Reducing the negative effects of the global crisis caused by the coronavirus pandemic on the economy of Uzbekistan

Introduction

In Uzbekistan, the state of emergency announced by presidential decree imposes a nationwide quarantine after reporting the first confirmed case of COVID-19 on March 15. The virus, which poses a high risk to human health, was observed in Wuhan, China, in December 2019, and the Chinese reported the spread of a new coronavirus to the China office of the World Health Organization on December 31 [4]. The COVID-19 pandemic has spread rapidly to almost every country in the world.

As soon as cases of the virus were observed and spread in almost all countries, a number of international financial institutions warned that the impact of the pandemic on the economies of countries and the possible economic recession as well. Particularly, the financial holding JP Morgan Chase, based on the analysis of its new economic growth projects, noted that in July there will be a recession in the US and European economies due to the COVID-19 pandemic [6]. In addition, an American credit rating agency, S&P Global Ratings, has also warned of a recession in the economies of countries stagnated by the new COVID-19 virus this year [7].

Literature review

First of all, what is a recession and what are its consequences? Many economic pieces of literature outline recession based on a number of factors. According to the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), a recession is a significant decline in overall economic activity, mainly in GDP, real income, employment, industrial production, and wholesale-retail sales, that lasts several months [3]. In other economic sources, a recession is characterized as negative economic growth in the country's gross domestic product (GDP) for two consecutive quarters [5]. According to According to Mcconnell, Brue, Flynn, a recession is a period of decline in total output, income, and employment. This downturn, which lasts 6 months or more, is marked by the widespread contraction of business activity in many sectors of the economy [1].

So how is this pandemic different from other natural disasters? Historically, we have witnessed many economic crises in countries as a result of earthquakes, floods and other natural disasters. The difference between such disasters and COVID-19 is that countries have the opportunity to make relatively accurate predictions about when the disaster will end, and as soon as the disaster is over, countries try to rehabilitate the economy using macroeconomic instruments.

However, as for the current COVID-19 pandemic, it remains almost impossible to predict exactly when it will end. Because it is the first time the virus has spread, it takes a long time to produce a vaccine for it. Until the vaccine is developed, there is no doubt that a new stream of this pandemic could emerge even after all those infected with the virus have recovered.

In general, there have been a number of recessions in history, and they have been called by different names. In particular, the Great Depression of 1929-1939, the energy crisis of 1979, the recession in the economies of developed countries in the early 2000s, and the US financial and economic crisis of 2007-2009. The recession expected to occur with the COVID-19 pandemic is the most severe crisis since the Great Depression, and the recession has been dubbed the “Great Lockdown” by the International Monetary Fund.

Comparative analysis, logical analysis, structural analysis, statistical grouping, synthesis, induction and deduction methods were used in the research.

Analysis and results

The COVID-19 pandemic affects the economies of developed and developing countries around the world to varying degrees. Growth rates in Europe's largest economies also declined in the 1st quarter of 2020 due to the COVID-19 pandemic, including no overall growth in the Italian economy and only 0.3% growth in the German economy. Compared to November 2019, the growth rate for Italy decreased by 0.4%, for the UK and France by 3%, and for Germany by 0.1% (Fig. 1). According to economists, these negative growth rates may continue to be observed.

Italy Germany European The UK France Russia Turkey Union territory

Fig. 1. GDP growth rate in European countries before and after the Coronavirus pandemic in 2020 [2] (in percentage)

How will this pandemic affect the economy of Uzbekistan? A number of international organizations have made their predictions on this issue. In particular, the World Bank's report "Fighting COVID-19" predicts the impact of the pandemic on the economy of Uzbekistan - GDP growth will decrease by 1.6% [8].

As noted above, the expected global recession will have different effects on the economies of countries. As a result of the quarantine situation, the incomes of the population employed in the private sector have declined as they use their savings to meet their current needs. If a country's population has a large amount of savings, the global recession in that country will be relatively mild.

