Give Me Money…Please
Don’t Listen To Me, But Please Hear Me Out: Part 3
“It’s a recession when your neighbor loses his job; it’s a depression when you lose your own.” Harry. S Truman
*Laughs in pennies*
I’ve had a lot of discussions with friends, family and the twitterverse about the various stimulus packages that every government seems to be racing to announce. What is it? How much is it? And most importantly, how can I get some of that?
Armed with time and my lucky pajamas, I set out to research all the stimulus packages announced to date in order to make a strong case for the powers that be to give me some money.
To compare apple to apples, I decided it best to look at macro indicators, such as GDP, GDP per Capita, Total Population, Total Expat Population, Government Revenues Collected, Debt to GDP, across countries. If I look at each indicator on a per capita basis, then we can say that we are close to comparing apples to apples. Then I compared the stimulus announced also on a per capita basis.
The table above is a comparison of the stimulus packages of several countries as of April 15, 2020. This data was not easy to come by, but because I love my readers, I will list all my sources at the end of this article. Although I had data for China and Russia, I am not as confident about the reliability, so I’ve omitted them from this table.
Everything about UAE looks great or even superb. Its GDP is about $450 Billion (some sources said $410-$425 Billion) with a high Per Capita GDP of $45 K which is on par with most of OECD nations such as Japan at $43 K, Germany at $49 K, France at $44 K etc.
Let’s start by looking at the macro indicators provided in the table. In comparing the UAE to other countries, it looks really great.
GDP: The UAE’s GDP is ~$450 billion (some sources estimate $410-425 billion), and it has a high GDP per capita of $45K, which is on par with most OECD nations (Japan, Germany, France).
Population: The UAE has the largest percentage of expats or foreigners in the world (84%). The next closest countries have less than half as much as the UAE (Singapore, Saudi Arabia and Australia).
Revenues (Taxes & Fees): The UAE earned $127 billion in taxes, fees, fines and investments. Although, it had one of the smallest amount of Government Revenue in 2019, it scored very well on per capita revenue (earning almost $13,000 per capita). France, Canada, Italy and UK earned more government revenue per capita because they are high tax regimes. Italy and UK earned ~$15,000 per capita, which is not much higher than the UAE. Notably, Germany (also with a high tax system) earned less than the UAE at $11,000 per capita.
Debt to GDP: The UAE government seems to have great financial prowess as they have one of the lowest Debt to GDP ratios at 21%. Only Saudi Arabia has a lower Debt to GDP ratio at 19%. (All figures are for 2019).
Budget Deficits: This tells us how well a government is able to plan and execute its operating expenditures. Not surprisingly, the UAE does phenomenally well with a budget surplus of $10 billion in 2019. Australia and Germany are the only other countries who had budget surpluses in 2019 ($5 billion and $15 billion, respectively). But as a percent of total revenues, UAE once again comes up on top. The US has a whopping deficit of $1.1 trillion, the UK has a deficit of $240 billion and Japan has a deficit of $151 billion. Despite these high deficits and Debt to GDP ratios, each of these countries released massive stimulus packages that directly benefit ordinary people, not just large corporations.
Now that we’ve seen how the UAE stacks up against other countries on a macro level, let’s look at whether you and I can get some stimulus.
The COVID-19 Stimulus Packages
Please note that I had to string the data from several sources and these numbers are subject to change as more stimulus packages are being announced every day.
“In the long run we are all dead.” John Maynard Keynes
I believe in Keynesian Economics. It is followed by most western countries and works nicely with capitalism. Keynes, the father of Keynesian Economics, advocated that inflation in the long run is far better than the enormous suffering caused by recessions in the short term.
I agree and advocate that governments should not only print money, but ensure that the cash reaches all its people as well as small and medium enterprises (SMEs). Unfortunately, what we’ve seen recession after recession is that large corporations and banks who already have the means to overcome a recession get bailed out while individuals and SMEs are left to fend for themselves.
I stress on the importance of the multiplier effect on economic activity. If each person receives $1,000 and then saves $200 and spends $800, then the multiplier effect of that $1,000 is 5X or $5,000 to the economy. The reversecan be catastrophic as we are seeing in USA, India and even in the UAE, a lot of us are losing jobs.
Hedge fund billionaire, Ray Dahlio, said that the COVID-19 pandemic will cause a 25% or $22 trillion decline in the world’s GDP (which was $92 Trillion). We are truly in this together and we must unite and support every person and business equitably and fairly. This is not the time to segregate between who belongs to our country and who does not, particularly given the power of the multiplier effect.
Unfortunately, we are already seeing stimulus packages going to bail out big corporations, most of whom pay little or no taxe (ie. in the US). Individuals in the US are getting a one-time $1,200 stimulus based on a household income of $75,000 (families receive $2,400 with household income less than $150,000, and $500 per child). So, although the table above states the stimulus plan could benefit each US resident by $6,600 on average, in reality it is barely $1,200. According to CNBC, the unemployment numbers could be over 47 Million in the US by the end of May 2020. States are finding it difficult to administer the $800 bi-weekly unemployment insurance. Moreover, sources state that the stimulus checks may not reach the neediest for many weeks, which could lead to a dire situation. Given that the US collected $5.3 trillion in taxes (or $10,000 per person), the announced stimulus is extremely unfair to individuals. Notably, the US has a debt to GDP ratio of 91%, which is already high. Despite this, the Fed in the US is doing the right thing by creating money and stimulus.
