Colombo, April 3 (SAM) While the coronavirus pandemic is first and foremost a public health crisis, it is also, and increasingly, an economic threat. According to UNCTAD, the COVID-19 shock will trigger a recession bringing down the global annual growth rate to below 2. 5 per cent. The total loss could touch the one trillion-dollar mark.
While developed countries have the wherewithal to recover from both the health and economic setbacks, developing countries will be facing assaults on both the health and the economic fronts. South Asia is particularly vulnerable because it has countries with large populations in which the overwhelming majority are very poor.
Fortunately, as compared to the advanced countries, the impact of the COVID-19 invasion on the health sector in South Asia has been rather weak. While nine very advanced countries had reported deaths in excess of 1000 up to March 31, the highest number of deaths in the South Asian region was only 35 (in India). And India had only 1239 “active cases” (total cases minus the discharged and the dead). Pakistan had 1938 active cases (and 26 deaths); Bangladesh had 21 active cases (and 5 deaths); Sri Lanka had 124 active (and 2 deaths), Afghanistan had 165 active cases (and 4 deaths) and the Maldives had 4 active cases (no deaths).
However, the certain decline of the economies of the developed world is going to have an immediate impact on the economies of South Asia as the latter depend on the developed economies. The developed world accounts for 60% of world’s supply and demand in terms of GDP; accounts for 65% of world manufacturing and 41% of manufacturing exports as per a WTO report published in 2020.
To take Bangladesh for example, according to the ADB, in a hypothetical worst case scenario (no tourism receipts and sharp decline in domestic demand in China for six months plus the outbreak in other Asian economies lasting three months), Bangladesh will lose approximately US $3 billion in its GDP (a 1. 10 per cent decline) and there will be job cuts for around 9 million people.
Consequences of lockdown
Lockdowns and restrictions meant to tackle the health issue had added to the economic danger significantly. India is a classic example. The 21-day nation-wide lockdown announced on March 24 left no time to prepare for the ordeal. Both the government machinery and the masses were caught unawares. All economic activity ceased forcing millions poor laborers without a means to live. With transport called off, they had to trudge across thousands of kilometers to their villages. This human catastrophe was compounded by the closing of provincial borders. It is only now some attempts are being made by some States to shelter and feed the people on the move.
On March 26, India announced a US$22 billion package, including distribution of extra food grains, direct cash benefits transfer to women, farmers and construction workers, insurance for health workers and benefits for formal sector workers. But the “India Spend” website says that “several benefits do not make for an actual increase in funding, while some are a reiteration of existing schemes.”
“The increase in wages under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is not an actual increase–state governments already pay higher wages than the enhanced wages announced. Some others, such as allowing employees to withdraw 75% of their provident fund (PF) amount or an amount equivalent to three months’ wages does not provide additional funding as this money is not the government’s but the employees and the only concession is allowing a withdrawal of their own money. ”
On March 26, 635 economists and academics said in a statement that the “package is wide-ranging in scope but falls short of what is needed to support the poor and to prevent a deepening of the ongoing economic slowdown. ” The schemes cover less than half the requirement, they said. Promises are one thing but delivery is another. For example “The Hindu Business Line” reported on January 27, that 91% of wages for the poor under government schemes were pending for that month.
In Pakistan, the provinces of Punjab and Sindh have been badly affected by COVID-19. All non-essential businesses in Punjab are closed. But on March 22, Prime Minister Imran Khan said that he would not call for a nationwide lockdown because it would cripple the economy and hit the poor hard.
“If we were like China, I would have shut down the country. But our 25%of people are below poverty and 20 per cent just above it. We are talking about more than 80 million people in Pakistan who will suffer due to poverty. So no lockdown can succeed in such a situation, Khan said. “If we cannot provide food to everyone, we cannot enforce lockdown,” he added. He announced a “Corona Relief Tiger Force” to provide food to the people if he were forced to lockdown. He also launched Corona Relief Fund.
Bangladesh was a slow starter. Subsequently government banned public transport across the country till April 4, allowing only vehicles carrying medicines, fuel and perishable items. But, as stated earlier, if the virus is not contained in the developed West, Bangladesh would lose US$ 3 billion. The world’s second largest garment manufacturer after China is teetering on the brink of despair as retailers cancel orders daily one report said.
On Wednesday, the country’s Prime Minister Sheikh Hasina announced a US$590 million bailout for export-oriented industries. The funds, she said, are to be used solely as salaries and allowances for workers in the export sectors
The government encouraged low-income people to return to their villages where they would be provided with government aid or to take refuge in Bhashanchar, an island in the Bay of Bengal, originally built to house Rohingya refugees.
Bangladesh has adequate testing kits and personal protective equipment (PPE), numbering 200,000 units. On March 26, a large consignment of emergency medical supplies provided by the Chinese government arrived. These included 10,000 testing reagents, 15,000 surgical masks, 10,000 medical protective equipment, and 1,000 infrared thermometers.
Sri Lanka is under a nation-wide lockdown, with the districts of Colombo, Kalutara, Gampaha, Puttalam and Jaffna are under a continuous curfew. All factories are closed as workers cannot go to work. According to Kithmina Hewage the Institute of Policy Studies, between January and February alone, tourist arrivals fell by 6.5% and 17.7% respectively, compared to the same period in 2019. Daily wage earners and medium and small enterprises, including those in the informal sector, are affected totally. MSMEs account for 52% of total GDP and 45% of national employment, Hewage says.
“During the past week alone, the Central Bank has announced additional liquidity measures and downward adjustments to policy interest rates, the government has issued debt moratoriums for SMEs in identified vulnerable sectors such as tourism and construction, debt moratoriums to the self-employed, relief on personal loans and credit card payments, and reduced the prices of some essential goods, to name a few. Further measures may be introduced. The government has also requested debt-relief, in the form of suspending debt repayments for a time period, from its lenders in an effort to gain greater flexibility to address the current crisis. These measures have created some breathing space by easing up an element of financial constraints for firms and workers, and crucially injecting a measure of liquidity into the economy,” Hewage says.
But these measures do not necessarily create a swift cash flow into the hands of vulnerable groups such as daily wage earners and most MSMEs, especially those in the informal sector, he points out. Therefore, a mechanism to provide cash flows will be needed, he added.