zealand, Singapore, and Sweden. On July 29, the Federal Reserve announced that the temporary swaps would continue until March 31, 2021, unless extended.
The International Monetary Fund has, as of April 17, 2020, 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 $100 billion demand.
- Offering debt service relief from its Catastrophe Containment and Relief Trust. As of April 17, 2020, 25 countries have received debt service relief.
- Establishing a short-term liquidity line for additional lending.
The World Bank announced an initial package of up to $12 billion in loans for countries to help cope with the effects of the coronavirus on March 3, 2020. Some $8 billion of the funding is from new loans and the remaining $4 billion is redirected from current lines of credit. This was expanded to $14 billion on March 17. 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 up to $160 billion in financing over the next year including:
- $50 billion to in grants and financing with “highly concessional terms” from the International Development Agency.
- $8.9 billion from the International Finance Corporation to companies hurt by the pandemic, as of April 29.
- A $6.5 billion lending facility from the Multilateral Investment Guarantee Agency to support private lenders.
As of May 19, 2020, over 100 developing countries have received relief through various World Bank projects initiated in response to Covid-19.