Helping the households and firms through the crisis, OECD findings
The impact of the Covid-19 crisis on public health in the six EU Eastern Partner (EaP) countries1 remains limited with 187 reported fatalities in the region as of 14 April. Armenia, Azerbaijan and Georgia (because of their proximity to Iran) saw the region’s first cases of Covid-19 in late February. Swift containment measures and limited intra-regional mobility have so far helped limit the spread of the virus, and the number of recorded cases remains relatively low in the South Caucasus. The OECD estimates that the decline in the level of output is equivalent to a decline in annual GDP growth of up to 2 percentage points for each month that strict containment measures remain in place. If the shutdown lasted for three months, with no offsetting factors, annual growth could be between 4-6 percentage points lower than otherwise.
Along with public health measures, EaP countries have adopted policies to help ease the negative socio-economic impacts of the pandemic. To help mitigate risk, the governments have started providing financial support and stabilisation packages, while raising money through the establishment of funds for donations.
Additional measures have included providing liquidity to SMEs, as well as support for targeted sectors (the tourism sector in Georgia has received tax holidays and loan repayment assistance).
Along with economic measures, the governments have been working on easing negative impacts of the pandemic through social policy implementation. These include providing support for vulnerable groups (including the elderly and underprivileged) in accessing necessary supplies, working on amendments to labour codes to protect employees, and launching information portals to raise awareness of the virus.
This section outlines selected measures adopted by the EaP governments aimed at supporting their economies during the crisis.
Armenia
Armenia has introduced packages worth up to AMD 12.3 billion (approx. USD 25.3 million) to help over 5,000 businesses and 11,000 families. Loan repayment holidays worth up to USD 19 million have been granted to nearly 290,000 individuals and 5,300 legal entities.
Along with domestic resources, Armenia has received support through donations and international partners. Notably, the EU has provided EUR 92 million to help finance the purchase of medical equipment and train medical and laboratory staff, as well as for business and humanitarian assistance.
In supporting enterprises, measures have been introduced to mitigate liquidity risks through co-financing and refinancing, as well as interest rate subsidies.
Loans are provided to help pay for salaries, equipment, food imports and raw materials, as well as taxes, duties and utilities. The maximum amount of the financial package for single businesses will amount to AMD 500 million (approx. USD 1 million).
Farming cooperatives were provided with additional financial support and businesses with 2 to 50 employees received one-time grants to cover the salaries of every fifth employee.
The government has also introduced additional measures to support SMEs that meet the following criteria:(i) registered or conducted commercial activity in Armenia in the past year, and were involved in tourism, health, food and manufacturing industries; (ii ) generated revenues between AMD 24 million and AMD 500 million (USD 48,500 to USD 1.01 million) in 2019, reaching no less than 10% of the annual amount per quarter; and (iii) held no overdue credit or tax liabilities, and submitted all credit obligations and filings on time.
In addition, SME owners will receive further assistance worth up to 10% of revenue generated from sales of goods and services between 1 January and 1 April, capped at twice the minimum wage.
Banks and credit institutions operating in the country will be expected to provide loans with the support of the Investment Support Centre to help cover employee salaries, taxes and duties, imports of raw material, payments for public services, and rent. Such support will be capped at AMD 50 million (USD 101,000) or 10% of turnover for 36 months, and be made available in local currency.
Loans will have a six-month grace period (up to 12 months for entities in tourism and accommodation) and face no interest during the first two years, though a 12 % rate will be applied during the third year.Along with supporting businesses, Armenia has introduced social support measures, such as a one-time lump sum worth AMD 68,000 (approx. USD 140) for citizens with limited income who lost their jobs between mid to late March. Further financial assistance was introduced for pregnant women, as well as individuals working in hospitality, tourism and retail sectors.
Azerbaijan
Azerbaijan has introduced a broad economic support programme encompassing ten support packages amounting to 2.5 billion AZN (USD 1.5 billion or 3% of GDP). The first package will target the four sectors of the economy that are expected to be hit the hardest (including tourism), with the government planning to cover employee salaries in part or in full. The second support package is to assist microbusinesses, with the amount of assistance equivalent to their tax payments for 2019.
Additional support packages (three to nine) will be used to help cover tax breaks for businesses, support mortgage borrowers and transport companies, and assist with utility bills, among other issues. The last two support packages will assist businesses by providing interest rate subsidies for existing business loans worth 1 billion AZN (588 million USD) with interest rates up to 10% p.a. and providing guarantees worth 60% of the loan amount and a 50% interest rate subsidy for selected new business loans.
