Pandemic and Colombian Economy

Pandemic and Colombian Economy
Introduction
Travel and interaction restrictions due to Covid-19 and limits on movement through partial or full lockdowns affect consumer expenditure and industries that depend on the physical presence of customers or clients. The first case of coronavirus in Colombia was detected in March 2020 when a lady arrived from Italy with covid-19 symptoms.To deal with that, PresidentIvan Duque tasked the local and regional authorities to take measures and address the health challenge.Restrictions on movements and interactions started to enforce, and many industries are affected, including the travel, transportation, tourism, and restaurant industries.There has been a slowdown in the transport systems, as fewer people are still using transportation services, which has meant that revenues for transport systems are declining.Air transport, freight transport, and urban transport are all affected. This is further complicated by the lack of government assistance to support the affected industries at a time when there are fewer government revenues and expenditure.[Translated by ContentEngine, L. L. C. "They Confirmed the First Case of Coronavirus in Colombia." CE NoticiasFinancieras, English ed. ed., Mar 06 2020, ProQuest. Web. 21 Oct. 2020 .https://search-proquest-com.proxygw.wrlc.org/docview/2373497820?accountid=11243&rfr_id=info%3Axri%2Fsid%3Aprimo] [Julian Arellana, Luis Márquez, and Victor Cantillo. "COVID-19 Outbreak in Colombia: An Analysis of Its Impacts on Transport Systems." Journal of Advanced Transportation 2020 (2020).Web 28. Oct.2020/journals/jat/2020/8867316/]
Pandemic and economic output
Because the falling of consumer demand, the economy faces a drop on revenue, and industries failing to run at full capacity when fewer spend and industries slow down activities. Private consumption has fallen drastically, and there has been a slowdown in government expenditures, which are important parts of the aggregate demand, partly explain the 2020 economy contraction. Due to the declined economy, public investment was affected badly, which further affect the economy growth in Columbia. Now, government is facing with the choice of budget austerity measures or seeking loans finance economic stimulus programs from global financial institutions such as the IMF.
The pandemic and unemployment
Lockdowns have had a direct impact on the declining economic output because of decreased consumer demand, supply chain disruptions, and the loss in productivity. The reduced capacity of business leads to low production and consumption, which are the key component in GDP. Economists estimated that GDP will fall around 7.4%, which is higher than the same period of the previous year. Not only production was affected, but also the supply chain in the country was disrupted due to the reduction of business capacity. This year, Columbia has recorded huge job losses with unemployment above 20%.Thus, the fall in consumer demand and disruption in the supply chains have resulted in a higher than expected unemployment rate as the economy is contracting.[Coronavirus: What Is The Impact In Colombia? - Justice For Colombia", Justice For Colombia, 13 Oct 2020. Web 28.Oct.2020. https://justiceforcolombia.org/news/coronavirus-what-is-the-impact-in-colombia/.]
Due to the rising unemployment and declining consumer, businesses are hardly stay in place.According to the IMF, the economic effects of the pandemic are already evident in Latin America as the pandemic has caused one of the largest declines in history in Latin American and the Caribbean estimated at 9.4% in 2020. 2020 is a year marked by uncertainty on the next way forward regarding government assistance, tax cuts, and consumer stimulus and budget austerity measures. Some businesses have had to close down because they are no longer competitive and it will take time to revive them so that they return to profitability.[Mauricio Cárdenas and HumbertoMartínezBeltrán, "COVID-19 In Colombia: Impact And Policy Responses", Center For Global Development, 24 July 2020, /publication/covid-19-colombia-impact-and-policy-responses.]
The pandemic and econonomic activities
Businesses are facing a tough economic situation. In order to reduce costs, many companies choose to reduce the number of employees and workers. The small and medium-sized businesses operate on small margins and are not as resilient as the large businesses. To solve that, President Ivan Duque pumped $9 billion into Colombia's central bank and facilitated loans to some of the small businesses mostly in the manufacturing industry to support operations and avoid a halt in production. The slowdown in economic activities has not only resulted in higher unemployment rates but also increased poverty levels in an economy that is not well diversified and there has a decline in exports.[Deutsche Welle, "Colombia Businesses Struggle Amid Rising Coronavirus Infections | DW | 03.08.2020", DW.COM, Last modified 2020, Web. Oct. 28 2020 /en/colombia-businesses-struggle-amid-rising-coronavirus-infections/a-54413581.]
The economic slowdown in the export markets has a severe impact on the Colombian export industry, where has a slowdown in international and domestic demand for commodities. For instance, the drop in oil revenues, which resulted in global drop in oil prices as demand for oil falls drastically is a concern as there is reduced foreign exchange and likely budgetary shortfalls. The mining sector represents roughly 27% of the Colombian exports and the fall in the price of oil, coal, and coke has drastically affected the mining sector. Furthermore, mobility restrictions, workplace safety measures, and hygiene procedures affect the mining companies’ capacities. In its 2020 budget, Colombia projected average price per barrel, but West Texas Intermediate (WTI) and Brent prices have been lower than expected and yet petroleum is Colombia's main export.[Deutsche Welle] [Ibid.]
The pandemic, wages and consumer spending
Poor and low-income Colombians are some of the hardest hit people by the pandemic with incomes declining and losing their low paid wages and income. Moreover, fewer businesses are in operation and many will remain closed in the foreseeable future, which will affect tax revenues. The revenue authorities have failed to collect as much tax as the government wants as due to the impact of Covid-19 where there were fewer businesses operating and people employed. The government will review tax revenues downwards even if the economy grows as tax targets are closely linked to economic performance. For the poor, the loss of income without any stimulus support means that there is a higher risk of growing poverty level even when there is a favorable tax regime.
The pandemic has adversely affected the supply and demand sides of the economy. On the demand side, there is reduced consumption expenditure, business investments, government expenditure, and net exports, while on the supply side there is a drastic fall in production. There has been a demand shock, as the measures adopted to deal with the pandemic, and the population's fear of contagion has meant there are fewer interactions with people and businesses. Lower household incomes and business revenue have led to a decrease in demand, which is in slow recovery. The economy has also suffered a supply shock as the measures to prevent the spread of Covid-19 have involved the suspension of some goods and services, and disruption of global value chains.
The Covid-19 outbreak has had a direct effect on Colombia’s economy, which has contracted, there is rising unemployment, rising poverty, lower production, and fewer exports. The fall in consumer demand and expenditure affects aggregate demand and economic growth and coupled with supply chain disruptions, a slowdown in Colombian businesses and the economy is less resilient than last year. Since the beginning of the coronavirus pandemic, fewer Colombians are employed and those with low income are facing difficulties to pay their bills. There are also higher health care costs and businesses need to adhere to safety standards to ensure social distancing and proper sanitization, which further increases the cost of doing business. There has been focused on increased government spending targeting the poorest Colombians to cushion them from the adverse impact of the pandemic on the economy. Maintaining peace is crucial to supporting business activities and a thriving economy in the post covid-19 period.
Policies and a stable business environment
To solve these problems, it is necessary to maint...