The coronavirus pandemic and small states: a focus on Small and Vulnerable Economies

Jodie Keane, March 2020

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Unlike the 2008/09 global financial crisis (GFC), which preceded the Great Recession, COVID-19 represents both a Keynesian demand shock and a supply shock. In addition to the transmission of a collapse in final and effective demand, an endogenous supply shock will occur because economic activity itself must stop to make it possible to contain the spread of COVID-19. There is no parallel for this in modern times. The interaction between the above shocks and economic effects depends on governments’ fiscal and monetary policies and private sector/consumer behaviour within each country as well as across and between countries. The provision of major financial stimuli along with social safety nets and actions taken by ‘socially responsible’ firms will be pivotal to avoid dire social effects. But not all countries are in a position to respond, especially Small and Vulnerable Economies (SVEs), a number of which have been hit by a series of major economic shocks in recent years. This note discusses the channels through which SVES will be affected, focusing on tourism and remittances.

Photo: Scenic view of a beach in Tonga. Asian World Bank. Licence: (CC BY-NC-ND 2.0)