By Dr Khafiluzzaman Ahmed
The pandemic has brought in huge shifts in economies around the world, and governments are rushing in to stem the rot. As the Indian Prime Minister announced on May 12, the twenty lakh crore rupees ($300.7 billion approx.) economic package, it drew my attention to the Danish package, which was announced in mid-March itself as Denmark was one of the first countries to go on a lockdown. Are there any lessons from the Danish model?
To circumvent the job loss, with business suppressed during the lockdown, with no activity to stimulate, what was important for the government was to come up with a comprehensive rescue package at the earliest. The aim was to prevent bankruptcy of established Danish businesses and concurrent significant increase in unemployment. Denmark, with a population of 5.5million, was one of the first to get off the blocks, withan approximately US $23 billion rescue package, announced in mid-March, corresponding to 13.5% of her GDP.
Incidentally this was a consensus agreement of all the Danish political parties, as well as labour unions and employers associations to support the economy and Danish companies and workplaces. This includes further initiatives that could run into doubling of the package.
This contrasts with India’s package of approximately 10% of the GPD, and announced almost 2 months since the lockdown, not forgetting the already massive impact the lockdown had made specially to the unorganised sector and livelihood of lakhs of migrant workers.
Prof Carl-Johan Dalgaard from Copenhagen University and the present Chair of the Danish Economic Council commented that, “ if you can tide firms over and thereby reduce the severity of bankruptcies and firings, you can expedite the return to normal”.
Taking a page out of Prof Dalgaard’sprescription, the Danish package covers a range of schemes that basicallycontain two types of measures, enhancing liquidity and covering costs.This percolates to all regions and municipalities.
How has Denmark achieved this ? Firstly, with a buoyant economy over the past years, there is a financial surplus. Secondly, since the 2008 economic crisis, banks have been required to keep a buffer of about US $29 billion on their books. Both of these have given the necessary quick firepower to lend to businesses or to withstand losses on existing loans.
Denmark sustains its unique welfare state program through a slew of measures, the primary being the high taxation which the Danes are very proud to contribute to. Denmark’s total collected tax revenue is about 50% of her GPD, while India’s collection is 10.9% . Moreover, manyin India have proved adept at shielding themselves from taxation while on the flip side, we do not have a comprehensive and established welfare state system.This needs a strong revenue collection.
The Danish package includes important compen-sation moves, albeit temporarily, till the situation improves. The self-employed, especially those with much losses, will get covered. The fixed cost of businesses like rents and overheads will be supported.
One of the first moves was also creation of a special fund to prevent layoffs. Under this, the state will cover 75% of the monthly salaries of employees who would otherwise have been fired. This would amount to a maximum of US dollars 3500 a month, the rest to be paid by the employer. For hourly wage earners, covered by the agreement, the government will cover 90% of their wages. Furthermore, increased access to unemp-loyment and sickness benefits have been assured.
In the export sector, small and medium-sized entities (SMEs) will have access to export credit schemes, and the Danish Export Credit Agency has come up with new liquid guarantees by infusion of more funds. Two other loan guarantee schemes for large and SMEs, whose profits have fallen by more than half, will be guaranteed 70% of the new loan.
In the tourism sector, the Rejsergaranti or Danish Travel Guarantee Fund has been infused by further state funds to help travel agencies to get over their losses and difficulties, especially where refund to customers are concerned.
All University students and those above 18 years in higher secondary schools receive state support or SU (StatensUddannelsesstøtte) , the Danish state educational grant for students, and is one of the most generous in the world at around 900 US dollars. Provision has been made for increased loans for them in addition to their SU, especially for those who have lost their part time jobs.
Rules are being relaxed to allow reduction of working hours, with the employees incomes then being supplemented by unemployment benefit. The Government thus intends to prevent employees from being laid off.
The world is looking at countries like Denmark, Taiwan and Germany as to how they have navigated through the pandemic. They have opened their schools, hairdressers, tatoo salons, beaches, parks and churches. Shortly, the Danish football league matches will start.
However what has stood out has been their early action, expeditiouslyexe-cuted, much ahead of most nations. Denmark announ-ced it on 11th March to be effective 2 days later, thus everybody had their plans made well ahead.
The economic rescue package of 13.5% of its GDP was announced as soon as the lockdown was instituted. This US $ 23 billion is for a population of just 5.5 millionwhich is probably one of the highest per capita package.
The Danish government considered the public health response as part of the economic recovery. The state did not want a situation where the health delivery system would have been overwhelmed. Denmark was able to flatten its curve and maintain extra hospital and health care capacity, which allowed it to make the decision to start to reopen.
These are unprece-dented measures in unprecedented times. The global economy in 2020 and beyond will definitely take a hit, and the Danish economy is no exception. However, this small nation has acted promptly and expeditiously to ensure that it does not slide into a technical recession.
Dr Khafiluzzaman Ahmed is a retired Consultant Anaesthesiologist under the Danish Health Services residing in Aarhus. He heads a northeast India-focussed Denmark registered travel company, Zamans East India Travel Odyssey.