In the first six months of 2020, COVID-19 has affected almost all countries and eight million people around the world. COVID-19 has governments operating in a context of radical uncertainty, and faced with difficult trade-offs given the health, economic and social challenges it raises. More than half of the world’s population has experienced a lockdown with strong containment measures. Beyond the health and human tragedy of the coronavirus, it is now widely recognised that the pandemic triggered the most serious economic crisis in a century. The OECD predicts global economic activity to fall between 6% and 7.6% in 2020, depending on whether a second wave of infections hits before year-end or not.
Subnational governments – regions and municipalities – are responsible for critical aspects of containment measures, health care, social services, economic development and almost 60% of public investment, putting them at the frontline of crisis management. Because such responsibilities are shared among levels of government, coordinated effort is critical.
The regional and local impact of the COVID-19 crisis is highly heterogeneous, with a strong territorial dimension that has important consequences for crisis management and policy responses:
- Health/social impact: some regions, particularly the more vulnerable ones, such as deprived urban areas, have seen higher caseloads and mortality rates than others. Vulnerable populations, too, have been more affected.
- Economic Impact: regional economic exposure to the crisis is varying based on an area’s exposure to global value chains and specialisation in specific sectors like tourism, at least in the initial stages.
- Fiscal impact: the crisis is resulting in increased expenditure and reduced revenue for subnational governments, and while its impact on subnational finance is not uniform, it is expected to be long-lasting.
Many national and subnational governments have reacted quickly to address the economic and fiscal consequences of the crisis, and countries are spending significantly more than in 2008-2009. Two-thirds of OECD countries have, for example, adopted measures in support of subnational government finance.
A recent paper by OECD experts takes an in-depth look at the three dimensions above as they relate to the COVID-19 crisis. It provides good practice examples on policy responses from all OECD countries, and beyond, to help mitigate the impact of the crisis on regions and municipalities. Below are ten early takeaways on managing COVID-19’s territorial impact, its implications for multi-level governance, subnational finance and public investment, as well as points for policy-makers to consider as they build more resilient regions.
- Introduce, activate or reorient existing multi-level coordination bodies that bring together national and subnational government representatives, in order to minimize the risk of a fragmented crisis response.
- Support cooperation across municipalities and regions to help minimize disjointed responses and competition for resources during a crisis.
- Consider adopting a “place based” or territorially sensitive approach to exit-strategy implementation and recovery policies.
- Take the opportunities offered by digitalization to support crisis management at all levels of government: use the insights offered by digital tools to track and control the spread of the coronavirus, giving equal consideration to data privacy concerns; use digital technologies to help ensure continued service delivery, being sensitive to territorial, economic, and social disparities in access.
- Foster continuous dialogue between national and subnational governments regarding COVID-19’s fiscal impact on subnational budgets using shared evidence and data, taking into account the differentiated impact of the crisis. Help subnational governments reduce the gap between decreasing revenues and increasing expenditures during the COVID-19 crisis to avoid underfunded and unfunded mandates and possible sharp cuts in subnational spending. Special grant schemes could help close these gaps. Promote the participation of subnational governments in national recovery plans.
- Explore and introduce other temporary or permanent, fiscal tools and measures, including tax arrangements, easier access to external financing (debt), and more flexible, modern and innovative financial management tools for more effective subnational finance management. Focus on reviewing subnational financial management and strengthening expenditure and revenue effectiveness, as a means to contribute to restoring fiscal stability over the medium and long terms.
- Strengthen national and subnational-level support to vulnerable groups to limit further deterioration in circumstances and to strengthen inclusiveness in the recovery phase, including by simplifying and facilitating access to support programs, ensuring well-targeted services, introducing adequate and/or innovative fiscal support schemes, and identifying the needs for revising fiscal equalization policies.
- Ease administrative burden on core regional and local services and those that help SMEs, the self-employed and vulnerable populations. Public procurement systems should be adapted to provide adequate responses in the case of emergencies, but this should be limited in time.
- Ensure that all levels of government should ensure that similar SMEs are treated in the same way at and by all levels of government. Subnational governments, very aware of local circumstances, can act as brokers of financial support to SMEs and the self-employed.
- Use public investment across at all levels of government to support COVID-19 recovery over time: avoid using it as an adjustment variable; minimize fragmentation in the allocation of investment funds targeting COVID-19 responses; ensure allocation criteria are guided by strategic regional priorities; integrate social and climate objectives into recovery plans designed by all levels of government;, and consider introducing a resilience-building criteria for the allocation of public investment funding for all levels of government.
Read the entire article on the OECD website: