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COVID-19 Poses a Serious Threat to Higher Education and Financial Sector

by Akshay / Tuesday, 28 July 2020 / Published in Education Blog
covid19 threat to education

Table of Contents

  • Coronavirus pandemic is intended to shrink Australian economy
  • Examine the implications of Pandemic
  • Global shares in fluctuation
  • Higher education disruption
  • Economic Downturn of the virus
  • Enrollment Revenue Risk
  • Federal Government Interdiction
  • Future Prospects of COVID-19

COVID-19 has exploded exponentially around the world, triggering an unprecedented financial turmoil, economic instability and legal and legislative transformation in modern times, leading the stock market to collapse, closing of businesses, employment reductions, collapse of social activities and, for many, a major drop in earnings and a reduction in savings. The COVID-19 pandemic has triggered one of the world’s fastest and biggest contractions in living history. In reaction, the financial markets immediately re-priced securities such as stocks and bonds. Many financial institutions are in the eye of the storm, managing operational upheaval, impacted business lines and compliance issues, often while supporting Government business finance initiatives. COVID-19 has had a huge effect on both the global environment and the Australian community. However, no one determines how far the susceptibility of Coronavirus would last until a suitable cure is discovered.

 

Coronavirus pandemic is intended to shrink Australian economy

In Australia, economic and financial sectors are facing major hit because of this pandemic. Several sectors like airlines, education, tourism, aged care, retail and travel are among the most affected ones by the Coronavirus. Regardless of the knock-on effect, each sector has been directly or indirectly impacted, and no one should disregard how much of the Coronavirus’ effects on the market and financial system would have. With all the main facets of supply and demand chains broken, most firms figure out what steps they should undertake to secure their businesses. As this pandemic places the entire world including Australia in virtual shutdown, financial analysts, credit rating and risk rating specialists have struggled to reconfigure their evaluations despite the unparalleled geo-economic difficulties presented by the crisis. Thus, Australia predicts the coronavirus effect to be more intense than the effects of the global financial crisis, with the economy set to fall by 10% in the second quarter of 2020.

 

Examine the implications of Pandemic

Financial crises hinder the supply side of the market. There is a long history of these crises, and decision makers have thought a lot about how to cope with these. However coronavirus is spreading liquidity and capital problems to the global economy, and is doing so on an exceptional rate. As though the double threats of financial and real liquidity shocks were not sufficient, they are interlinked and raise risks.

 

Financial system risks: The intense shock of the Covid-19 has indeed imposed pressure on capital markets and provoked a strong response from financial institutions. If liquidity issues continue, and problems with the global economy proceed to write-downs, capital problems can occur. Although we can know the remedies from a financial perspective, deregulations and bank debt restructuring are highly contentious. In the case of a financial crash, capital investment will be a big risk, triggering a protracted recession in job and profitability loss as well.

 

Prolonged real economy “freeze”: This is a completely unparalleled prospect. Months of social distancing may interrupt the development of capital, and eventually labor engagement and growth in productivity. Unlike financial crises, prolonged freezing of this extent would disrupt the supply side, giving lawmakers new territories.

The financial and real economy risks are interlinked in two different ways: Firstly, a protracted Covid-19 downturn could push up the amount of insolvencies in the real economy, rendering it much more complicated for the financial sector to handle. In the meantime, a financial crash hungered the real economy of credit. It is true to say that the Covid-19 crisis risk level is notably menacing. Although there is a government manual to cope with financial emergencies, there is no such plan for a large-scale ban upon the real economy. There is no off-shelf remedy for liquidity issues of real economies as a whole.

 

Global shares in fluctuation

Major fluctuations in stock markets, where shares in companies are bought and sold, may impact the valuation of stocks or individual savings accounts (ISAs). When the rate of Covid-19 cases increased, the FTSE, Dow Jones Industrial Average and the Nikkei all suffered massive declines. The Dow and the FTSE have seen their largest quarterly declines since 1987 in the very first three months of the year.

 

Fig 1. Impact of COVID-19 on Stock markets

Source: Bloomberg, 29 June 2020

 

Higher education disruption

College and university campuses are areas where students stay and learn in near proximity to one another. We are also bustling international centers where students from nations across the globe come together. Ironically, the pillars of this complex environment have been greatly impacted by the widespread dissemination of the coronavirus (Covid-19) epidemic, raising doubt as to the consequences for higher education. The insecurity generated by the university’s dependency on foreign students has been exposed violently this year. Travel restrictions discourage international students from returning in Australia and the economic downturn of COVID-19 weakens their ability to pay tuition fees. The global higher education climate has shifted significantly in the last few months owing to the outbreak of coronavirus. Many universities are heavily reliant on students from abroad have had a huge financial impact. International students have postponed their departure, owing to the ongoing travel bans. Universities are actively updating their financial priorities as a result of reduced income focusing on ongoing programs and new investments, such as infrastructure improvements and growth.

