In this interview with MAP Washington, the senior fellow at Indiana University in the United States, who has extensive expertise in macroeconomic and structural policies, provides his analysis of the extent of the economic crisis resulting from the coronavirus pandemic and scenarios for exit and recovery.

 Regarding Morocco and Africa, the various initiatives of HM King Mohammed VI to respond to this unprecedented health crisis were tackled with this economist, author of several publications on industrialization, fiscal management and economic development of the continent.

1- How do you assess the magnitude, the speed and the impact of the sudden collapse in economic activity in the context of the coronavirus pandemic?

In its April 2020 World Economic Outlook growth projections, the IMF expects the world output to decline by 3% with a sharp downturn expected for advanced economies (-6.1%) among which the US GDP is to decline by -5.9% while that of Germany and France by -7.0% and -7.2 % respectively. Output of the emerging countries is expected to decline by 1%, among them China is to grow by only 1.2% and India by 1.6%.

 However, this scenario assumes that the pandemic will disappear in the second half of 2020 and therefore full economic activities will resume by the beginning of 2021. In my view, this can only happen if a vaccine for Covid-19 can be found, tested, and made available for everyone by the end of 2020. Until such vaccine is found, a full resumption of all economic activities will have to be carried out in phases (see below). The complexities and the risks associated with relaxing social distancing in the absence of a vaccine mean that at best, economic activities can be resumed gradually and it would take at least another year (i.e., mid-2021) before everything returns to normalcy.

2- What are the most urgent steps that governments should take to mitigate the social and political impact of the crisis?

The unprecedented deceleration of economic activities has led to significant economic costs, including rampant unemployment. Moreover, the duration of the crisis and the speed of the subsequent recovery remain unknown, so it is difficult to assess the full extent of these costs. The longer the crisis lasts, the more costly will be the damages.

 Normally, countries facing a crisis originated from abroad such as this one could seek help from external resources, such as the World Bank and the International Monetary Fund, but the global nature and magnitude of this crisis are such that these external resources will be insufficient and need to be supplemented by domestic funding.

 Fiscal policy must work to mitigate the adverse impact caused by a rapid deceleration of economic activities. Monetary policy needs to provide an adequate flow of liquidity to businesses and households, and to ensure the government has adequate financing instruments to mobilize resources.

 The pandemic adversely affects workers in the formal as well as informal sectors. The most vulnerable group includes those in the informal sector and/or part-time workers, unskilled youth, and school dropouts.

 It is important for countries to extend the safety net to include those recently laid-off due to the coronavirus. In many countries, charities and volunteer organizations step forward to help affected workers. For the formal sector, the demand shock affects firms differentially in different sectors, and so governments need to target the worst-affected firms first.

 There are three types of firms: (i) firms with continuous demand (such as groceries and medical products); (ii) firms facing lost demand (including restaurants, travel, entertainment, transport, and tourism); and (iii) firms facing delayed demand (including consumer and producer products, and related business services).

 Firms in the first category do not need assistance, while those in the second and third categories are priorities for assistance. Those in the second category could be given one-off cash grants, while those in the third category could be given loans, as demand for their output is likely to bounce back. The current safety net program in each country should expand to at least cover the basic needs of workers in these firms.

 3- How do you see the path to recovery and how long will it take to get back to "normal"?

I see a long path to Covid-19 recovery, which according to many experts, can be divided into three periods. In period I, because the coronavirus spreads very fast through human contact, and at the moment there is no vaccine or cure, countries have relied on lockdowns, social distancing, quarantine, and isolation to deal with COVID-19. These measures aim to 'flatten the curve' so that the limited healthcare facilities and resources can accommodate patients without being overrun, which would result in unnecessary deaths because of inadequate care.

 In the absence of widespread testing and tracking, these are the best known methods to slow the spread, but the economic costs of these actions, especially on tourism, trade, and foreign investment, are massive. In period II, some restrictions will be relaxed and some economic activities are allowed while care is taken to ensure that coronavirus is not coming back. Period III begins when a vaccine is available so that full economic activities are resumed. Triggers to move from Period I to Period II are a continual decline of documented COVID-19 cases within a 14-day period (the incubation) and a robust testing program in place for at-risk health care workers. Other criteria include a decline of influenza-like illnesses reported within a 14-day period and hospitals having enough protective gear for their workers and enough beds, ventilators and other needed supplies to treat all patients.

 We may never get back to a "normal" state unless a vaccine is found and is available for everyone.

4- What is your assessment of Morocco's response to the pandemic?

