Born Out of Necessity: A Debt Standstill for COVID-19 by Patrick Bolton, Lee Buchheit , Pierre-Olivier Gourinchas, Mitu Gulati , Chang-Tai Hsieh, Ugo Panizza, Beatrice Weder di Mauro published by CEPR Policy Insight (4/2020).
“Rich and poor countries alike are facing an unprecedented economic crisis as they attempt to contain the impact of the COVID-19 pandemic. A downturn of this magnitude can cause tremendous long-term damage, with critical economic linkages between employees, businesses, and banks at risk of disappearing forever. Scores of firms will close permanently unless urgent action is taken. The threat is even more significant for emerging economies, where the economic costs of social distancing are likely to be higher, and where vulnerable small and medium sized enterprises with low cash reserves account for a much larger share of the economy than in rich countries, which can rely on extensive social and economic safety nets. Poor countries, moreover, have far more precarious health-care systems. The funds required to support vulnerable workers and businesses, and to care for COVID-19 patients, could be as high as 10% of their GDP. As a comparison, in the US the rescue measures passed in the last month alone account for at least 10% of GDP, and are likely to increase even more.1 A number of European countries have commited loans, equity injections and guarantees up to 35% of GDP…”
