Introduction
First reported in Wuhan in 2019, the COVID-19 pandemic has become a global catastrophe with huge economic implications (Hazra, 2020). The UAE had reported 316,875 cases and 888-related deaths as of February 4, 2021 (International Monetary Fund, 2021). Closure of public places and travel restrictions are some of the measures taken to contain the virus’s spread. Japan reported the first COVID-19 case on January 16, 2020, prompting the government to take several measures to contain the spread of the virus (International Monetary Fund, 2021). Examples include entry bans for people that have visited affected countries over the past 14 days and lockdowns in all Japanese prefectures. Although the measures taken to prevent the spread of the disease are critical for public safety, they have significant economic implications. The paper compares the impacts of the disease on UAE and Japan’s economies and the governments’ measures to fix the economies. It will also evaluate the economic outlook after implementing the various fiscal and monetary policies and provide recommendations to enhance better outcomes.
Impact of COVID-19 on the Economy
The pandemic has affected the economies of the UAE and Japan significantly. The UAE has had one of the strictest lockdowns globally, affecting the supply chains of numerous businesses in a country where trade, transportation, and tourism are the economy’s backbone. A significant decline in economic activity and lowering oil prices led to GDP projections of -6.6 percent for 2020, which could improve in 2021 because of the government’s policies to revive the economy (Hazra, 2020). For instance, a stimulus package of approximately 18 percent of the GDP will help small and medium enterprises (SMEs) and consumers adversely affected by the pandemic. Although key economic indicators have worsened over the period, the measures taken to control the disease’s spread have worked because the UAE remains a safe travel destination. The IMF projects a 1.3 percent economic recovery by 2021, likely to revive the key economic sectors. The rollout of vaccines is likely to change how the government manages the situation, which will significantly impact the economy. People’s doubts about their families’ safety and the disease may disappear after vaccination.
In Japan, the service sector sentiment index worsened, especially after the lockdown measures in Tokyo and other areas with huge economic activity. The confidence of service sector workers, such as hotel and restaurant workers and taxi drivers, about the current economic status, has declined by 3.1 points (Kaneko, 2021). The government has also reported a weakening economy, which could worsen with the extension of containment measures taken to control the virus’s spread. A shrinking economy means decreasing GDP growth, increasing unemployment, and inflation because of the rapid rise in essential commodities prices. The proposed start of COVID-19 vaccinations is expected to bring supportive change to the economy. For instance, the government may ease the containment measures, reopen the economy, and set it onto the recovery mode.
The analysis indicates that COVID-19 effects on the economy are similar in the UAE and Japan, probably because they have taken similar containment measures, mainly lockdowns. The major economic sectors have shrunk, leading to negative GDP projections, rising inflation, and unemployment rates (Hazra, 2020; Kaneko, 2021). Vaccination programs are likely to change both countries’ situations because they may ease the lockdowns and containment measures to revive the economy. The UAE seems to have better containment measures and recovery plans than Japan, indicating that its economy is better placed to regain its strength. For instance, the stimulus package targeting SMEs and low-income households will ensure that those most affected by the pandemic recover.
Monetary and Fiscal policies adopted by the UAE and Japan
The UAE government has used fiscal and monetary policies to respond to the pandemic to revive the economy. As of February 4, 2021, the government had announced approximately AED 32 billion in various fiscal measures (International Monetary Fund, 2021). They included AED 16 million for private sector support to reduce government fees, labor, and other charges. The funds were intended to reduce approximately 50 percent of bank guarantees to some organizations and accelerate current infrastructure projects. The Dubai government has announced AED 1.5 billion to reduce government fees, simplify business procedures, and subsidize essential services, such as water and electricity.
Similarly, the Abu Dhabi government announced AED 9 billion in a stimulus program to subsidize essential services and provide liquidity support to SMEs. The fund will also support the postponement of payment for outstanding installments and interests on credit facilities for three months and suspension of rental property eviction cases (International Monetary Fund, 2021). On July 11, 2020, the Dubai government had announced an AED 1.5 billion package covering the cancellation of fines imposed by the customs departments and other government agencies, reimbursements to hotels and restaurants, banking facilities to individuals and corporations. Other stimulus packages include Dubai’s AED 500 million in October 2020 to support the local economy and an additional AED 315 million to cover January-June 2021.
The UAE government has also taken several monetary policy measures, which have contributed significantly to economic recovery. The central bank reduced the interest rate twice in 2020 by a combined 125 basis points to achieve various objectives (International Monetary Fund, 2021). It also announced an AED 256 billion (20 percent of GDP) to achieve various objectives. The first one was to halve commercial banks’ required reserves from 14 percent to 7 percent. The regulator also intended to provide AED 50 billion zero-interest-rate collateralized loans and allow the use of AED 50 billion banks’ excess capital buffers. The central bank also wanted to lower bank fees for SMEs and cut all payment service fees for six months. It also announced additional measures to facilitate bank lending in August 2020.
Japan has also taken significant fiscal and monetary policy measures to salvage the economy over a difficult period. For instance, the government adopted a ¥117.1 trillion Emergency Economic Package Against COVID-19, approximately 20.9 percent of the GDP, on April 7, 2020 (International Monetary Fund, 2021). The package was intended to enhance preventive measures against the virus and strengthen treatment capacity. The government also aimed to protect businesses and jobs, regain economic activity after containment, reconstruct a resilient economic model, and enhance future-readiness. The Ministry of Finance pronounced the second FY2020 draft supplementary budget of ¥117.1 trillion covering health-related measures, household and business support, local government transfers, and raising the ceiling for the COVID-19 reserve fund (International Monetary Fund, 2021). The government announced another ¥73.6 trillion package in December 2020 to contain the pandemic, secure safety and relief, and promote structural change and positive economic cycles.
