Will Financial Stimulus Be Enough to Recover from A Pandemic?

Will Financial Stimulus Be Enough to Recover from A Pandemic?

To begin with, it is important to note that the recent developments of the COVID-19 pandemic have differed based on several elements. While some countries have cases that increase at an exponential rate, some have managed to keep the spreading of the virus under control. With the current number of international COVID-19 cases beginning to stabilize and decrease slowly, new and innovative financial programs and incentives have been developed to aid in the economic recovery process of various sectors, with priority given to oil and gas sectors.

The oil and gas industry has taken a huge hit since Q1 2020.With confinement and lockdown measures implemented in 187 countries, oil and gas employees have limited the need for having on-site staff workers. This, in turn, has resulted in an economic downturn that can be revived with the aid of efficient financial programs and incentives made accessible and sufficient for the industry.The main aim ofsuchfinancial programs and incentives isto be able to help people in the industry recoverfrom the economic downturn that resulted from the worst pandemic within the last century.

Currently, there have been several fiscal plans and financial incentives that were developed with the aim of helping and supporting the oil and gas industry to emerge from the pandemic on a strong note. At the moment, the many question the ability of the oil and gas industry to recover at a fast pace, post-COVID-19. Others, however, consider this situation a one in a million opportunity to create, amend, and develop a more sustainable system for the oil and gas industry in order to be able to stand strong in the event of a future global crisis, whatever it may be. The need for a post-COVID-19 financial recovery programme is more urgent now than ever to withstand difficult downfalls.

Economic Recovery

From an economic perspective, recovery is possible via national programs that help soften the impact of the huge losses in revenue and speed up the recovery period. In order for a company to properly understand what financial programs or incentives to adopt, it is essential that an efficient assessment is carried out to accurately identify the necessary route to take to recover (financially) from the long-lasting effects of the pandemic. For instance, anefficiently executed assessment will identify whether the company in question should consider debt financing, additional credit support from either investors or banks, capital raising, government support, etc.

Such financing initiatives offer different forms of aid in unique ways. For example, debt financing refers to when a company sells debt items or instruments to a potential investor, then that particular investor turned creditor will be paid the interest placed on the debt.Additionally, capital raising refers to the selling of more shares to either current or potential investors. Credit support often refers to the unconditional letter of credit attained, from the bank, which ensures punctual payment of any transactions. Finally, government support refers to the policies implemented and amended under the emergency situations that occurred as a result of a global crisis; this takes place in the form of loans, tax reductions, funds, etc.

While financial initiatives, programs, and loans are beneficial and often required during a global crisis, there remain liabilities and risks that must be assessed and managed to avoid further issues.It is the responsibility of the company to determine the most beneficial financial program. However, it must be understood that implementing financial programs or initiatives without cutting on operational costs and/or other unnecessary expenses, will not be an effective plan; both measures must take place to soften the impact of the pandemic on each individual organization as well as the oil and gas industry, overall.

As suggested by a Financial Analyst, who prefers to remain anonymous, “Small companies think that taking a fund or a loan will help them, but they do not know that the payback period is very short and COVID-19 is not over yet. For small companies, the best thing to do is use operational efficiency strategies. The same thing can be done for large companies as well, but large companies are already laying off employees and cutting salaries instead of getting loans and funds”.

Advantages and Disadvantages of Financial Programs and Incentives

While financial programsand incentives could help organizations and individuals get stand tall again, such financial initiatives are seen as an aid as opposed to a complete solution.In fact, there are multiple advantages to adopting such financial programs, initiatives and loans.For example, because of the global crisis, there are various funds that organizations can apply for without having to pay back the money received. Additionally, funded projects aim to develop business and encourage new ideas to be implemented. On another note, loans can be applied to any department in a company, offering flexibility to business development; this is not the case with funding, however. Finally, tax incentives are often offered during difficult times, making the incentive attractive at low rates or cuts.

However, at the same time, there are various disadvantages to adopting such financial programs, initiatives and loans. For instance, funding is often competitive and difficult to attain, especially for SMEs. As for loans, the interest rates associated with loans during difficult times where there is a high demand are usually very high; this, of course, is in addition to the fact that the entire loan must be paid in full along with the high interest rate values.Also, the process of acquiring a grant is time-consuming and cannot be attained at a fast enough pace for an organization to benefit from immediately. Finally,organizations must take care of the fact that all financial loans need to be repaid, regardless of the economic environment. This means that if the company continues to struggle, it will become harder and harder to pay back any form of borrowed money at climbing interest rates.

Case Study

An example of oneof the more successful financial initiative that was implemented recently was that of a Government policy released in Lithuania. The financial initiative aimed to help the liquidation of Small-to-Medium Enterprises (SMEs) and recover from the pandemic’s impact at a fast pace. This initiative is called the Business Support Fund; this is mainly supported by two private limited organizations called ‘Valstybinis Investicinis Kapitalas’ and ‘Valstybinis Investicijų Valdymo Agentūra’, owned by the Ministry of Economy and Innovation and Ministry of Finance, respectively. This initiative could support companies with funds of EUR 1 million or up to EUR 100 million for all SMEs participating in total. The Lithuanian Government aims to aid Large companies and save them from closing, which could even result in a further downturn in the economy. Various countries like Canada and India have implemented similar measures to keep the industry standing tall until business as usual.

To conclude, new financial initiatives for companiesare available on a day to day basis due to the current economic stance of the community. The oil and gas industry has suffered financially from the global pandemic. However, there is hope for the future as the number of COVID-19 cases decline and companies slowly begin to operate as usual. It is important to keep in mind that financial incentives, loans, and programs are not enough to resolve the situation in the industry as cost-cutting strategies must be implemented in parallel.


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