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COVID19 : Government and Central Bank Support

  • Government Fiscal Policy to support economies against the economic consequences of their political decisions to combat Covid19.

  • Central Bank Monetary Policy to support economies and government fiscal policy. 

The table below reports the various announced governmental fiscal interventions to try and support economies from the political decisions to combat Covid19. The numbers are large and would not be able to be financed by the private sector alone without causing a deep correction to private sector risk assets (as money would exit those investments to fund these deficits).

Central Banks have intervened by

  • cutting rates to aide debt servicing costs

  • undertaking Quantative Easing (QE) to monetise the increasing sovereign debt issuance

  • Qualitative Easing (QE) programs to buy Corporate Debt to keep credit markets open.

  • offering repo facilities to ensure liquidity in dysfunctional financial markets

The fiscal packages will increase outstanding sovereign debt levels, which were already elevated following the Great Financial Crisis. The "Outstanding Debt 3Q19" and "Outstanding Debt 4Q07" columns below display data from the BIS Debt spreadsheet​​.


The debt increase, together with declines in GDP, will catapult Debt/GDP ratios even higher. Potential increases in outstanding sovereign debt can be calculated by adding announced Covid19 fiscal packages to already expected 2020 budget deficits (I assume 2019 data for these calculations). The "Estimated 2020 % Debt/GDP" ratios simply divide the new increased debt total by the 2019 GDP deflated by 5%. 

The results are probably on the conservative side, and are for 2020 only - the GFC showed that ratios are likely to increase for at least the next 3 years. The numbers and trends do not look out of line when compared to the progressions the debt/GDP increases since the GFC. A more detailed explanation and further calculations can be seen in this post on potential European debt  trends.

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