How the OECD thinks about Covid-19

Dr David Law
Insights Newsletter
17 March, 2020

Many international institutions will be considering the economic consequences of Covid-19 and what to do about it.

For three years, I worked in the Economics Department of the Organisation for Economic Co-operation and Development (OECD) and contributed to the production of its Economic Outlook – a publication looking at the growth prospects and policy challenges of member countries.

So, I know the OECD has some important advantages and can draw on the experiences of how its 36 members dealt with potentially similar shocks such as the 2008 Global Financial Crisis.

After New Zealand’s government announced further measures to combat the economic, employment and health impacts of Covid-19, we can now compare these with OECD recommendations.

For instance, the OECD stresses the need for additional fiscal support for health services to ensure adequate staffing and testing facilities, and all necessary prevention, containment and mitigation measures. Beyond this, measures are needed to cushion the effects of an outbreak on vulnerable groups, such as allowing flexible work arrangements and temporary cash transfers for people forced to go on unpaid leave.

For firms, the OECD highlights the importance of adequate liquidity in the financial system so banks can help companies with cash-flow issues. On top of that, tax reductions or delayed payment as temporary relief for firms are a good idea and targeted fiscal measures could be made to help companies most directly affected, such as those in travel and tourism.

Stronger government investment spending, particularly bringing forward planned repairs and maintenance of the public infrastructure, could provide further short-term stimulus.  More generally, there is a need for supportive monetary and fiscal policy for some time.  Compared to many of our OECD peers, New Zealand’s low levels of debt puts it in good stead in this regard.

So how does the Government’s response stack up against these recommendations?

It includes significantly increased support for health, individuals and firms, together with the New Zealand Upgrade programme announced in January and the reduction to the official cash rate (OCR) earlier this week by the Reserve Bank. This is all largely positive.

The efficacy of these measures will of course be up for debate and only become clear over the coming weeks as more details are available. There may be scope for better targeting and support for businesses and folk who need it the most along with the streamlining of getting them that support. 

More discussion on the OECDs policy advice can be found in the OECDs Interim Economic Assessment.

Stay in the loop: Subscribe to updates