Question

In the first and second quarter of Covid-19 outbreak, financial and non-financial institutions have no choice but to remain hyper vigilant and rewrite the pandemic playbook as circumstances with COVID-19 evolve. It’s shows that the overall economic impact remains highly uncertain.

In the situation of post-Covid 19 pandemic outbreak that caused the global economy plummeting and the inevitable economy slowdown, Assess and propose a comprehensive systematic framework for Islamic non-financial institutions to exploit the results and offer financial assistance to the community. (850 words)

Answer 1

The COVID-19 pandemic is the mother of all stress tests for the global economy, and not least for emerging markets and developing economies. Early on, there were hopes that the virus might bypass low-income countries, which have fewer air-transportation links to the rest of the world, or that it could be contained in countries with past epidemic experience in sub-Saharan Africa, for example. Such hopes were disappointed. We now know that the virus threatens all parts of the world. Moreover, even where countries have been able to avert a full-blown health crisis, the financial effects have been severe that financial impact preceded COVID-19 physical arrival in the developing world. Between February and April, more than $100 billion in financial capital flowed out of emerging and frontier markets, five times as much as in the first three months of the global financial crisis. The World Bank forecast that remittances would fall by an additional $100 billion in 2020, four times as much as during that earlier crisis. Global trade was forecast to fall even faster than in 2009. Commodity prices collapsed in response to the global recession, while emerging market and developing economy currencies weakened against the dollar. This was a shock of unprecedented proportions. Governments responded with emergency spending packages in support of households and firms. Emerging market central banks cut interest rates and, in some cases, undertook purchases of securities. As a result, the negative impact on economies and financial systems was somewhat less than anticipated initially. For emerging markets, this policy response was unprecedented. It was the opposite of the actions they were forced to take in earlier crises. The contrast was indicative of progress made in building fiscal space and anti-inflation credibility. One indication lies in the actions of emerging market central banks that adopted a formal inflation-targeting framework as a credibility-enhancing device. Through the first five months of 2020, those central banks were able to cut interest rates by 40 to 50 basis points more than their non-inflation-targeting counterparts.