The full economic programme is being finalised, and will be discussed with public and private sector representatives.
Belarus
Regardless of their assessment of the risks of Covid-19 spreading in Belarus, the authorities are well aware that the country must absorb the economic shock of the crisis.
Border closures, especially with Russia, will have a powerful impact on local businesses, as will the drop in oil prices, which will compound the challenges created by the gradual loss of the subsidy on oil imported from Russia as a result of tax changes in that country.
Belarus has decreed that those unable to return from abroad or work under self-quarantine, are entitled to keep their jobs and are entitled to at least two-thirds of their salary.
The National Bank has asked commercial banks to delay loan and interest payments for citizens as their incomes have been impacted by Covid-19, and, on 2 April, the government announced a BYN 110 million stimulus package (approx. USD 42.1 million) to support the economy and businesses in view of the pandemic. Proposals under discussion include tax and loan repayment holidays. The authorities are also discussing financial support measures with the IMF, and the country may ask for USD 900 million. In addition, the Council of Ministers passed a resolution to stabilise the situation on the consumer market on 1 April for three months, preventing price rises for goods and services from exceeding 0.5% monthly.
Georgia
The government announced a GEL 2 billion (approx. USD 600 million or 4% of GDP) package to help the economy weather the economic impact of the pandemic, through tax concessions to the tourism industry, capital expenditures to provide economic stimulus, and expanding access to funding for micro, small, and medium-sized enterprises and private individuals.
Companies in the tourism sector (approx. 18 000 companies and 50 000 employees) will benefit from tax concessions for March-June payments until November, and a four-month personal income tax and property tax relief.
Interest payments on bank loans for around 2,000 small and medium sized hotels (with 50 rooms or fewer), will be co-financed by the government for the next six months. Commercial banks will individually restructure loans for businesses and individuals struggling with loan repayment.
Infrastructure projects will receive an extra GEL 300 million (USD 107 million) worth in investments by the end of the year. The volume of VAT returns in the private sector will be doubled to GEL 1.2 billion to supply firms with working capital. Hard-hit businesses will have loans restructured.
Moreover, a post-crisis plan is under development to help economic recovery with an emphasis on credit guarantee schemes.
Following negotiations with the government, commercial banks will accept loan repayments with a postponement of three months. On 1 April, the central bank announced new measures lowering capital and liquidity requirements–namely, the elimination of the capital conservation buffer (2.5% of the risk-weighted assets) and a portion of the pillar 2 buffer (equal to two thirds of the currency-induced credit risk buffer).
This supervisory relief is expected to free GEL 1.6 billion for the mitigation of potential losses. The banking sector benefits from a capital buffer of GEL 4 billion to release in case of necessity. In order to support liquidity, the NBG will provide GEL liquidity to commercial banks and microfinance organisations with swap operations with a maximum limit of USD 400 million. The term of the operation is set at one month, with the right to monthly renewal for the next year.
A price restraint mechanism for nine products (rice, pasta, sunflower oil, flour, sugar, wheat, buckwheat, beans, milk powder and its products) by subsidising corresponding businesses has been introduced.
Republic of Moldova
On 3 April, the government announced it would allocate over LEU 800 million (USD 178.5 million) to finance several measures to support the economy. To help entrepreneurs to overcome cash-flow problems, the following measures were adopted: deadline extension for filing income, real estate, land and local taxes for 2019 to 25 April for individual entrepreneurs, farmer households and businesses with up to three employees; extension to 29 May of the term to present financial statements for 2019; suspension of the audit obligation of individual financial statements for 2019 for some enterprises (with the exception of public entities); postponement to 25 June of the deadline for payments of income tax of legal entities; introduction of a moratorium on all inspections until 1 June; reduction in VAT from 20 to 15% for the food and accommodation sector as of 1 May; increase of state budget allocations to the emergency fund and to a mortgage guarantee program by LEU 150 million (USD 8.2 million) .
In case of loans contracted by economic agents to pay salaries or for operating assets, the state will cover bank interests up to three months payroll.
In addition, measures targeted to the tourism sector are under discussion.The government will also assist businesses that have suspended their activities (fully or partially) by refunding personal income taxes and social security contributions up to 100%.
Those that had to stop their operations due to decision of authorities will receive a subsidy amounting to 100% of their income tax, social security and health contributions, and other compulsory state payments. Persons who have worked for at least nine months at one enterprise and have lost their jobs will be paid from 60 to 80% of their final salary.