As the largest contributor to IMF concessional lending facilities and financial resources, Japan promised an additional US$100 million to the body’s Catarastrophe Containment And Relief Trust to support its capacity to offer grant-based relief to the poor and deserving countries (International Monetary Fund, 2021). The Bank of Japan (BoJ) called a monetary policy meeting on March 16, 2020, announcing various measures to ensure the smooth operation of the financial and credit markets. Examples included special funds, government bond purchases, ETFs (Exchange Traded Funds), and REITs (Real Estate Investment Trusts).
Economic outlook of UAE and Japan
The fiscal and monetary policy measures by the UAE government have contributed significantly to the recovery signs noted in the country. The authorities started a gradual reopening of shopping centers and businesses on April 24, 2020, with social distancing requirements and offered expatriate workers voluntary repatriation (International Monetary Fund, 2021). Some carriers have resumed a restricted number of regular passenger flights, and most civil servants had returned to work by July 7, 2020. In Abu Dhabi, restaurants, cafes, coffee shops, and other licensed food outlets started to operate at 80 percent capacity on July 29, 2020 (International Monetary Fund, 2021). Additionally, the government reopened entertainment and recreational areas on September 23, 2020. Schools resumed in September across the country, a significant milestone in managing the pandemic and the economy. The government should sustain the measures until full recovery and attempt to learn the recovery measures practiced in other countries.
A decline in the number of newly confirmed cases prompted the government to lift abolish the lockdown in 39 prefectures on May 14, 2020. Japan extended the abolishment to all the 47 prefectures on May 25, 2020 (International Monetary Fund, 2021). The actions relieved economic pressure, creating hope that normalcy would resume to save the economy and jobs. On July 15, 2020, the government requested the people to refrain from traveling outside Tokyo and karaoke venues following an increased COVID-19 alert level. The alert levels kept changing depending on the confirmed cases until January 7, 2021, when the Prime Minister declared a state of emergency for Tokyo and the neighboring prefectures of Kanagawa, Saitama, and Chiba (International Monetary Fund, 2021). The measures have affected the service sector significantly, thus having a negative economic impact. For instance, bars and restaurants should close by 8 p.m. while teleworking entities have to reduce office staff by 70 percent. Residents were advised to stay at home and avoid unnecessary travel after 8 p.m. The audience for large events was restricted to five thousand people. The various containment measures have restricted the economy significantly.
Japan resumed cross-border entry by all foreign nationals possessing the status of residence since September. The country has also agreed on a “Residence Track,” allowing the essential business exchange with Cambodia, Malaysia, Singapore, Taiwan, China, Brunei, Lao’s People’s Democratic Republic, Myanmar, Taiwan, South Korea, and Thailand (International Monetary Fund, 2021). However, those traveling must agree to mandatory quarantine measures, including sending a schedule of activities during the stay in Japan. The measures have enabled Japan to maintain some international trade level, especially in the supply of essential services.
Recommendations
The UAE and Japanese governments have taken extraordinary measures to manage their economies amidst the COVID-19 pandemic, setting them in a recovery mode. While the actions are commendable, the following measures may prompt better outcomes:
- Vaccination: Various COVID-19 vaccines, such as the Pfizer-BioNTech, Moderna, AstraZeneca, Novavax, and Janssen vaccines, have successfully passed the clinical trials. Accredited international organizations, such as the WHO (World Health Organization), have approved the various vaccines. Although there are significant logistical challenges in distributing the vaccines, the governments should roll out mass vaccinations as soon as possible to ensure that every citizen is protected against the virus. There should be coordinated efforts to deal with rejection because some people may be hesitant to take the vaccine jabs. Vaccinating the populations will address the uncertainties the people have about their safety, stimulating economic activity and GDP growth.
- Collaborate with international organizations: Internal mechanisms have worked effectively in setting the two countries for economic recovery. However, partnering with international organizations can provide better approaches and accelerate the recovery process. For instance, the World Bank helps countries address the crisis and transition to recovery by securing economic foundations, enhancing policy and institutional resilience, saving lives, and protecting the poor (The World Bank, 2021). The organization has offered $160 billion to finance nations’ capacity through June 2021. The UAE and Japan can expand their stimulus packages through the World Bank funding to accelerate their economies’ recoveries.
Conclusion
Like other countries, the UAE and Japan have taken several measures, mainly lockdowns and travel restrictions, to contain the deadly coronavirus’s spread for public safety. The two countries have paid a heavy economic price, as seen in declining economic growth and rising inflation and unemployment. The governments have responded adequately through fiscal and monetary policies, such as stimulus packages, low interests, and financial incentives. The actions are meant to stimulate demand, increase liquidity, and support households and corporations, especially SMEs. Governments at national, regional, and local levels should continue implementing policies to revive the economy. Rolling out mass vaccination programs and partnering with international, such as the World Bank and the IMF, will facilitate faster recovery.
References
Hazra, D. (2020). The impact of COVID-19 on the UAE economy. D’Andrea & Partners. Web.
International Monetary Fund. (2021). Policy responses to COVID-19. International Monetary Fund. Web.
Kaneko, K. (2021). Japan’s January service sector sentiment worsens as COVID-19 impact drags.Reuters. Web.
The World Bank. (2021). The World Bank Group’s response to the COVID-19 (coronavirus) pandemic. The World Bank. Web.