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On the Macroeconomic Effects of the COVID-19 Pandemic: Letter to my President
Good morning Mr. President,
I must start with an apology for missing the timeline for the delivery of part 5 of these series entitled “On the Realities of our Current Situation: Letter to my President”.
You would notice that I have changed the title for this one due to obvious reasons. COVID-19 is a health matter but you would agree with me that its attendant macroeconomic ramifications are quite alarming, and hence, my choice of title for emphasis.
Your Excellency, I am not here to depress you with doom and gloom messages but to point out the challenges we are facing and proffer some thoughts as potential solutions to the problems that stare us in the face without blinking.
Mr. President, in his recent address to the National Assembly, Your Finance Minister informed that our Gross Domestic Product (GDP) will grow by a paltry 2.5 percent as opposed to the previous forecast of 6.3 percent for the year 2020 due to the effects of the coronavirus pandemic.
This will surely have a serious impact on our businesses and families. Moreover, the macroeconomic effects of this pandemic are an addition to challenges already extant in our economy thanks to recent poor cropping seasons as well as fiscal policy slippages made by your Finance Ministry; the impact of these policy missteps had just started catching up with us with attendant inflationary effects, already manifested in our markets, by the time the virus hit our shores.
Surely, there is no use crying over spilt milk. So what do we do to solve these problems, Mr. President?
Indeed I was disappointed with the statement of your finance minister at the National Assembly when he bragged that he and his team needed to be commended for staying within the budget limit during this crisis period. Nothing more ridiculous had ever been uttered in the chambers of our National Assembly in the realm of macroeconomic policy. Mr. President, of all periods in our history and the history of global economics, this is the worst time to boast of fiscal austerity.
In fact this is the time to embrace Keynesian economics and let the chips fall where they may. When the British Chancellor of the Exchequer presented his £175 billion fiscal stimulus packaged at their House, the response was actually quite instructive as reported by Prospect Magazine “Yet a Rubicon has been crossed. Keynesianism has been restored to its proper place in British public life.” Even the erstwhile austerians joined the chorus of praise, including George Osborne.
Studies of macroeconomic issues surrounding the COVID-19 pandemic have established the fact that “Standard fiscal stimulus can be less effective than usual because the fact that some sectors are shut down mutes the Keynesian multiplier feedback.”
In view of the foregoing, as observed by Kuduig Straub of Harvard University, Veronica Guerrieri et al, in a recent paper, “the optimal policy to face a pandemic … combines as loosening of monetary policy as well as abundant social insurance.”
You do not have to take their counsel to the letter due to the superficial nature of our financial and formal social support systems; but the lesson to learn from the above conclusion is to wake your Central Bank up and urge them to act in a proactive manner; on the fiscal side, you need to ask your Finance Minister to open the treasury and put food and money on the table for the poor and vulnerable. The multiplier effect on the economy and the envisaged boost in business sentiments as well as confidence in your administration could be the ultimate palliative to our current multi-layered challenge.
Your Excellency, so far, your Finance Ministry has only been making minuscule reductions in the pump prices of fuel, perhaps to impress the owners of commercial vehicles who are being coerced into going below their legal passenger limits. The most recent reduction of one Dalasi per litre is not impressive at all; and it is tantamount to cheating the taxpayers given the reality in the international fuel markets.
I would recommend a drop in our regulated fuel prices by a minimum of D10 per litre. Such a move would represent a reduction of pump price by less than 20 percent in the face of a plunge in global fuel prices of more than 50 percent since the onset of the COVID-19 pandemic.
A bag of rice and 1000 Dalasis for each household will cost you 616 million Dalasis. This is less than 5% of total local funds in the budget and the current savings from our 2020 budget should be able to cater for that; so what are you waiting for?
Rather than hypothesising and dangling different scenarios of Government intervention like your Finance Minister did in his recent appearance at the National Assembly, handing over food and cash support to poor families is the right thing to do now. And this will serve you better for indeed William Shakespeare is right “Action is eloquence.”
I know that the Senegalese Government is giving support to their citizens, including their nationals resident in The Gambia. Senegal has set aside millions of dollars to be devoted to the purchase of food for emergency food aid. Can’t we take a page from your friend’s playbook? I am sure that President Macky Sall would gladly share his game plan with you.
While assuring you of my support in this national battle against the COVID-19 pandemic, I pray that Allah continues to guide and protect you and your team at the helm of affairs of our beloved country.
Yours,
Momodou Sabally
Former research economist and National Budget Director, Momodou Sabally has undergone extensive professional training in macroeconomics and public financial management at the IMF Institute, the Central Bank of England’s Center for Central Banking Studies, Harvard University’s John F. Kennedy School of Government and holds a masters degree in Economics from Georgia State University in the US.