Since the first case of COVID-19 in Morocco, the government has swiftly implemented strong measures to control the spread of the virus. The authorities closed borders, suspended all international flights, cruises, and passenger ships, and restricted domestic flights. King Mohammed VI created a national emergency fund which brought in significant donations from everyone. The government used the money to buy resuscitation beds, respirators, sampling kits, test kits and radiology and imaging equipment. The country subsequently issued a state of emergency, shutting down all schools, mosques, cafes and restaurants, sports and entertainment venues to combat the virus' spread. To help ease economic pain, Morocco pays a stipend to people who lose their jobs and defer tax and debt payments from small businesses.

These decisive measures, together with efforts to raise awareness among citizens, have helped contain the coronavirus spread in Morocco. But the costs of the pandemic to the economy have been large. As an energy importer, Morocco has benefited from low energy prices, but remittances, tourism, transportation and hospitality services are all suffering as a result of global restrictions and weaknesses in supply chains.

The government has few resources to sustain small and medium-sized enterprises (SMEs) and larger companies, and its social and health services networks are strained. Because of the pandemic, Morocco, along with the rest of the world, faces a great deal of economic uncertainty. Official figures show that 700,000 workers lost their jobs and some 113,000 businesses closed from March 20 to April 1. Morocco’s close integration with Europe and the adverse impact of the pandemic on the latter also create issues related to the Morocco’s recovery and its supply chain and customer links. Currently the EU accounts for more than 58% of Moroccan exports, 59% of foreign direct investments (FDI), and 70% of Morocco’s tourism industry.

5 - The pandemic has paralyzed global supply chains. What challenges does such a situation pose for developing countries?

The pandemic has brought to the fore how important domestic manufacturing is for national security, and has led some countries to insist that products critical to the health sector must be made domestically. As governments adopt pandemic-preparedness strategies for the future, the global demand for medical products will be sustained at least in the medium-term, creating new opportunities for manufacturing firms in countries such as Morocco. These firms can contribute towards mitigating COVID-19 while positioning themselves for potential long-term success by producing a variety of medical products.

 Simple medical gear including facemasks, gloves, gowns, and simple medical equipment are being made in Morocco. In order to survive the economic downturn, many SMEs are taking advantage of the severe shortage of these products by adjusting their factory production lines and retraining their workforce to produce simple medical products for local hospitals. Light manufacturing firms in Morocco have been doing this and should be encouraged to do so in the short term.

 More complex medical equipment, including hospital beds, medical instruments including ventilators, and medical transport vehicles such as wheelchairs, vans, and ambulances, could be produced by firms in the metal products, machinery, electronics, automobile, and aircraft-parts sectors. This has been done in the U.S., with auto and aircraft parts manufacturers adjusting production lines to produce ventilators. As Morocco already has well-established auto and aircraft clusters, the country could diversify into these types of medical gear and vehicles. This would be consistent with the desire of some countries to be self-sufficient in the production of these products as a matter of national security, in the wake of COVID-19 crisis.

 These efforts can serve as a reminder for developing countries to implement structural changes to ensure more self-reliance. Many of the medical products needed to address COVID-19 are produced with well-known, off-the-shelf technologies that firms anywhere can purchase, if they have the skills and know-how to use them.

Retooling could be encouraged through: (i) credit promised by the government so firms can continue to pay workers while they retool; (ii) easy access to information and availability of technologies; and (iii) efficient connectivity between critical parties (suppliers, medical facilities, and other buyers).

 In the longer run, as awareness grows of the hazards of over-dependence on China for all manufactured products (from medical supplies and ventilators to iPhones), buyers and investors around the world will seek production locations outside China. Morocco has a unique opportunity to use the economic downturn to position themselves as viable manufacturing locations.

6 - You have been working for a long time on development issues in Africa, what impact will this crisis have on the continent?

My hope is that the pandemic will not ravage Africa in the same way it did in Asia and in North America due to lesser exposure to the coronavirus. On the other hand, if the pandemic hits that continent, it could wreak more havoc because of the weak healthcare systems and infrastructures, their inadequate budgetary resources, and weak government capability. For example, it appears that Zimbabwe has only 5 ventilators while the entire Nigeria has only 500 ventilators to cope with the pandemic. This dire situation also explains why so far, over 100 countries in the world have approached the World Bank and IMF for coronavirus assistance, even though there was no massive outbreak yet in the developing world.

 Moroccan King Mohammed VI’s Africa initiative, therefore, is both timely and critical to confront the coronavirus pandemic. The initiative calls for a unified and concerted response to COVID-19 pandemic in Africa and for facilitating joint action by African countries. It enables the sharing of experiences and best practices to address the health, economic and social impact of the pandemic.

Morocco is placed in a favorable position compared to many in the region and the world. Both the Moroccan people and the government so far appear to be doing the best they can to flatten the coronavirus curve and to rise to the difficult challenges ahead.