"We need to learn the lessons that are being shown from this virus," Dr. Michael J. Ryan, WHO Informal Advisory Group.
The past few months have been severely destabilizing. We have struggled to find a
After the Dot-Com crash of 2000 and the Global Financial Crisis of 2008, today we are facing an unprecedented challenge due to Covid-19, which is having severe implications on public healthcare and economic stability.
THE COVID IMPACT
The Global Economy is expected to shrink by 3% as we witness the largest unemployment in history with millions of people filing for unemployment benefits and other government support job retention schemes.
In a coordinated move by several central banks, governments around the world have slashed their interest rates to make borrowings cheaper in order to nudge the economy in the opposite direction as we face the worst economic recession of all time.
There have been major shifts in the stock market. While corporates will have to chalk out new business plans to survive in these turbulent times, most companies have over leveraged balance sheets and have incorporated Covid-19 into their risk management process.
Financial statement preparation in the current scenario is challenging for the management. The delivery of high quality audit cannot be compromised with even though auditors are facing practical difficulties as control environments are affected and appropriate disclosure in the auditor’s report with respect to deferred payments, expansion projects held back, non-compliance of debt covenants, valuation of inventory and leases, insurance claims, impairment of assets, fair valuation of equity and going concern assumption cannot be compromised with and will be adequately required.
We are witnessing major disruptions in the supply chain as the overall manufacturing output has gone down. There has been an unprecedented collapse in demand and a crash in the prices of oil, industrial metals, food, beverages etc.
The hospitality and the tourism industry have been most severely impacted as domestic and international travel has been stalled for several months and is not expected to return to the pre-covid levels for the next two to three years. The Boeing C.E.O stated that there is a high probability that a few airline carriers may slip into bankruptcy.
Our overall lifestyle has significantly changed as we have adopted the “Work from Home” mode after being forced into extended lockdowns. On the contrary U.P.I payments have been at an all-time high, clearly indicating that we are transitioning more towards digital payments to avoid using hard cash as a precautionary hygiene measure.
Education institutions are undergoing a revolutionary digital transformation as all in person classes have been shifted online through various e-learning platforms that are available.
THE NEW NORMAL?
As the nation is trying to get back to its feet, there is some room for hope tempered with caution. Back in April the RBI announced a 3-month moratorium on E.M.I's and slashed the repo rate by 75 basis points. The Government of India has been proactive in handling the Covid-19 situation with the finance minister announcing an INR 1.75 lakh crore stimulus package to combat the situation.
The R.B.I’s latest financial stability report released clearly spells out unprecedented policy steps to ensure financial normalcy. The moratorium relaxations are going to hit the bank’s profitability. With the bulk of the banking sector in the public domain, this is going to have severe implications on dividends to the government. In short, the R.B.I has sounded a fair warning that things are only going to worsen for the banking sector in the years to come.
Considering the possibility of a deep economic recession, businesses are going into cash conservation mode for the near to mid-term period. Three months into the lockdown, the Indian government formulated a relatively more relaxed strategy for unlocking the economy from June.
As a country with the second largest population in the world the next few months will be a challenging test which will determine the long-term economic implications and the adverse effects of this pandemic.
Governments around the world have pledged billions of dollars for the vaccine as we live in the fear of the second wave. At the end of this pandemic there is going to be some fundamental rethinking and radical redesigning of how most organisations work.
We cannot estimate how severe the medium to long term impact of this pandemic is going to be. Even if we have a vaccine as early as 2021, which will be the fastest in the history of mankind, major economies like that of the U.S and U.K are expected to remain under the recovery phase until the end of 2023.
It is important for banks to proactively look at augmenting their capital and improving their resilience.
"Asking the question 'are we doing enough' regularly and repeatedly is critical."- Dr. Maria Van Kerkhove, technical lead, World Health Organization, infectious disease epidemiologist.
The toughest leadership test for organizations and governments is yet to come as we begin to normalize operations in an environment where there is no vaccine and a continuous uncertainty of what happens next. Hard pass, living with the existing social distancing norms is going to be the new normal.