Banks were also in centivised to delay payment deadlines and/or the amounts of due payments on loans until 30 June. In order to ease liquidity conditions and enhance financial resilience, the National Bank of Moldova (NBM) cut the base rate applied to the main short-term monetary policy operations to 3.25% annually; lowered the required reserve ratio in local currency and non-convertible currency to 34% for the period 16 April – 15 May 2020; and increased the required reserves ratio in freely convertible currencies to 21.0%. As of 4 March, the interest rates on overnight loans and deposits was cut to 6.25% and to 0.25% annually.
The NBM has declared readiness to intervene to counter excessive exchange rate volatility.
Ukraine
On 17 March, legislation was passed enabling businesses to adopt more flexible working hours. No penalties will be applied to tax law violations that are committed between 1 March and 31 May 2020, although this exemption will not apply to VAT or excise tax and rent. The deadline for filing annual income declarations has been extended for two months until July 1, 2020, with tax payable by October 1, 2020. In addition, the p arliament has suspended the requirement to pay tax on commercial real estate and land; defined COVID-19 quarantine as a force-majeurefor legal contracts; suspended tax inspections of companies and expanded the government programme of affordable bank loans at discounted interest rates for businesses.
Lawmakers have also emphasised the right of citizens not to pay rent if they cannot use their property due to quarantine.
Private entrepreneurs who work independently have been offered a temporary exemption from social security contributions (SSC) in March and April. In all other cases, penalties for untimely or incomplete payment as well as untimely reporting on SSC between 1 March and 30 April, will not be applied. The start date for the use of payment transaction recorders by a specific subset of entrepreneurs has been postponed from 14 April to 1 August.
Transaction registration rules for certain categories of entrepreneurs have also been eased, while partial unemployment benefits will be provided for employers in the SME sector. On 26 March, state-owned PrivatBank (the country’s largest lender) announced a “credit holiday” for medium-sized businesses until the end of May.
Credit institutions are also prohibited from raising interest rates on loans that have already been issued, and changes to existing SME financial support programmes are under consideration. Between 10 and 23 March, the National Bank of Ukraine sold foreign currency on a daily basis, in an attempt to support the hryvnia against the US dollar.
In the period from 16 to 20 March, the NBU spent over USD 1 billion in foreign reserves to support the local currency, though its interventions were later reduced by over 90%. On 30 March, dynamics changedand by 3 April the NBU had bought USD 248 million in foreign reserves, setting the rate at UAH 27.44 against the US dollar.
The guidance is broad but these basic principles can form a useful framework for assessing potential measures:
•Supporting SMEs: Supporting SMEs in response to Covid-19 requires fast and well co-ordinated supportthat combines financial measures, including from central banks; labour policy; tax policy; and the private sector. This is not a matter for “SME policy” narrowly construed: rather, it is a test for governments’ ability and willingness to apply the “think small” principle across all areas of economic and social policy, looking for ways to assess their impact on start-ups and SMEs.•Employment policy: Policies should aim both to protect workers from exposure to the disease at workplace, while at the same time ensuring workers’ access to income support.
A number of countries have adopted legislation that allows struggling firms to cut down working hours, while Japan, for example, is financially supporting SMEs’ capacity for teleworking.
•Tourism policy: Tourism is one of the worst-affected sectors of the economy during the crisis. The shock to the global tourism industry could amount to 45-70% of output depending on the severity of the pandemic.
Many countries, including in the EaP region, are adopting targeted measures to support tourism industry in their countries.
•Urban policy: Cities around the world are playing a key role in implementing containment measures, Many have set up information portals and taken measures to support most vulnerable segments of the population during confinement measures. While most cities have limited resources for financial support, many are creating mechanisms to help citizens and entrepreneurs access the support that is available and to mobilise public-private co-operation to support recovery.
Education policy: From an economic perspective, prolonged school closures have the potential to cause significant damage to the development of human capital. Therefore, it is essential for countries to quickly adopt effective distance learning practices that ensure learning and collaboration.
Environmental policy: Support measures should not derail the efforts to tackle the ongoing environmental challenges by loosening environmental regulations during the crisis bearing in mind any potential effects of ambient quality standards on respiratory on overall health.
Summary of containment measures in S. Caucasus, Ukraine, Belorus and Moldova
Armenia
On 16 March, the government imposed a state of emergency to help limit the spread of Covid-19, which has been extended for now until 14 May. Travel and public gatherings were restricted, schools were shut, and the authorities began to regulate the publication of information on medical and epidemiological topics. Although the borders were not closed, citizens were not permitted to leave the country and international travel was banned to/from countries with large numbers of cases.
