Global Financial Systems threatened by pandemic Covid-19: World moving into recession

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The world has been in turmoil ever since this pandemic broke out. The economy is scrambling to strive in this period of recession. It made a major impact on how businesses are run these days.

“As this pandemic progresses, it consistently proves that it is a major threat to the stability of the global financial system because the true impact of the crisis and how and when the economy can recover can’t be estimated” according to the FSDC (Financial Stability and Development Council) chaired by finance minister Nirmala Sitharaman.

“Even though many of the reforms and packages have somewhat stabilized investor sentiment at least for the short term,  the government and regulators must maintain their caution so that things don’t go out a hand because an expose of financial vulnerabilities in the medium and long term is expected.” as said by the finance ministry in a statement.

The global economy is going through its worst recession since the Great Depression in the 1930s, and India is no exception. For the first time in forty years, domestic economic growth is expected to contract in FY21.

The Indian economy is expected to contract 5% as projected by Crisil, Goldman Sachs, and Fitch Ratings during the current financial year. A ₹20.9 trillion financial package has been announced by the Centre including reform measures to help alleviate the economic impact of this pandemic.

Fiscal support, liquidity provision, regulatory flexibility, and financial system resilience have mostly assisted in economic recovery, but a prolonged slowdown can present newer risks to the financial system as stated in a report by the WEF – “Impact of COVID-19 on the global financial system“.

For the time being, the focus should be on liquidity support, but if firms have to stay afloat as this pandemic continues, governments will have to take equity in some firms.

Through a video conference, the meeting was conducted in the presence of the Reserve Bank of India governor Shaktikanta Das, Insurance Regulatory and Development Authority of India Subhash Chandra Khuntia, Securities and Exchange Board of India chairperson Ajay Tyagi, Pension Fund Regulatory and Development Authority chairperson Supratim Bandyopadhyay, Insolvency and Bankruptcy Board of India chairperson M.S. Sahoo, among others, and other secretaries and senior officials in the ministry of finance as well.

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