Reforms in South Asia should focus on pro-poor growth enabling the region to tide over the global pandemic and bounce back to its recovery path, said Lakshman Kadirgamar Institute of International Relations and Strategic Studies, Executive Director Dr. Ganeshan Wignaraja.
He said the closure of manufacturing and services activities across South Asia means rising job losses and pay cuts for workers. Household income of the poorest households, linked to tourism, remittances and informal sector activity, will be hit hard.
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.
“To tackle the pandemic and economic crisis, South Asia needs to ramp up its response. Working together in several ways offers the best hope for the region to succeed,” he said, adding that 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 from India to the Maldives. Various stimulus packages have been adopted. For example, India has announced a stimulus package equivalent to 2 percent of GDP while Pakistan’s is 1.6 percent of GDP. But South Asia’s packages are modest compared to those of developed countries (over 10 percent of GDP). These stimulus packages should be scaled up through readjusting domestic spending, better tax administration and seeking support from the IMF and other international financial institutions.
A second priority is improving over-stretched health systems in South Asia. Decades of under-investment in public health means fewer doctors, drugs and hospital beds to handle the pandemic. South Asia should target a gradual increase in public health spending to between 2-3% of GDP (up from about 1% today) as well as telemedicine.
Third, there is a need for basic income support schemes and emergency food supplies for the poor who have been crippled by the downturn and prolonged lock downs. Fourth, the SAARC Covid-19 Emergency Fund should be used as a building block to revive regional cooperation. SAARC leaders met on March 15, 2020 to announce the launching of the Fund.
The SAARC Comprehensive Framework on Disaster Management provides a roadmap for cooperation in natural disasters including pandemic like Covid-19. SAARC countries should regularly share information about the virus, health and lockdown approaches and economic reform programmes.
South Asia, the world’s most populous region, could be the next hotspot for the pandemic. Governments 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, can help economic recovery in South Asia.
Covid-19 has sparked a public health emergency and an economic shock in South Asia. As of 24 April, South Asia accounted for 1.5 percent 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. Like others, Sri Lanka’s growth could moderate to 1.5% in 2020 according to the Central Bank’s 2019 Annual Report (down from 2.3% in 2019).Other forecasters are more pessimistic about Sri Lanka’s outlook given the debt overhang over the economy and the large repayments required in 2020. Time will tell what actual 2020 growth in Sri Lanka will be.
Nonetheless, trade, investment and tourism across South Asia have collapsed. Stock markets have tumbled and business confidence is vanishing. Daily life has been disrupted and millions face poverty.
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. Such fundamentals include 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.
Reforms in South Asia 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 digitisation of public services.