Introduction— The outbreak of SARS:
Severe Acute Respiratory Syndrome (SARS) is a deadly atypical pneumonia that became publicly recognized at the end of February 2003. It first appeared in the Chinese province of Guangdong in November 2002 and spread to Hong Kong during late February. By mid-June 2003, the SARS virus had infected around 8500 people worldwide and caused around 800 deaths. SARS has largely affected the greater China area. In mid-June 2003, about 63% of the cases occurred in China, with 85% in China and Hong Kong together. The third largest outbreak has been in Taiwan. Canada and Singapore also experienced significant outbreaks.
The Economic Impact of SARS:
In economic terms, SARS represents a crisis of confidence and a demand shock that hit East Asia, especially China, hard. This occurred at a time when East Asian growth prospects were already clouded by geopolitical uncertainties and high oil prices, the stalling in technology exports, and overall weak economic growth in major industrialized economies. GDP growth slowed significantly in a number of East Asian economies in the first quarter of 2003.
Fear of contracting SARS influenced the behavior of individuals, making them avoid public places, travel and face to face contact. In Hong Kong, Singapore, and parts of China, schools closed, meetings and conventions were postponed or unattended, while restaurants and shopping malls experienced declining patronage. As a consequence, consumption expenditure and especially the consumption of services fell sharply.
I will show the economic impacts in two aspects: short term and long term impacts.
Short Term Impacts:
In the short term, SARS mainly affects economic growth by reducing demand:
(1) Consumer confidence has dramatically declined in a number of economies, leading to a significant reduction in private consumption spending.
(2) Service exports, in particular tourism-related exports, have been hard hit.
(3) Investment is affected by reduced overall demand, heightened uncertainties, and increased risks. Furthermore, foreign investment inflow may be delayed or reduced in reaction to SARS.
(4) While increased government spending will mitigate the impact, the ability of governments to revive economies facing widespread reductions in private spending is limited.
Long-term implications:
The severe economic impact of SARS struck at the epicentre of growth in East Asia. The spillover effects on the rest of the region emphasised the high degree of regional integration, with countries such as China, Hong Kong, Taiwan and Singapore being highly interlinked with the rest of East Asia in terms of travel, production and trade. This has highlighted how a SARS-induced or similar type of economic shock in one country is readily transmitted to other countries in the region. Any further SARS or similar outbreaks could have long-term implications for regional growth and could potentially hamper moves toward greater integration in the region.
The SARS outbreak also may have long-term implication in terms of investors’ perceptions.
The long term economic impact of SARS will depend largely on whether governments can quickly implement effective public health policies. This will require increased investment in public health and will have implications in terms of increased fiscal outlays. The provision of accurate, timely and transparent information on the nature and extent of any further SARS outbreak will also be important in assisting to contain and reduce public fears and uncertainty.
The Government Economic Measures after the SARS Outbreak
Government Economic Measures of some countries
China P.R
April/May
• Price control/monitoring of SARS-related drugs and goods.
May
• Temporary reductions/waivers of taxes and administrative fees for SARS- affected industries, including catering and hotels;
• Free medical treatment to farmers and poor urban residents who contracted SARS;
• Subsidies and temporary exemptions from personal income tax to medical staff treating SARS patients;
• Interest subsidies for air transport and tourism sectors.
Hong Kong, China
23-Apr-03
• The authorities announced a HK$11.8 billion (US$1.5 billion) economic relief package, representing 1% of Hong Kong’s GDP. The package included the following measures for a limited period;
• Temporary reduction/waivers of taxes and administrative fees;
• A job creation scheme;
• A loan guarantee scheme.
Taipei
April/May
• The authorities announced spending of NT$50 billion (US$1.4 billion) to help meet medical cost and business losses related to the SARS outbreak.
Singapore
17-Apr-03
• The Government decided to implement a S$230 million (US$132 million) SARS relief package, including:
• Temporary reduction/waivers of taxes and administrative fees for tourism and transport sectors;
• Relief measure for airlines.
