Switzerland's stimulus: one of the most ambitious pandemic response packages
Publicado em 9/07/2020
With over 31,000 confirmed cases and 1,685 deaths as of July 1st, Switzerland was one of the countries in Europe hit hard and early by Covid-19. The number of active and new cases has decreased sharply but has risen modestly since mid-June with the easing of the lockdown and more testing.
Aligned with other countries of the European continent, the Federal Council (FC) declared a national state of emergency on March 16th, closing all shops, restaurants, bars and entertainment facilities and schools, prohibiting public gatherings of five people or more, and recommending that all citizens stay home.
Some heavily affected cantons, such as Ticino, adjacent to Italy, imposed tighter restrictions on activities. The government also reintroduced checkpoints at all its borders, with entry restrictions put in place.
When rendered possible due to the positive evolution of Covid-19, the economy slowly started to reopen mid-Spring: activities and businesses such as medical and dental practices and hair salons resumed operations from April 27th, and a further easing on May 11th notably witnessed the reopening of primary and secondary schools, together with restaurants and bars.
However, the containment and mitigation measures led to a 2.6% contraction of the economy in the first quarter of 2020, that escalated in the second quarter, according to a KPMG study.
The described measures target various groups. Their goal? Similar to neighboring countries, to safeguard jobs, guarantee wages and support the self-employed. Measures have also been taken in the field of culture and sport to prevent bankruptcies and to cushion the financial consequences. Furthermore, there are provisions to delay payment of or temporarily waive late payment interest on social security contributions and various taxes.
These new measures aim to avoid as far as possible cases of hardship and to provide, where necessary, targeted and rapid support to the persons and branches concerned by means of procedures that are as simple as possible from an administrative point of view.
The key stimulus policies as of July 1st (IMF):
- Fiscal measures (at a federal level):
The Federal Council (FC) announced a series of federal-level support packages amounting to CHF 73 billion, that is 10.4% of 2019 GDP.
A first package of CHF 10 billion dated March 13th included up to CHF 8 billion for partial unemployment compensation, CHF 1 billion for financial aid to particularly affected firms, CHF 580 million for loan guarantees for SMEs, and the rest for loss compensation for cancelled events.
On March 20th, a second package of CHF 32 billion included: (i) extension of short-time work allowances and simplification of the application process; (ii) a guarantee program up to CHF 20 billion to support bridging loans to SMEs; (iii) temporary, interest-free deferral of social-security contribution payments for affected companies; (iv) extended payment periods for taxes and payables to federal suppliers without incurrence of interest on arrears; and (v) compensation for loss of earnings for self-employed people (SE) and for some employees affected by official measures to combat the coronavirus (e.g., parents who need to take care of children with closing of schools).
On March 25th, additional measures of around CHF 600 million per month were introduced. An April 3rd package doubled the size of the loan guarantee program to CHF 40 billion. On April 8th and 16th, the short-time work program was twice expanded to cover on-call workers and more SE, respectively. On April 22nd, the FC extended the loss compensation for SE to May 16th, even if they had reopened their businesses on an earlier date; and expanded the loan guarantee program for startups. On April 29th, the FC announced CHF 1.9 billion credit support to airlines and aviation-related businesses.
Currently the focus of the government has shifted from providing an emergency lifeline to the economy to fine-tuning various support measures and ensuring policy continuity as the country transitions back to a more normalized situation.
On July 1st, the government announced that it would: (i) provide additional financing help to public transport and rail freight companies; (ii) extend the revenue compensation for self-employed persons to mid-September; (iii) extend the maximum period of receiving short time work compensation from 12 months to 18 months; (iv) scale back Covid-19 related financial support to international sports organizations; and (v) legislate a new law to regulate the bridge loan guarantee program beyond the period of national emergency.
- Monetary and macro-financial measures:
On March 18th, the FC ordered a debt enforcement standstill from March 19th to April 4th.
The Swiss National Bank (SNB) activated a US dollar liquidity swap line with the US Federal Reserve, lowered the interest rate, offered a new 84-day maturity, and increased the frequency of the 7-day maturity operations from weekly to daily. In addition, the SNB announced on March 19th that, starting April 1st, the threshold factor for exempting sight deposits from negative interest rates would be raised from 25 to 30. On March 25th, the SNB introduced a new Covid-19 refinancing facility that would operate in conjunction with the federal government’s guarantees for corporate loans, allowing banks to obtain liquidity from the SNB.
This facility was subsequently revised to allow use of loans guaranteed by cantons as a collateral.
On the supervisory front, the Swiss Financial Market Supervisory Authority (FINMA) introduced a temporary exclusion of deposits held at central banks from the calculation of banks’ leverage ratio, a measure that was extended on May 19th until January 1st, 2021.
On July 1st, the SNB adjusted the rate calculation for its liquidity-shortage financing facility, effectively lowering the borrowing cost from this facility.
- Exchange rate and balance of payments:
The SNB has increased its interventions in the foreign exchange market to limit appreciation of the Swiss franc. Sight deposits held at the SNB have increased by around CHF 94.3 billion – or 13.5 percent of 2019 GDP – since early February, a proxy for the total amount of Swiss franc liquidity injected through foreign exchange interventions, repo operations, and the Covid-19 refinancing facility.