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SpirE-Journal 2009 Q2

Fiscal Stimulus means Business

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Fiscal Stimulus means Business

The world’s governments have responded to the current crisis by dramatically increasing spending so as to stimulate their economies. Massive fiscal stimulus packages have been announced for infrastructure, education, healthcare and other sectors. All of this spells vast business opportunities for the private sector. In many countries, the government segment is growing more robustly than any other. In emerging countries, this effort coincides with the need to upgrade vital national infrastructure to sustain economic growth. Where do the opportunities lie, what sorts of companies stand to gain and how should vendors position themselves to leverage these opportunities?

A heavier hand for Government – the New Norm

The current economic downturn has shifted the policy consensus to the view that more government is better than less. And why not? Amidst the wreckage of financial sector self-regulation, governments the world over are following the lead of the G20 governments, who messaged strong support for the notion of more activist government at their 2008 meeting in London. Not only states regulating the financial sector more energetically. They are also pumping billions of dollars to revive the real economy, learning what many economists say are the lessons of the Great Depression of the 1930s and the Japanese deflation of the 1990s.

Amidst slowing economic growth and rising unemployment, consumers and businesses are cutting back on spending, as is revealed through a broad array of statistical indicators. In this context, the huge growth in government spending becomes even more significant. The government sector is emerging as perhaps the only segment growing robustly in many
countries, and hence one of the most important customer segments for firms to address in the current downturn.

Amongst emerging economies, China has led the way with its blockbuster 4 trillion yuan (US$585 bn) stimulus package in November 2008, to be spent over the coming two years. The plan covers 10 major sectors including transport, general infrastructure, healthcare, education, low-income housing, environmental protection and schemes to promote technological innovation.

Governments throughout the world have followed suit with sizeable rescue packages in their own right. Mr Rob Vos, Director of the United Nations Development Policy and Analysis Division and lead author of a UN study “World Economic Situation and Prospects 2009” has advised national governments to set aside 1-2% of their gross domestic product for rescue plans to ward off negative growth.

Supranational agencies such as the World Bank and International Monetary Fund (IMF) will figure more prominently in the fiscal stimulus game. Both are commissioning high-value development projects in emerging countries. Last year, the World Bank provided $23.6 billion for 279 projects in developing countries worldwide. The IMF‟s policy steering body, the 24-member International Monetary and Financial Committee (IMFC), has reaffirmed the central role of the Fund in facilitating such projects. It plans to assess if there is a need to take more action to stimulate growth. The committee made known plans to triple IMF lendable resources to $750 billion3 at a meeting of the IMFC and the Development Committee in April 2009.

With huge quantities of public sector funding being injected into the economy, it is no wonder that leading companies are repositioning themselves as useful allies in the fiscal stimulus effort.

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