Consumer finance under covid-19.

Byline: Nazir Ahmed Shaikh

In the first quarter of 2020, the world was faced with Covid-19 pandemic. Globally, factories were shut down, trade was severely disrupted, stock markets crashed, airports all over the world were deserted, and businesses remained closed to contain the coronavirus outbreak. Investors have started becoming concerned about their money invested in companies. Economies around the world have been experiencing an economic decline similar to the great depression of 1930s. The Covid-19 pandemic has created unprecedented recessionary impact on global GDP.

The role of central banks

Central banks across the world are responsible for maintaining price stability as their prime objective, along with safeguarding the stability of the financial system. The ultimate objective of an effective monetary policy is low and stable inflation, which is prerequisite for sustainable economic growth. It ensures confidence of the individuals and businesses to make rational economic decisions relating to consumption, saving and investment, which have spillover effect on economic growth and employment opportunities in long run, thus improving overall economic welfare of the country.

Importance of an efficient financial system in economic growth

A sound and efficient financial system plays a vital role in economic growth and development of the country. In fact, it helps to convert savings into investment. It provides a secure platform for carrying out economic transactions and helps in a smooth and quick transmission of changes in monetary policy stance to the real economy. The Covid-19 pandemic has triggered an unprecedented human and health crisis. In an attempt to contain the spread of the virus, necessary measures, including lockdowns and social distancing, have restricted the economic activity, which in turn, may have implications for financial stability. In the wake of Covid-19 outbreak, market volatility spiked and borrowing costs have soared, particularly in risky credit markets. Emerging and frontier markets have witnessed the sharpest portfolio flow reversal on record.

Consequently, it has increased the risk that borrower's inability to service their debts would put pressure on banks, leading to strains on credit markets.Thus, within three months, the 2020 outlook has shifted from the expected growth of more than 3 per cent globally to a sharp contraction of negative 3 per cent, much worse than the output loss seen during the 2008-09...