Debt Liquidity and Recession Economics During the Pandemic: A Blessing or a Curse?

Abstract

Normal demand will return to pre-pandemic levels only when conditions for living a normal life also gradually come back. And this will not happen before a vaccine is discovered, produced and administered or a cure is in place. The article questions the wisdom of prematurely using recession economics when the impact of these measures are likely to fail. In particular it is argued that the Cyprus Government response to the pandemic crisis is a recipe for economic disaster as it subsidises special interest groups, increases the debt, dilutes investor equity and will be maintaining labour and other operational costs artificially high. These are bound to hinder the country’s prospect of recovery amidst increasing world competition when the pandemic is finally over and the real reconstruction of the economy begins.

Keywords: economic development, repayment capability, project evaluation, corporate lending, credit risk

JEL Classification: D61, G17, G21, G32, G33, H43