1. Inability of a majority of the global population to meet their daily needs.
COVID-19 has impacted negatively on our finances. The majority of the global population is now worried about putting food on their families’ tables and meeting their daily needs, let alone worrying about mortgage and loan repayments. Families have resorted to using up savings to take them through this tough financial crisis. In the next coming months, a huge percentage of people will miss out on payments of utility bills and, hence, will resort to selling off their assets. Simply put, the COVID-19 pandemic will plunge millions of households in debt, more so in countries where loan repayment has not been relieved of the citizens as subsequent interest and penalty charges will apply. Growing economies have been severely affected as the majority of the population lives below the minimum wage.
2. Contract modifications.
The financial impact on businesses has led to decreased revenue, high operating costs, and disrupted operations. These institutions are facing cash flow problems and will be unable to meet their financial obligations to lenders or require additional financing. Huge consequences lie on lenders and real estate developers. Lenders such as banks are being asked to provide reliefs and they risk credit losses as a result. On the other hand, developers are posed with the difficult decision of rent reductions. These arrangements will require radical contract modifications to reach an acceptable middle ground. The modifications will lead to financial losses of involved stakeholders.
As humans, we often have no choice but to adapt to circumstances. We must brace ourselves for the changes in our lives and businesses that COVID-19 will bring about.
What Changes, then, Could we be Expecting?
1. Acceleration in government spending.
Governments will come up with stimulus packages to cushion citizens from the financial impact brought about by COVID-19 by pumping money into the economy through the central banks. This, in turn, will accelerate consumer spending by 40% as the citizens will regain consumer confidence.
2. Fiscal legislation policies by governments.
Fiscal policy is the major factor to ensure steady and sustainable recoveries of world economies after the end of the pandemic. Central banks will ensure that funding is available to the citizens and ensure economic solvency. Solvency will remain a major factor as global economies will be undergoing an economic recession. For example, policy rates will be reduced to significantly lower levels that have never been witnessed, such as in the US and Europe. In addition, governments will substantively increase their assistance to people by offering direct subsidies, tax exemptions, reduced levies, low interest rates, and reduced rental rates. We might witness more laws being enacted to ensure that the policies are set in place immediately. Companies will also adhere to these changes in tax as of the reporting date.
3. Financial uncertainty.
COVID-19 has swept our entrepreneurial spirit away, but it is just a temporary situation that shall pass too. Its impact on businesses will probably be felt for the rest of the year 2020. Some businesses will come out bigger and stronger, while others will crush. The former encompasses those that were well-managed, had structures in place, and, most importantly, well-funded. The majority of the workers who were laid off are not certain of returning to work as companies will take time before resuming back to normal operations. In addition, the debts incurred during this pandemic, such as credit loans and mortgage repayment, will have to be serviced.
4. Impaired assessment of finances.
Impaired assessment refers to the diminishing value of an asset. The adverse impact of COVID-19 on finances will result in an impaired assessment of finances at the end of the fiscal year due to the measures taken to curb the spread of the virus. Measures such as temporary closure of borders and ban on travel and trade restrictions are considered as impairment factors. The challenge for most businesses will be whether the forecasted budgets and cash flow are attainable and can be supported by performance.
During this time of financial crisis, everyone should focus on the positive and what you can control.
The global spread of COVID-19 may require more stringent containment measures that will, in turn, lead to further tightening of the global financial crisis should the pandemic continue in a continuous downturn trend.
The COVID-19 situation has reiterated the need for financial security more than anything else. Global citizens must evaluate their investment portfolios and think about investments in different kitties. In addition, it has proved that stock markets and real estate are not the only investment sources one should think of. Stay safe and take this time to re-evaluate your finances, understand the impact of the COVID-19 on your finances as a person, and set a contingency plan once normalcy resumes. You might find that it is actually time to rejig your finances and past financial decisions.