Fig. 2. Dynamics of changes in aggregate demand and aggregate supply during the pandemic

Source: Created by the author.

If we express the impact of the COVID-19 pandemic on the economy of Uzbekistan on the example of the AD-AS model, the situation in Figure 2 is reflected, and we can see that initially there was a shock on the aggregate supply side. After imposing a nationwide quarantine after reporting the first confirmed case of COVID-19 on March 15, the majority of the population believed unofficial messages spread on social networks and increased the demand for the products as a result of the threat. Assuming that the price level in the AD-AS model in the country before the quarantine was P and the real volume of production was Q, the population's demand for products increased sharply after the declaration of quarantine, which led to a rightward shift of the aggregate demand curve, from AD to ADj, price level rises from P to Pi and real output from Q to Qi. Quarantine rules have been tightened, resulting in a reduction in the activities of many businesses in the regions, and it is very difficult to increase supply with current resources, equipment and technology. In turn, the amount of aggregate supply also decreases (from AS to AS_i) and this leads to an increase in the price level, now the price level increases from P_i to P₂, the real output decreases from Q_i to Q₂. Given that the majority of the population is employed in the private sector and many businesses have been shut down during quarantine, the decline in income is natural because most of the population is temporarily unemployed due to pandemic. A decrease in income, in turn, leads to a decrease in aggregate demand of the population, the aggregate demand curve shifts to the left (from AD_i to AD₃), the new equilibrium parameters are set at the price level P₃ and the real output Q₃.

It should be noted that in many countries there is a risk of food shortages, especially in countries with high levels of food imports. However, this is not the case in Uzbekistan, as the country's agricultural sector is well developed and food producers and suppliers are operating non-stop during the quarantine. Uzbekistan is also a food exporter that will allow our country to export food products even in pandemic conditions while meeting domestic demand.

Conclusion/recommendations

It is considered necessary to take social and economic measures to mitigate the negative effects of the impending economic crisis:

I. Social measures

a) It is necessary to ensure that the population is provided with accurate information on the Internet and through the media so that the citizens of the country are not endangered. These include providing pieces of advice on how to spend time effectively during quarantine with the help of the media, or instructions on how to do business using their available resources, such as a yard;

(b) Developing roadmaps outlining the prospects for the widespread use of Freelancing remote employment platforms with the aid of promoting the rapidly evolving experience of self-employment around the world among the economically active and inactive population;

c) Increasing the amount of fines for violation of quarantine rules and aggravating the type of penalty imposed.

II. Economic measures

a) There is no clear information on when the quarantine period in the country will end. The abolition of the current quarantine status could have negative consequences. Therefore, in this case, until the end of the quarantine period, the state should use the instruments of fiscal policy (expansionary fiscal policy), for example, increasing public spending and the introduction of tax incentives. Business entities operating in the field of services should be suspended of taxation. The use of monetary policy instruments during quarantine is relatively inefficient because many businesses have been shut down due to quarantine, and low-interest loans are of no interest to those involved. In this process, only extending or taking a break from the loan repayment period will give good results. After the quarantine period, the state should implement an expansionary monetary policy, including reduction of interest rates, the introduction of incentives for lending;

b) The population employed in the public sector receives the average wage from their jobs, but the rest employed in the informal or private sector does not have such an opportunity. The incomes of this segment of the population have dropped significantly. The state should focus on the social protection of this segment. It is necessary to allocate a certain amount of subsidies from the state to the poor. As a result, aggregate demand will increase and the economy will have the opportunity to return to its previous chain;

c) To allow enterprises to continue their activities with the establishment of strong sanitary and hygienic controls;

d) The state should support business entities producing export-oriented products with the allocation of export subsidies;

e) To establish state control to ensure that the price of inelastic products does not increase during the quarantine.

All things considered, in such a situation, the state and its citizens must act in trust with each other because it is clear to everyone that this recession was not caused by the wrong economic policy of the state. Through prudent economic policy and the solidarity of the people, we can overcome this pandemic and the negative consequences of the impending economic recession.

References / Список литературы