 

Fig 2. Australia’s education exports by country %

Source: Australian Bureau of Statistics

 

Higher education is vital component for the successful growth of the Australian community, and it has been projected that it would generate more than $66 billion for the Australian economy. However the current crisis has highlighted the possible risks associated with the sector’s regulatory governance and future financial prospects. It is important to see such regulation as an effort to handle a central problem of overlapping priorities such as expanding access in the form of heavy public funding limitations, balancing politically private and public financing for tuition fees through income-based loans in Australia and fostering competition in the field of research and development. Over the past months, education officials have been pressured to suspend lectures and shut down campuses all over the globe in reaction to an increasing coronavirus epidemic. In response, Australian universities have moved to digital learning, skipped spring break tours, and urged students to study overseas in China, Japan, Italy, and South Korea to come home to finish their studies. Whereas class suspensions, declines in enrollment at the start of a new semester and cancelled flights may be temporary, it is difficult to predict if the latest coronavirus will lead to a long-term instability of the higher education system.

 

Fig 3. Enrollment and Commencement of students in Australian Universities

Source: (www.austrade.gov.au).

 

Economic Downturn of the virus

The coronavirus has an economic impact on business, too. When Australia started to close its borders at the start of February, several Chinese students had returned to their home country for the semester break, which extends about five months during this time. According to the travel restriction that has been placed in effect, most of these students were unable to return and pursue their studies. The financial repercussions of this illustrate how many universities are dependent on overseas students and ready to spend large amounts of money for their education: schools throughout Australia were expected to rise prices by up to AUS$8 billion owing to the repayment by school fees, the cost of accommodation and the reconfiguration of teaching schedules. These economic costs will also impact universities in other nations, in general those with compulsory school fees.

 

Enrollment Revenue Risk

In 2019, international students added more than 40% of the overall student revenue at some of Australia’s leading universities and an estimated AUS$37.6 billion (€ 22.4 billion; $24.2 billion) to the Australian economy. Presently, in the midst of the global coronavirus pandemic and heightened tensions between Canberra and Beijing, the success of the profitable business is at stake. The Mitchell Institute’s study showed that universities could lose up to AUS$19 billion within the next three years’ time period if Australia’s border closed completely for foreign nationals for the rest of the year, which the government has indicated is possible. The cost to the global economy may reach as large as AUS$60 billion. Even now, all universities are concerned about enrolment, how many applicants want to apply now, and whether there would be an unexpected decrease in the summer. How much of the total operational profits emerges from university?

 

Fig 4. Top Australian Universities Losses in 2020

Source: (Marshman & Larkins, 2020)

 

Federal Government Interdiction

Nevertheless, the recent restrictions introduced by the federal government indicate that overseas students have been unable to come or travel to Australia, and thousands are expected to postpone or postpone their studies. About 68,000 of the 177,400 Chinese nationals with student visas were not in Australia at the end of March, so they were unable to resume from that date, led to a major loss to the universities who wanted them to enroll. In 2018-19, the Australian government released well over 142,000 higher education permits off-shore, although just a quarter of that amount is expected to be released in 2020-21. In addition, withdrawal from students attending courses, suggests that the amount of international students studying in higher education in Australia could decline by as much as half by mid-2021. It will decrease the income from tuition charged by Australian universities. The severity of the financial situation for all universities dependent on international student funding will intensify over the period of 2020-21.

 

Future Prospects of COVID-19

The coronavirus crisis and the subsequent policy ban on foreigners coming to Australia have decreased potential earnings and raised a funding problem for universities that has now revealed and is likely to worsen the top eight institutions, a recent report of Geoff Maslen has identified. It forecasts a decrease of up to 50% in international student enrolment by middle of 2021. The crisis has been triggered by too much dependence on revenues from international Students, particularly Chinese ones, in the case of most prominent universities in the Australia. Another report presented by Dr. Bob Birrell and Dr. Katharine Betts, president and vice-president of the Australian Population Research Institute, claim that the situation will intensify as approximately half of international students accessing higher education programs do so in the second half of the academic year, but none are expected to do so this year and figures are therefore likely to decline in the first half of 2021, with the possibility that the percentage of overseas students studying in higher education could decrease by up to 50%.

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Tagged under: Coronavirus, Covid19, Higher Education

About Akshay

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