The economic consequences of the COVID-19 pandemic call for urgent policy responses to support households and firms alike, but how this support is designed will be critical in ensuring that it does not result in enduring global market distortions. Support packages that are time-limited, targeted, cash-based, and consistent with longer-term objectives are the basis for ensuring a sustainable recovery. Transparency of support packages is critical for public trust, but also once the crisis is over in order to foster accountability and enable governments to learn from what worked best.

There is a critical need for government support for vulnerable individuals and firms

The economic consequences of the COVID-19 pandemic call for urgent policy responses to keep the  economy  afloat  and  enable  people  to  retain  their  jobs  and  incomes.  Most  of  the  measures envisaged  at  present  are  macroeconomic  in  nature,  focussing  largely  on  the  provision  of  emergency liquidity by central banks. Fiscal measures that have been announced at this stage include broad-based tax relief (e.g. VAT reductions and deferred payroll charges), wage subsidies, unemployment benefits, the deferment of  utility bills and rent payments, mortgage relief, lump-sum payments to households (i.e.so-called ‘helicopter money’), loans and loan guarantees to businesses, as well as equity investments by governments in distressed companies.

These measures all proceed from the urgent need to prevent a catastrophic economic collapse that would have dire human, social, and health consequences. While the trade impact of these measures may not be a  prime  concern  of  governments  at  present,  experience  from  the  crisis  of  2008-09  suggests that  poorly designed stimulus packages can  have negative, long-lasting consequences for global trade and national welfare. Although  there  is  an  urgent  need  to  deploy  measures  quickly, care  should  also  be  taken  to ensure that today’s stimulus does not sow the seeds of enduring trade distortions, including excess capacity,  by  relying  excessively  on “beggar-thy-neighbour” industrial  investment,  support  that  results  in windfall gains for particular firms, and duplicative infrastructure projects. Emphasis could more effectively be placed on measures that benefit smaller businesses, including those operating in services sectors, as  well  as  on  investments  in strengthening  broader  healthcare  and  social  safety  nets from  which everyone  benefits  to  kick-start  final  demand  after  the  immediate  crisis,  reduce  excess  savings,  and rebalance the global economy. […]