It all began as a health crisis, far from Europe and Macedonia, but Covid-19 quickly lead to a global economic crisis. Stock markets crashed, oil prices dropped sharply, production stopped, factories and shops began to close, and workers were sent on forced leave. The crisis has just begun and companies are already making losses, facing great uncertainty about the future. World trade is declining, many countries have closed their borders for foreign nationals, and there have been attempts to avoid major delays in the flow of goods.

While it is still difficult to assess the effects of the crisis on the economy, it is clear that major interventions by governments will be necessary to maintain at least a certain level of economic activity, avoiding mass layoffs and attack on the social systems.

The Government of the Republic of Macedonia has also taken certain anti-crisis measures in response to the shocks on the Macedonian economy and businesses, focusing on those sectors that are first and directly affected by the crisis (hospitality, tourism, etc.). In this analysis, we first present the measures taken by some European countries to mitigate the effects of the crisis, and then we provide an assessment and recommendations to policy makers in Macedonia on what the “optimal” response should be.

What are the economic measures taken by the EU member states?

Table 1 provides a brief description of the measures taken by some EU countries for managing the economic crisis caused by Covid-19. The measures can be grouped into 9 groups, shown in the table. Although the data may not be fully complete, the largest package of support measures has so far been adopted in Germany. Variations between countries exist, in terms of the companies towards which the packages are targeted. In some countries the focus is only on the sectors most affected by the crisis (tourism, hospitality, etc.), while in other countries, the measures are targeted towards all companies / sectors that have or will suffer losses.

Table 1: Types of measures applied in Western European countries

Source: Financial Times, CNN, BBC, CNBC
Source: Financial Times, CNN, BBC, CNBC
[1] It is calculated for items that have quantified data in figures.
[2]The Italian government has allocated more than 25 billion euros to tackle the virus, including 1.5 billion for health, 1.5 billion for the Population Protection Agency, and the rest of the funds are yet to be allocated, with a tendency to increase due to the severity of the infection.
[3] Total available assets of 100 billion euros.

Note: This is not a full and exhaustive list. The idea is to provide examples of all types of intervention by developed countries.

The assistance for companies in the EU is essentially bigger having in mind that support measures have been adopted by both the European Commission (EC) and the European Central Bank (ECB). The European Commission plans to use 37 billion euros of its funds to help reduce the effects of the virus in EU member states. The EU will also use its own investment fund to guarantee loans worth 8 billion euros to support the corporate sector. The total assistance from EU institutions for loan guarantees and enterprise support, as well as other support mechanisms will be $ 1 trillion, i.e. 5% of the GDP of the EU. An additional 750 billion euros have been provided by the ECB for the purchase of government and private securities to mitigate the negative economic effects from the virus outbreak.

An additional measure in Croatia (although still only a proposal) is the introduction of the so-called standstill arrangement by commercial banks, i.e. to suspend measures for enforced collection against all debtors in a period of three months, during which the regular interest and the interest on arrears, will continue to increase. An additional measure is the possibility for new liquidity loans and working capital for up to three years.

Options for economic intervention in Macedonia

All of the measures outlined above can be completely or partly applied to the case of Macedonia, certainly, by taking into account the specific circumstances of the Macedonian economy and population.

After some initial assessments reported in the media, the Macedonian government announced that it would have to spend around 100 million euros to repair the damage caused by the virus. That is about 0.9% of the Gross Domestic Product (GDP) (GDP amount in 2019), and is a much smaller amount of financial means than those being invested by other European countries, with the aim of overcoming the crisis more easily.

We believe that the allocated amount of financial support in the first package is very small: by simple calculations, if an average loan amount is 16,500 euros and the total support is 5.7 million euros, then it means that the allocated funds can serve around 345 companies (in slightly different calculations the number of companies may increase to 445 companies). Wage support should be provided starting from the month of April, covering the March wages, and not beginning with covering April wages (i.e. from May). Otherwise, the government has defined excellent eligibility rules for companies that can use the wage suport. Assistance should be extended, to a lesser extent, to companies from categories 2 and 3 (see below). Exemption from payment of advance tax is good policy measure, but should extend to the other sectors (the other two categories listed below). On the other hand, the proposed reductions for the so-called parafiscal charges should be higher.