Covid-19 repository of policies: EBRD policy comparator

The coronavirus (Covid-19) pandemic is having a major impact on economies in the EBRD regions and is expected to cause a recession in almost all countries in 2020, followed by a recovery in 2021. All countries have rolled out policies to mitigate the impact of the crisis, but with major variation in terms of size and coverage. The EBRD is establishing a repository of policies to track systematically each country’s experience and draw lessons, both within the regions and from selected countries elsewhere. Over time, the repository will be used to identify innovative and effective policies that bring real benefits in terms of economic resilience and recovery and can be introduced more widely. The repository will include various knowledge products, including country pages, in-depth case study analysis, webinars and other relevant materials. It will be available externally on the EBRD website.  

Since the outbreak of the Covid-19 pandemic, EBRD countries of operations (CoOs) have all introduced policies to mitigate the negative impact of the crisis. These measures are being tracked by EBRD economists and published online in the form of Covid-19 country pages, with regular updates. Based on these pages, the EBRD Policy Comparator brings together in a standardized and comparable way the policies being implemented in a specific country. The responses are grouped into eight categories: financial sector support; direct support to firms; payment holidays; temporary controls; support to individuals; increased social benefits; increased health spending; and external assistance.

In general, authorities in CoOs, have reacted promptly to provide support to economy. However, not all announced measures have actually been implemented. The two most used crisis response measures so far have been, first, deferral (combined in some cases with reduction) of taxes and social contributions, and loan deferral schemes. Both measures belong to a broader category of payment holidays as a way of propping up the liquidity of firms and individuals. Also, nearly all CoOs have raised spending on healthcare to help cope with the medical crisis. In terms of frequency, these measures are followed by policies supporting liquidity of the banking sector and those supporting more directly liquidity of firms, either by subsidizing wages or providing cheap loans/guarantees. Lastly, the only other measure taken by more than half of CoOs is the one related to price controls, concentrated mostly in low-income countries to control food prices. Export controls have also been introduced temporarily in a few cases.

Deferral of tax and social contributions payments due has been a key policy tool. A widespread measure is to postpone deadlines for tax filings and payments for up to three months on average. Moreover, these deferrals are mostly tied to the possibility of payment in instalments over a longer period. Some CoOs also introduced tax exemptions, although mainly to property and local taxes (e.g., Azerbaijan, Romania). Poland introduced a “loss carry-back scheme”, allowing firms to deduct losses in 2020 from income earned in 2019. In some instances, CoOs introduced reductions of VAT (e.g., in Kazakhstan, from 12 per cent to 8 per cent for affected sectors) and customs duties (e.g. Jordan, 70 per cent of customs duties for selected companies). Other CoOs have announced that they will accelerate VAT refunds (e.g., Belarus, Greece, Lithuania, Romania, Poland, Moldova, Georgia and Serbia).

Loan deferral schemes were introduced in most CoOs. The duration of loan payment holidays varies but is usually at least 3 months and up to 6 months on average. Notable outliers are Turkey and Slovenia, which allowed debtors to defer their payments up to 12 months, while Romania, Hungary, the Slovak Republic and Cyprus allow up to 9 months. The coverage of the loan deferrals was also different, as some countries allowed it only for those impacted while others for everyone (the latter include Serbia and Montenegro).

Wage subsidies to firms are helping to preserve employment. Almost all EU member states have implemented mechanisms to pay part of employees’ wages, ranging from 40 per cent (Poland) and up to 80 per cent of wage costs (the Slovak Republic, Slovenia), but limited to some reference value – the average gross wage in Romania, or a set value (EUR 1,100 in the Slovak Republic, EUR 1,000 in Estonia). Poland and Hungary have linked the mechanism to the German-inspired Kurzarbeit (short-time work) scheme. The schemes are limited to around three months and are conditioned on firms retaining employees and proving financial difficulties (ca. 30 per cent revenue decline on average). In other regions, this mechanism is limited only to SMEs (e.g., Armenia and Russia), or capped at the minimum wage (e.g., North Macedonia, Montenegro). An interesting case is Croatia, where the authorities decided to subsidise the minimum wage for employees in affected sectors for three months, and simultaneously increased the minimum wage by almost 25 per cent.

Countries with state guarantee programmes already in place were able to scale them up and support the liquidity of firms through banks. The state guarantee programmes, providing government guarantees for banks’ on-lending, already in place in a number of CoOs, particularly in CSEE, were quite valuable as a quick mechanism for providing liquidity support to firms, and especially SMEs, for their working capital needs and investments. For instance, Poland announced state guarantee programmes worth 3 per cent of GDP, Slovenia of around 4 per cent of GDP, and Hungary 4.5 per cent of GDP. The instrument relies on the banking sector to channel its liquidity to firms in need while safeguarding the soundness of the banking sector by partly assuming the risk of the on-lending, at the same time creating contingent liabilities for public finances. Other countries, including Kazakhstan and Turkey, have used schemes relying on the role of their state-owned banks, to provide subsidised lending.

Social assistance to the unemployed and the most vulnerable categories has been ramped up in some CoOs. Cash transfers have been deployed in many CoOs, especially in those with a large informal sector and where unemployment protection was missing. To provide income support to vulnerable groups, some countries (e.g., Bulgaria and Egypt) have decided to relax or expand the unemployment eligibility requirements. Egypt has increased the cash transfer value by around 150 per cent compared to the pre-pandemic levels. Some EU member states, including Greece, Slovenia, and the Slovak Republic, have provided one-off income assistance to the self-employed. Slovenia for instance provided allowances for pensioners, large families, farmers and students. Other countries, like Serbia, have offered a universal transfer to all adult citizens. In lower-income CoOs, the support of the most vulnerable categories has been in line with the limited capacity of the safety net system, and relied more on providing subsidies on food, utilities and other consumption (e.g., Jordan and Uzbekistan). Morocco has used mobile payments to transfer government assistance to those in need of it.

Limited fiscal firepower has led to an enhanced need for external support. Most CoOs report that they will need to rely on external assistance to help pay for the crisis response package, not least because they may face higher interest rates when accessing international capital markets. To this aim, EU funding for the countries in the EU, and a few selected ones outside of it, particularly in the Western Balkans, as well as arrangements with the IMF and World Bank, have been crucial. In this context, also the size of the response package in some countries was gradually enlarged as international support was secured. The case of Georgia is particularly telling in this regard, as the authorities increased the support package from 2 per cent of GDP as announced in mid-March to more than 7 per cent of GDP as of end-April, while in parallel, agreement for an additional US$ 375 million (ca. 2 per cent of GDP) IMF support was reached in mid-April.

Data as of: 15 May 2020

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