Malaysia
21-May-03
• The Government announced a RM7.3 billion (US$1.92 billion or 2% of GDP) economic package aimed to assist sectors significantly affected by SARS. Funded from federal budget and contributions from bank and other financial institutions, the economic package included:
• A reduction of bank intervention rates by 50 basis point for cheaper loans;
• Foreign investment guidelines to be more investor-friendly;
• Support for tourism-related industries;
• Promotion of microcredit schemes and cheaper housing loan;
• Support for job training.
How should Governments Respond to SARS and Similar Situations?
Two aspects of SARS warrant government intervention. The first is that the information that needs to be collected and disseminated to effectively assess SARS displays the characteristics of a public good. Second, there are externalities related to contagious diseases in the sense that they affect third parties in ways that are not reflected in market transactions. Public goods and externalities are typical areas where there are market failures, and government action is needed to correct such failures.
Provision and Acquisition of Accurate Information
The accurate, timely, and transparent provision of information on the nature and extent of SARS by governments is critical for containing the epidemic and reducing public fears and uncertainty. Governments need to work closely with medical professionals to generate and disseminate accurate information about the risks and extent of a disease, and preventative measures available. A balance needs to be struck between alerting people to the risks involved and preventing people from panicking and overreacting. Due to the highly effective channels of information transmission now in place, any apparent lack of transparency in providing information is likely to cause second-guessing and panic among the general population. Governments therefore need to utilize the increasing influence and reach of the modern media to disseminate information so as to ensure rational thinking and sensible actions prevail.
Containing the Disease
The SARS epidemic demonstrates that with the increased flow of people, goods and services, and information across borders, both positive and negative developments can quickly be transmitted within a country and spill over to other countries. Early identification and containment are critical, as any delays will create greater costs later on. As pointed out by Baltimorem (2003), Nobel prize laureate in medicine, targeted and aggressive public health responses need to be combined with a rational evaluation of risks so as to minimize disruption to people’s lives.
Government Budget
The occurrence of sudden, unexpected shocks such as SARS stretches government resources. At the same time, the resulting decrease in economic activity will reduce government revenue. This, together with increased public spending to prevent and combat the disease, will worsen government fiscal positions. In some cases, active stimulus packages may also be needed to revive the economy. The possibility of episodes like SARS emphasizes the need for governments to implement prudent fiscal policies, to accumulate primary surpluses, and to set aside appropriate amounts in their budgets for unexpected contingencies.
Conclusion
It is sure that SARS is a heavy attack for these countries not only in the economy but also in other aspects. However, it is also a good lesson for us to learn from.
The SARS epidemic demonstrates that:
(1) The accurate, timely, and transparent provision of information on the nature and extent of diseases by governments is critical for educating the public about the real risks and reducing public fears and uncertainties. A balance needs to be struck between alerting the public to the potential dangers involved and preventing panic and overreaction to the danger concerned.
(2) Early identification and containment is critical, as any delays will create greater costs later on.
(3) SARS is merely one of many contagious diseases that could potentially flare up. Public policy needs to go beyond SARS to make provisions for all contagious diseases. Efforts need to be put into applying and maintaining the lessons learned from the SARS crisis after it is controlled.
In particular, there is a need to minimize the occurrence of all contagious diseases; to effectively respond to emergency situations; and to strengthen health systems so that they have the ability to cope with similar situations in the future.
(4) The global implications of serious contagious diseases means that governments need to intensify cooperation and coordination. There is a particular need for developed countries and more advanced developing member countries to devote funds toward undertaking collaborative, proactive, and forward-looking research on combating such diseases. Counties also need to commit to collaborative schemes to develop effective policy frameworks and institutional capacity for preventing, reporting, monitoring, and containing all contagious diseases.
(5) The occurrence of emergency situations such as the outbreak of SARS shows that government budgets need to be prudent so that they are capable of handling unheralded public health crises. An appropriate amount of funds should be set aside to cope with such contingencies.
If good strategies can be drawn up from the lessons learned in combating the spread of SARS, the world at large will benefit in the long run.
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