Policy in the time of pandemic

More and more countries are going into lock down mode to “flatten the curve” or slow down the spread of COVID-19 to levels that can be handled by domestic healthcare systems. Uncertainty around the duration of the lock down and fear of the unknown in terms of life and business are now driving consumer behavior.


In the current situation, fear is the problem to be addressed. It impacts rationality - an underlying assumption for economic theory. In such times, the task ahead of governments and policy makers is to a) calm people’s nerves to mitigate risks from irrational consumer behavior; and b) help small businesses survive the negative demand shock through targeted policy action.


How bad has the sell off been due to COVID-19 outbreak? Not as bad as the Global Financial Crisis in 2008, but that is all the positive side to it.


Traditional policy tools like monetary and fiscal policy actions are already being undertaken globally. Monetary policy rate cuts have been implemented across the globe from the US, Canada, the GCC, Australia, Malaysia...but central banks can stimulate borrowing only when business sentiment favour investment.


Stimulus packages have been introduced worldwide as much as in the UAE. These certainly help with the objective of calming people down and to some extent the objective to help small businesses survive these times. At this stage, targeted policy measures to buoy small businesses would be particularly helpful. These could include conventional measures like tax breaks for SMEs but also unconventional measures like giving opportunities to small businesses in government projects could be the way forward.


In an ever more interconnected world, apart from the expected policy tools – social media should be used as an important tool to contain fear through posts that improve public awareness on measures undertaken by governments and tips on personal well being in such times. Such measures will likely improve sentiment and restore faith in policy making in times of pandemics.


Governments need to act to effectively address the first casualty in such situations - common sense.

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