Germany, on the other hand, has a stimulus package that benefits each resident by almost $10,000. And this cash is actually reaching individuals. For example, Germany set up a €500 million fund to pay artists and freelancers. This is phenomenal and the right thing to do. Germany has a high tax rate and collected almost $1 trillion in revenue last year ($11,000 per person), therefore the government is able to provide a stimulus package for its residents. Germany also has a healthy and manageable Debt to GDP ratio of 40%.
The governments of Canada, UK, and most European countries have committed to supporting payroll between 75% to 90%. These economies will bounce back better because of the multiplier effect.
As noted earlier, UAE scores high on just about every metric. It has great fiscal planning and an extremely low Debt to GDP ratio, which means the government can easily raise more debt at a fairly low interest rate (UAE has a Moody’s AA Stable rating). The UAE also had a budget surplus of $10 billion last year and a high revenue per capita at $12,875.
UAE committed a stimulus plan of $72 billion, which is about $7,047 per capita. I am sure they will continue to announce more stimulus in the coming weeks. It has also taken monetary and fiscal stimulus measures.
The aggregate value of all capital and liquidity measures adopted by the regulator since March 14 has increased to Dh256bn, and consists of Dh50bn in capital buffer relief, Dh50bn in zero-cost funding support, Dh95bn in liquidity buffer relief and a Dh61bn reduction of cash reserve requirements.UAE CENTRAL BANK CUTS RESERVE REQUIREMENTS AND BOOSTS STIMULUS TO DH256BN: THE NATIONAL
Although the stimulus is generous and timely, it is only being administered through the banking system. As such, individuals and SMEs seem not to directly benefit. SMEs and Individuals must apply to the banks, which is difficult under lockdown conditions. If banks do not have an incentive to quickly release the funds, a lot of SMEs won’t be able to pay employees who are isolating in their rented homes. These employees won’t be able to pay rent and may also struggle to pay for food and basic necessities. The negative multiplier effect of this would be tremendous.
Which brings me to the next point, the population. UAE has the highest percentage of expat population, and at a conservative estimate, this population and the SMEs they operate contribute to at least 60% of the GDP.
UAE is a magical place. Its culture has always been one of tolerance and hospitality. It has not only welcomed foreigners but actively invited us to come help UAE build its nation and enjoy the fruits of our success here.
It is much harder to start a new business and therefore regenerate an economy after a crisis than to protect and save existing companies and the people participating in it. It has taken UAE 50 years to grow to a population of 10 million, and if a large number of residents are forced to leave because of this crisis, it could spell a huge brain drain for UAE. Moreover, significant loss of unskilled labour in the construction sector (which I would argue is skilled), would be detrimental to the UAE.
This expat population is critical to the economic sustainability of the UAE. Moreover, SMEs mostly run by expats contribute to a large portion of Government revenue via taxes as well as fees and fines. Although a vast majority of them are low wage earners and many remit their money back home to support their families (remittances out of UAE was around $23 billion in 2019), this was merely 5% of GDP.
Case to the powers that be to give me and everyone like me, some money
The UAE is one of the top 3 countries in the world in COVID-19 testing, which is also FREE. Its lockdown measures have been thoughtful and kind. It is helping the most vulnerable by conducting testing camps in high density neighborhoods. Its healthcare system has risen to the challenge. The rulers are not waiting for the peak, they are very focused on being prepared and are building large spaces for patient admission. They are helping feed those who are not able to do so on their own. I love this country. This is my home. I wish that each one of us comes out of the pandemic safer, healthier, happier and financially secure.
If the UAE Government could help implement the following short-term measures for at least 3 months, it would greatly help:
- Automatic rent and land lease waivers
- Automatic License, Tax and other government fee waivers
- Automatic freeze of loans and interest payments for 2-3 months
- At least a 60% government guarantee and support to private landlords who help their tenants.
- Automatic 50% Tuition waivers for the rest of the year. (Number 1 and 2, should help schools and universities)
- 50% payment of salaries for SME’s via WPS
The UAE continues to prioritize health and safety of all of its residents. This is especially wonderful, and this is why we stand in our balconies and sing the UAE national anthem with true pride and love. This is why UAE is the happiest nation in the region. If we get direct support as listed above, the people of UAE will come roaring back to lift it up high once again.
Let me end with this anecdote. During the congressional hearings of the New Deal relief program (1930’s Great Depression), a senator said, “the economy will work itself out in the long run.” To which Harry Hopkins, an advisor to President Roosevelt said:
“People don’t eat in the long run senator, they eat every day.” Harry Hopkins, advisor to President Roosevelt
Government Deficits Related:
Debt to GDP Ratios:
- https://www2.deloitte.com/ca/en/blog/economic-insights/2020/e-insight-snapshot-canada-deploys-large-fiscal-stimulus.html; https://www.reuters.com/article/us-