The government also designated a list of entities that could operate, and grocery stores announced separate hours for senior citizens. Self-distancing measures were also introduced, requiring individuals to leave their homes only in exceptional cases. Those violating these measures face fines and prison sentences.
The government declared further restrictions on movement until mid-April, including shutting down public transport between and within municipalities, and passed a surveillance bill.
Azerbaijan
Following the first case of Covid-19, Azerbaijan closed educational institutions, quarantined those entering through Iran and imposed travel retrictions.
However, measures soon became stricter, as the government introduced “Special Quarantine” until 20 April. Gatherings of 10 or more people remain prohibited, large stores, shopping centres and restaurants are shut, and air and land borders have been closed. While individuals over the age of 65 may not leave their homes, those permitted must alert the authorities before doing so.
Public events, including the Nowruz Celebrations and Grand Prix, have been cancelled or postponed, the exclave of Nakhchivan has been isolated, regional and long-distance transport remains suspended, and traffic restrictions are in force. The criminal code has been amended to impose penalties on those violating emergency measures.
Belarus
Belarus has not yet restricted the movement of people or goods as per WHO recommendations, and the authorities have expressed doubts about school closures to prevent the spread of the virus and questioned the effectiveness of closing borders, while continuing to allow public events, including soccer games. However, the Ministry of Health has started recommending social distancing measures and asking the elderly to self-isolate. In addition, new entrants in the country are systematically quarantined for 14 days.
More rigorous measures are undertaken by some segments of the public as many firms are switching to telework and some higher-education institutions have moved instruction on line. On 7 April, Minsk adopted a plan to curb the spread of the pandemic. The measures include a ban on mass events, requirements for some customer service workers to wear masks, and a ban on anyone with symptoms of cold to go to work.
Georgia
On 21 March, Georgia declared a state of emergency for a month. Significant social prevention measures wereadopted, including restrictions on the movement of people and modification of public services. Schools and universities were closed, as well as all shops, except for supermarkets, pharmacies, petrol stations, post offices, and banks. Gatherings of over three people were banned and the government suspended public intercity transport, including busses and railway stations. The government also banned flights and closed borders with highly infected countries, leading to full border closure for foreign visitors, and quarantined those arriving in the country. However, essential economic activities, such as utility supply, food delivery and banking services may still be carried out in accordance with recommendations issued by national authorities. On 31 March, the government announced a nationwide curfew, forbidding individuals from leaving their homes between 21:00 and 06:00.
Republic of Moldova
On 17 March, Moldova declared a state of emergency until 15 May. The country suspended organised activities, and restricted travel and moved to online education.Moreover, movement in Chișinău has been restricted, as public transport is available only in the mornings and evenings. Since 25 March, the authorities have prohibited individuals over 63 from leaving their homes (except for exceptional circumstances) and barred gatherings in public places. The army has been mobilised to enforce these measures. Retail shops, markets, restaurants, fitness centres, concert halls, theatres, cinemas and museums should halt their activities until 15 May. Employees of public institutions (with some exceptions, notably medical, public order and education staff) have been sent on vacation until 24 April.
Ukraine
On 12 March, Ukraine imposed a three-week nationwide quarantine and shut down educational institutions and public events with over 200 people. Later, the government closed all cafes, restaurants, gyms, shopping malls and entertainment venues, though grocery stores, pharmacies, banks, post offices and petrol stations remain open. Gatherings and intercity transport were restricted, and metro services were shut until further notice. Many firms started switching to telework, and some higher-education institutions and schools have moved to online instruction. On 25 March, the quarantine was extended until 24 April.
Moreover, non-citizens were banned from entering the country and Ukrainians were prohibited from leaving the country for tourist travel. On 27 March, regulations became stricter as the Ministry of Internal Affairs banned all air or rail travel, though citizens crossing the border on foot or by car could still re-enter the country. On 30 March, the government announced that it would oblige all new arrivals in Ukraine to undergo a 14-day medical quarantine with thorough medical supervision.
On 3 April, the Prime Minister announced the introduction of new measures, including a ban on being in public areas without wearing a mask and on walking in groups of more than two. The government also imposed a ban on visiting parks, squares, recreation areas, forest parks and coastal zones, except for the purposes of walking pets (individually).
Full report is on The Organisation for Economic Co-operation and Development (OECD) website.
