Fidelis Magalhaes – The Timorese people and their government are about to combat a historic shock to our struggling health care system and emerging economy.
The first case of COVID-19 was detected on March 21 and on March 28 we declared a state of emergency. This closed schools, forbid large gatherings (for example, church ceremonies), and stopped public transport. Though many businesses remain open, most citizens have chosen to reduce their economic activity or have left the cities for rural areas. As of May 1, 2020, we had 24 known COVID-19 cases and 16 of those patients have recovered. All cases so far have been imported and almost all entered through the Indonesian land border, which has since been closed. No deaths or serious hospitalizations have yet been recorded.
The government decided to take timely and decisive action at the earliest possible stage to both contain the spread of the virus and to support our citizens and the economy. The dire consequences of waiting are evident internationally; we hope to avoid a prolonged exponential growth of both cases and mortality. We believe a swift and coordinated public sector response, an economic stimulus package, and the avoidance of an extensive and complete lockdown, coupled with a strengthened social safety net, can significantly avert the catastrophic human and economic consequences seen in other countries.
On the health side we have two main goals. First, we will tackle and suppress the invisible killer by deploying health measures to isolate and care for patients while increasing tracing and testing. Estimates range in the low end with 11,000 citizens infected to a high end with 130,000 citizens infected. Suppression is the only real option we have to reduce, control, and slow transmission, until there is a vaccine or reliable treatment. Second, we will follow the science and gradually lift containment measures only when six epidemiological and health conditions are met, as per the international guidance of the World Health Organization (e.g. confirm that virus transmission has been controlled, ensure that health systems are capable of detecting, testing, isolating, and treating, ensure that outbreak risks are minimized and that the risk of importing new cases can be managed, among others). Once these conditions are met we can start thinking about how to gradually go back to a "new normal."
In our view, the management of the crisis is not a simple choice between saving the economy and protecting people's health. The emergency is complex and requires striking a precarious balance in achieving priorities in sectors that have direct implications on citizens' lives and livelihoods. They are not mutually exclusive, but instead mutually reinforcing.
On the economic side, the government has designed several measures to reduce financial insecurity and to address the threat of widening inequality, poverty, and hunger that many Timorese families could potentially experience during the emergency. The centerpiece of this response is a decision to strengthen and forcefully expand the social safety net. By implementing a cash transfer of $100 to households with monthly income of $500 and below, we can both address our citizens' most pressing needs and make health measures more effective and tolerable. A cash transfer system supports mandatory quarantine and the voluntary stay-at-home choices of our citizens. It mitigates disruptions to the daily life of thousands of people and helps them stay safe. In this light, it is untenable to sustain the view of those who believe that the unintended economic effects on the vulnerable (the costs) will outweigh the benefits of reduced morbidity and mortality through social distancing.
In the next 30 days, the government will also support family expenses with the purchase of sufficient staple foods to avert food insecurity and hunger. Moreover, in the following four weeks the government will fund the revival of agricultural production with considerable subsidies of approximately $5 million for machinery, fuel, technology, and inputs to keep food supply moving in the country. Timor-Leste will offset the liquidity problems the real economy may face during the coronavirus crisis through five measures designed by the Central Bank that incentivize banks and microfinance institutions to lend to enterprises even when their cash-flow is under pressure. To avoid deeper injuries to the real economy, the government aims to stabilize employment and avoid firm closures by creating a wage subsidy of 60 percent, which is devoted to deter potential losses in jobs and productivity in the formal and informal economy. In addition, the government has recently modified the existing Decree Law on national credit guarantee scheme, which redefines micro, small, and medium enterprises to include micro-businesses that employ fewer than six workers, introduces a higher absorption of lender's losses beyond the previously fixed coverage of 70 percent, and allows microfinance institutions to take part in the scheme (previously only banks). This is of great significance as most farmers are self-subsistent, and the majority of micro and small enterprises operate informally and rely on microfinance institutions for credits. The present value of the credit guarantee scheme is $4 million but the Timorese government will inject more liquidity in the future.
According to the 2015 census, 95 percent of the informal sector are subsistence farmers. Many farmers grow their own food and will be somewhat shielded from the economic consequences of mitigation. The 5 percent that are not farmers can be expected, in about half the cases, to be significantly and negatively impacted. Of the 250,000 informal sector workers, approximately 235,000 are farmers. Our estimates, based on household income data and a recent 2019 study of the informal sector, suggest that 5,000 to 10,000 households are in the non-agricultural informal sector. The government's approach to address the vulnerabilities of informal workers during COVID-19 involves adopting measures in the short and medium term through the social protection system such as extending coverage like unemployment insurance, subsidizing wages, together with measures to generate income security through targeted cash transfers and other social assistance programs, as well as focusing on generating employment during the health emergency to cushion the economic blow in the informal sector and support the recovery.
To fully leverage an appropriate response, both the health and economic measures rely on a Petroleum Fund that enjoys a strong fiscal position, valued in March 2020 at $17 billion. The fund is meant to act as a buffer when the nation faces grave fluctuations and volatilities and it is precisely during health and economic crises like those brought by COVID-19 that the Fund can help us avoid one of the worst negative socioeconomic shocks our country will endure. People's lives come first. The Fund can fund health measures and cushion against the looming economic downturn and its value can be maintained through fiscally prudent withdrawals. Its assets, even after funding health initiatives and an economic stimulus package, will remain roughly 10 times annual GDP.
Our economic response measures are similar in relative size to those in our more advanced ASEAN neighbors like Singapore and Malaysia, whose stimulus packages are roughly 10 percent of their GDPs.
The measures announced so far describe the government's short-term, emergency economic response to the COVID-19 shock. Many more measures will be required in a recovery and stabilization phase, which is expected to last several months after the coronavirus crisis.
[Fidelis Magalhaes is Timor-Leste's Minister of Legislative Reforms and Parliamentary Affairs, and acting Minister Coordinator of Economic Affairs.]