COVID19 has caused a global pandemic that has not only affected the health field. The coronavirus has also had a great financial impact on all the world’s economies, which have seen their foundations shake and even many countries fear economic recovery after the ravages suffered by the virus.
What is clear is that the financial impact of COVID19 is a reality. A great global slowdown is being experienced, which has been generated, to a large extent, by the closure of businesses, something that has forced entrepreneurs to make decisions that will undoubtedly change the course of their businesses.
That is why the great challenges that companies (not just large ones) have faced to mitigate the financial impact of COVID19 are managing work teams in quarantine, failures in the supply chain, staff cuts, sudden drops in product demands and financing needs, among others.
Measures should be launched to face the reduction in household income
That is why, faced with this panorama or financial impact of the coronavirus, it is necessary to take measures aimed at dealing with the reduction in household income and mitigating the deterioration of the productive system of each country. That is why it is necessary to ensure that households are affected as little as possible, especially the most vulnerable.
This is achieved through policies aimed at limiting the dismissal of employees, the creation and strengthening of payment or unemployment or health insurance, the deferral of tax obligations and/or the reduction of charges to the company or the temporary suspension payment of public services, among other measures.
One of the main things that must be done to mitigate this financial impact is to provide the financial system with sufficient liquidity to meet short-term demands. These are derived from a possible reduction in your income streams or possible withdrawals. As well as the liquidity models required by the control entities should be made more flexible.
The financial impact caused by COVID19 can be mitigated with guarantee funds
Continuity in financial flows to households must also be maintained. In other words, the situation of debtors in the face of the pandemic must be facilitated, thus allowing the refinancing of their debts, including grace periods, without their classification deteriorating. This must be accompanied by the respective authorization for financial entities to continue accruing interest for a certain period of time.
What is clear is that it is very important to ensure the financial strength of the system. To this end, capital requirements and the weighting of the portfolio by level of risk must be temporarily reduced, thus limiting the distribution of profits and forcing the creation of additional equity reserves.
Finally, to mitigate the financial impact of COVID19, another measure that can be very useful is to facilitate and strengthen the support of deposit guarantee funds in each country. Above all, for SMEs, which may need help to solve solvency problems.
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