Economic Insights: Analysis of Policy Response by G20 Nations

As Covid-19 has continued to progress, the global fiscal spending by G20 nations to contain it have been higher than what was invested during the financial crisis of 2008-09. There has been a total of $8 trillion in global fiscal spending, which is 5.6% of 2019 GDP. Direct fiscal spending has been backed by countries providing loans and credit guarantees for corporate and banking loans, apart from equity injections.

This notable economic support can be classified into three categories:

  • Direct welfare support is provided to individuals through unemployment benefits, and deferential of tax and utilities payments. 
  • Direct and indirect support to businesses and firms in the form of loans, loan guarantees, deferral of installments, tax credits, and purchase of equity in affected companies. 
  • Monetary stimuli through reduction in interest rates and open market purchases of corporate debt. 

Developed countries with higher levels of industrialization such as the US and Germany, have adopted policies that direct substantial amounts to guaranteeing corporate debt and bailouts (such as the bailout of Lufthansa by Germany). Emerging economies have primarily focused on providing welfare support to weaker and affected households. While we saw some stability due to increasing quantitative easing (QE) by central banks, emerging markets remain vulnerable to further currency shocks caused by capital outflows.

The Unites States has the largest economic programs set in place to combat the economic effects of the Covid-19 pandemic with an estimated $6 trillion dedicated to economic stimulus. The stimulus has been funded through savings, portfolio shifts into the US Treasury debt, and central banks. The US have been able to raise debt without worrying about interest rates through the Federal Reserve’s use of QE to absorb increased debt issuance and expand its balance sheet.

To read more about the fiscal and monetary measures that G20 nations have made in response to Covid-19, click the link below. 

Follow the link to download the full analysis: Economic Insights: Analysis of Policy Response by G20 Nations

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Aanchal Mahajan
Senior Research Lead, Financial Services Posts

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