April 26, 2020 Reading Time: 4 minutes
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South Asia, the world’s most populous region, could be the next hotspot for the COVID- 19 pandemic. Governments across the region are faced with the grim calculus of trading off health for the economy which is in lockdown. Coherent national strategies, backed by regional cooperation efforts, are the way forward for economic recovery in South Asia.
COVID- 19 has sparked both a public health emergency and an economic shock in South Asia. As of 24 April, South Asia accounted for 1.5 per cent of global cases, while the US accounted for 32 per cent, and the EU for 34 per cent. South Asia has moved from the fastest-growing region in the world in 2019 to a slow growth scenario in 2020. Trade, investment and tourism have collapsed. Stock markets have tumbled and business confidence is vanishing.1 Daily life has been disrupted and millions face poverty. Some speculate that a return to pre-COVID- 19 normal life can only occur once a vaccine is readily made available sometime in 2021.
While a V-shaped economic recovery in South Asia in 2021 may be hampered by weak global demand and business uncertainty, economic fundamentals favour growth including a youthful population, a growing middle-class and a strategic geographical location. By focusing on the policy steps ahead, governments can increase the likelihood of recovery.
First, fiscal and monetary stimulus measures – tailored to national circumstances – can mitigate long-term economic damage in South Asia. The pandemic has affected every sector of the economy and every segment of the population in South Asia. Several governments have announced relief measures and stimulus packages to respond to damages wrought by the pandemic. For example, India2 has announced a stimulus package equivalent to 2 per cent of GDP, while Bangladesh’s is 3.3 per cent of GDP and Pakistan’s is 1.6 per cent of GDP. Reflecting limited financial resources, South Asia’s packages are modest compared to those of developed countries (in excess of 10 per cent of GDP). However, to mitigate lasting economic damage, South Asian countries should increase the measures they have undertaken. While part of the funds can come from readjusting domestic resources and raising taxes, South Asia should also seek support from developed countries and international financial institutions. It is additionally opportune for governments to re-vitalize existing mechanisms under SAARC, like the SAARCFINANCE, to exchange ideas on stimulus measures.3
Second, investing in South Asia’s under-developed and over-stretched health systems is essential. Reflecting a history of chronic under-spending on public health, South Asia lags others. For instance, in 2017, South Asia spent only 0.9 per cent of its GDP on public health, which is half the figure for Sub-Saharan Africa (1.9 per cent) and one-fifth of that of East Asia and the Pacific (4.5 per cent). Strikingly, Afghanistan, Bangladesh and Pakistan even spend below the regional average. As this means fewer doctors, drugs and hospital beds to cope with the pandemic, South Asia should target a gradual increase in public health spending to about 4 per cent of GDP. Furthermore, the region should invest in technologies to improve public health efficiency such as helplines that work and telemedicine as well as ambulances to ferry the sick to hospital. Sri Lanka’s 1990 Suwaseriya national ambulance service set up with Indian aid is a good example of aid effectiveness.
Third, reforms should focus on pro-poor growth. The closure of manufacturing and services activities across South Asia means rising job loss and pay cuts for workers. Household income of the poorest households, linked to tourism, remittances and informal sector activity, will be hard hit. A protracted COVID- 19-driven crisis may threaten food security, particularly for the most vulnerable and in LDCs like Afghanistan and Nepal. After tackling the immediate pandemic threat, attention should focus on reforms for pro-poor growth in all South Asian economies. Such reforms should tackle the challenging issues of food security, targeted social safety nets, women’s empowerment, and small enterprises. Efforts should also continue to improve the investment climate including cutting red tape affecting business and digitization of public services.
Fourth, while lockdowns are necessary for South Asia, they should be temporary and humanely administered. Lockdowns and social distancing interrupt transmission of the virus and save health systems from collapse. But a prolonged lockdown risks causing significant economic damage and personal suffering. This is particularly so in South Asia, which is unable to offer costly social protection measures feasible in developed countries. Furthermore, governments should provide for basic food supplies, either free or at controlled prices, for the poor during lockdowns. Lifting of lockdowns should also be carefully planned. A gradual approach to lifting restrictions will prevent the danger of another outbreak.
Fifth, the SAARC COVID- 19 Emergency Fund should be used as a building block to revive regional cooperation. SAARC leaders met virtually on 15 March 2020 to discuss joint action and announced the launching of the fund. At the senior officials’ level, discussions are being held on health issues arising from the transit of goods and people as well as fostering intra-regional trade. The SAARC Comprehensive Framework on Disaster Management provides a roadmap for cooperation in natural disasters including pandemic like COVID- 19.4
Recent effort is a good beginning to share responsibilities and to reactivate the SAARC process, which may help mitigate the slump. The process of trust building can be enhanced by regular regional dialogue of governments and relevant stakeholders to strengthen SAARC cooperation in the post-COVID period. Think-tanks in this region can be tasked with relevant research and advocacy.
To tackle the pandemic and economic crisis, South Asia needs to ramp up its response. Working together offers the best hope for the region to succeed.
1Economic Times India. (2020). Stock. [Online] Available at: https://economictimes.indiatimes.com/topic/Stock [Accessed 20 April 2020].
2Economic Times India. (2020). India. [Online] Available at: https://economictimes.indiatimes.com/topic/India [Accessed 20 April 2020].
3Economic Times India. (2020). SAARC. [Online] Available at: https://economictimes.indiatimes.com/topic/SAARC [Accessed 20 April 2020].
4Economic Times India. (2020). Disaster Management. [Online] Available at: https://economictimes.indiatimes.com/topic/Disaster-Management [Accessed 20 April 2020].
*This commentary is an outcome of the joint research being undertaken by the South Asian think-tanks on the current pandemic and economic recovery. Authors are as follows: Ganeshan Wignaraja, Executive Director, LKI, Sri Lanka; Selim Raihan, Executive Director, SANEM, Bangladesh; Puspa Sharma, Executive Director, SAWTEE, Nepal; Vaqar Ahmed, Joint Executive Director, SDPI, Pakistan; and Prabir De, Professor, RIS; and Head, ASEAN-India Centre, India. The opinions expressed in this piece are authors’ own and not the institutional views of LKI, and do not necessarily reflect the position of any other institution or individual with which the authors are affiliated. This article was originally published in the Economic Times India .The opinions expressed in this column are that of the writers. The facts and opinions expressed here do not reflect the views of www.economictimes.com.