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IMUN Online Conference 22.0

Study Guide

Committee: United Nations General

Assembly Second Committee
Topic: Mitigating economic downfall due to
COVID-19

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Table of Contents
About the Committee ....................................................................................... 3
Introduction to the topic .................................................................................. 4
Key Definitions ................................................................................................. 5
Status Quo ........................................................................................................ 6
Possible Solutions ........................................................................................... 10
Questions A Resolution Must Answer .......................................................... 10
References ...................................................................................................... 11

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About the Committee

The Economic and Financial Committee (ECOFIN) is the second out of
the six main committees of the United Nations General Assembly (GA) which
corresponds majorly to the responsibility regarding the economy growth and
development issues and often covers the work of Economic and Social Council
(ECOSOC), its subsidiaries bodies and the Funds and Programmes.
There are 11 clusters of agenda allocated to the Second Committee:
 macroeconomic policy;
 operational activities for development;
 financing for development;
 groups of countries in special situations;
 globalization and interdependence;
 eradication of poverty;
 sustainable development;
 information and communication technologies for development;
 agriculture development, food security and nutrition;
 human settlements and sustainable urban development;
 and sovereignty of the Palestinian people over their natural resources.

In the past, ECOFIN had provided financial assistance to many developing

countries to overcome crisis and encourage development to boost growth and
prosperity. ECOFIN also aims to lower poverty and reduce economic strains on
heavily-indebted countries. Moreover, the United Nations Environment
Programme (UNEP), the Governing Councils of the three Rio Conventions and
the United Nations Human Settlements Programme (UN Habitat) also report to
the General Assembly of the Second Committee. Global Partnership is also
considered on a biennial basis.
Its mandate further explores groupings of nations such as Least Developed
Countries to encourage regional growth and support for all nations, which is just
one of the many subgroups that are formed under ECOFIN to be able to
substantively solve niche issues.

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Introduction to the topic

According to the World Bank’s June 2020 Global Economic Prospects, the
economic contraction caused by the massive shock of the coronavirus pandemic
and shutdown measures might shrink the economy by 5.2% this year, worst since
the Second World War. Furthermore, this downfall would most severely hit
countries which relies heavily on global trade, tourism, commodity exports, and
external financing. The 2.5% shrink in emerging market and developing
economies (EMDEs) is expected to trigger a chain reaction of decline in per
capita incomes and extreme poverty for millions of people.
Along with the severe economic downturn, human capital development in
EMDEs is also being put off due to poor access to primary healthcare and
interruptions in schooling system. Thus, the World Bank swiftly responded with
support in public health, ensuring the flow of critical supplies and equipment and
aiding private sectors’ operation. In accordance to that, the World Bank expected
to deploy $160 billion in more than 100 countries with concessional loans to
protect the poor and vulnerable, support business, and encourage economic
recovery.
The huge fall in stock market following the outbreak of COVID-19 also
caused many central banks to slash the interest rates to reduce borrowing costs
thus encouraging spending to boost the economy. However, each sector of
economy might experience different recovery. The oil sector experienced heavy
losses as demand became low which drove the price down (Figure 1). On the
other hand, pharmaceutical companies are on the rise. For instance,
AstraZeneca’s share price had risen exponentially promising to produce large
scale of vaccines (Figure 2).
The notion “prevention” has also been heavily debated since many believe
the economic collapse is certainly bound to happen following the measures to
slower the spread of the coronavirus, most particularly in the order of physical
distancing and shutdowns of businesses. Thus, it is necessary to prevent further
downfall and focus on the economic recovery while pertaining to the efforts in
mitigating the spread of the pandemic.

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(Figure-1) (Figure-2)

Key Definitions

 2020 market crash

Market crash generally refers to the decline of stock prices resulted from
panic selling, speculation and economic bubbles. It is heavily associated
with social and psychological events, particularly in 2020 with COVID-19
outbreak.

 Economic collapse
Also known as the economic downturn, this is a breakdown that occurs on
a certain national or regional territory following a crisis, mostly caused by
economic contraction, depression, and recession lasting for an
unpredictable number of years.

 Risk management
In time of crisis, risk aversion that heightens might lead to the increase of
borrowing costs rendering businesses unable to pay debt off. In the light of
COVID-19, business risks are not the only volatile matter, but also the
country risks.

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 Government debt
Also known as the national debt or sovereign debt, this is one of the
primary indicators in determining national budget balance. The national
debt is the public and intragovernmental debt owed by the federal
government. During COVID-19, it is expected that higher government debt
is the correct shock absorber for the private sector in the face of
unpredictable, temporary economic crises.

 Economic recovery
Economic recovery refers to a period of economic expansion, particularly
after a recession. Countries with higher global trade dependency are
expected to take proportionally longer to recover.

Status Quo

Panic in Stock Market

The market is in anticipation owing to the uncertainty of many

closing businesses. In the fear of losing more cash, some investors are
driven to sell off their stocks while some others shift to safer investments.
Most stocks have experienced a drop, but the oil markets plunged. With
most cities under lockdown, travelling and deliveries are reduced, affecting
the oil prices. Besides, some countries have halted factory operations and
manufacturing, which means the global markets are recording the worst oil
demand since the Great Recession. Global aviation will take the best part
of 2020 to recover since travel bans are in effect in most countries.
Smaller companies are bracing themselves for difficult times since
their financial resources are dwindling fast. Besides, the investors are
cautious of their investments, and the small businesses tend to be a high
risk.

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Irrespective of the drop in the economy, some low volatility stocks

are doing well despite the COVID-19 crash. Current quality stocks
comprise of stable businesses with low debts and defensive characteristics
like a loyal customer base and that are still open for business or will be in
the imminent future.

Vaccine hope and pharmaceutical industry

The stock market’s rally back to all-time highs might not have been
possible without optimism over a COVID-19 vaccine. And that means
progress and setbacks toward that goal could continue to drive the market
in the weeks and months ahead.
Investors were encouraged by news that an experimental COVID-
19 vaccine under development by Moderna and the U.S. National Institutes
of Health revved up people’s immune systems just as desired.
The upcoming US Presidential Election will also heavily impact the
pharmaceutical industries’ agenda on vaccine search, seeing analysts and
investors have pointed to optimism over a vaccine as insulating the market
from disappointment on other fronts, including the inability of
congressional Democrats and Republicans and the White House to come
up with a plan for another round of coronavirus aid. Economists warned
that concerns about the economic damage caused by the pandemic could
overshadow those hopes.
In Europe, London's FTSE is gaining 1.3 percent, Germany's DAX
added 1.3 percent and France's CAC rose 1.7 percent.
In Asian markets on Wednesday, Tokyo's Nikkei advanced 1.6
percent, Hong Kong's Hang Seng was little changed and China's Shanghai
Composite slipped 1.6 percent.

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Collapse of Oil Industry

Another important feature of the current landscape is the historic

collapse in oil demand and oil prices. Low oil prices are likely to provide,
at best, temporary initial support to growth once restrictions to economic
activity are lifted. However, even after demand recovers, adverse impacts
on energy exporters may outweigh any benefits to activity in energy
importers.
By August, the International Energy Agency released its monthly oil
market report and revealed it has lowered its 2020 global oil demand
forecast by 140,000 barrels per day to 91.9 million barrels per day. This is
8.1 million barrels per day lower than last year, which is greater than the
7.9 million barrels per day difference it had predicted in July (figure 3).

(Figure 3)

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Unemployment

According to official figures, the number of people claiming

unemployment benefits surged to 2.7 million between March and July.
However, unemployment is difficult to measure and the picture now is
complex.
One measure comes from the Labour Force Survey. This asks
thousands of people every month if they are unemployed and looking for
work. It is used to calculate the unemployment rate. At 3.9% it's close to
the lowest it has been for 40 years, as if the current crisis never happened.
Other official data shows how coronavirus is beginning to affect the
world of work. Employment saw the largest falls in a decade, with younger
workers, older workers and less skilled workers hit. Average earnings fell,
and the average number of hours’ people worked dropped by a record
amount to an average of 25.8 hours a week, according to figures for April
to June.
However, there are some signs of things bouncing back. Hours
worked in retailing, hospitality and construction rose. And there was a 10%
rise in vacancies to 370,000 as small businesses took on staff to help meet
coronavirus guidelines.
However, vacancies are still at far lower level than they reached
even at the depths of the last recession. This will have a big effect on future
unemployment. Young people will struggle to get their first jobs leading to
youth unemployment, and workers who lose their jobs will struggle to find
new ones.

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Possible Solutions
In the face of this disquieting outlook, the immediate priority for
policymakers is to address the health crisis and contain the short-term economic
damage. Over the longer term, authorities need to undertake comprehensive
reform programs to improve the fundamental drivers of economic growth once
the crisis lifts.
Policies to rebuild both in the short and long-term entail strengthening
health services and putting in place targeted stimulus measures to help reignite
growth, including support for the private sector and getting money directly to
people. During the mitigation period, countries should focus on sustaining
economic activity with support for households, firms and essential services.
Global coordination and cooperation, of the measures needed to slow the
spread of the pandemic, and of the economic actions needed to alleviate the
economic damage, including international support, provide the greatest chance of
achieving public health goals and enabling a robust global recovery.

Questions A Resolution Must Answer

1. How deep will the COVID-19 recession be?

2. How to reduce the risk for low-income-countries?
3. What is the scenario for possible near-term growth?
4. How will the implications on certain sectors affect the recovery?
5. How to bolster recovery in global-trade-dependent countries?
6. How to reduce youth unemployment?

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References

1. https://www.un.org/en/ga/second/
2. https://www.eda.admin.ch/dam/mission-new-
york/en/documents/UN_GA__Final.pdf
3. https://www.worldbank.org/en/news/press-release/2020/06/08/covid-19-
to-plunge-global-economy-into-worst-recession-since-world-war-ii
4. https://www.worldbank.org/en/news/feature/2020/06/08/the-global-
economic-outlook-during-the-covid-19-pandemic-a-changed-
world#:~:text=Businesses%20might%20find%20it%20hard,by%20almos
t%208%25%20in%202020.
5. https://www.bbc.com/news/business-51706225
6. https://www.pwc.com/us/en/library/covid-19/risk-functions-response-
strategy.html
7. https://www.ft.com/content/272354f2-f970-4ae4-a8ae-848c4baf8f4a
8. https://home.kpmg/xx/en/home/insights/2020/06/covid-19-and-the-
global-economy.html
9. https://www.marketwatch.com/story/are-stock-market-investors-
overpricing-or-underpricing-a-potential-coronavirus-vaccine-2020-08-22
10. https://www.foxbusiness.com/markets/stock-futures-rise-on-coronavirus-
vaccine-hopes
11. https://www.investopedia.com/slow-airline-industry-recovery-pushes-
global-oil-demand-forecast-lower-5074642
12. https://www.bbc.com/news/business-52660591
13. https://news.un.org/en/story/2020/06/1067432

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