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South Asia is on course for its worst economic performance in 40 years, with decades of progress in the battle against poverty at risk, because of coronavirus, the World Bank (WB) said Sunday.

Afghanistan, Bangladesh, India, the Maldives, Pakistan and other countries in the region, which have 1.8 billion people and some of the planet’s most densely populated cities, have so far reported relatively few coronavirus, officially COVID-19, cases but experts fear they could be the next hotspots.

The dire economic effects are already much in evidence, with widespread lockdowns freezing most normal activity, Western garments factory orders cancelled and vast numbers of poor workers suddenly jobless.

Released on April 12, 2020, the WB’s latest South Asia Economic Focus (South Asia Economic Focus, Spring 2020: The Cursed Blessing of Public Banks, World Bank, Washington DC, 2020) anticipates a sharp economic slump in each of the region’s eight countries, caused by halting economic activity, collapsing trade, and greater stress in the financial and banking sectors.

Due to the pandemic, economic circumstances within countries and regions are fluid and change on a day-by-day basis. The analysis in the report was based on the latest country-level data available as of April 7, 2020.

“South Asia finds itself in a perfect storm of adverse effects. Tourism has dried up, supply chains have been disrupted, demand for garments has collapsed and consumer and investor sentiments have deteriorated,” said the report, a twice-a-year-regional update.

The report presents a range forecast, estimating regional growth will fall to a range between 1.8 and 2.8 percent in 2020, down from 6.3 percent projected six months ago. That would be the region’s worst performance in the last 40 years, with temporary contractions in all South Asian countries.

In case of prolonged and broad national lockdowns, the report warns of a worst-case scenario in which the entire region would experience a negative growth rate this year with at least half the countries falling into “deep recession”.

This deteriorated forecast will linger in 2021, with growth projected to hover between 3.1 and 4.0 percent, down from the previous 6.7 percent estimate.

Maldives

Worst hit will be the Maldives where the collapse of tourism will result in gross domestic output contracting by as much as 13 percent.

Afghanistan Pakistan Sri Lanka

For Afghanistan, Pakistan and Sri Lanka, the full range of their forecast GDP growth for this fiscal year is in negative territory.

Afghanistan could shrink by as much as 5.9 percent and Pakistan by up to 2.2 percent.

India

Regional heavyweight India, where the fiscal year began on April 1, will see growth of just 1.5-2.8 percent in its current financial year, down from an expected 4.8-5.0 percent for the year just ended, the bank predicted.

Inequality

The report warned: The pandemic will reinforce inequality in the region, with the pandemic hitting informal sector workers with limited or no access to healthcare or social safety the hardest.

As played out across the region, the sudden and large-scale loss of low paid work has driven a mass exodus of migrant workers from cities to rural areas, spiking fear that many of them will fall back into poverty.

In India for instance, the world’s biggest lockdown has prompted hundreds of thousands of migrant workers to return to their home villages, many on foot.

Even more worrisome than the grim macroeconomic outlook is the realization that the impact on the poorest in the population will be much harsher than the consequences for more affluent people. Analysis shows that poor people have a higher likelihood of having lost their work, and domestic migrant workers who had escaped rural poverty by finding work in cities are being forced back into rural poverty again. Many of the poorest face higher risk of food insecurity.

The report said: The harsh reality of inequality in South Asia is that poor people are more likely to become infected with the coronavirus, as social distancing is difficult to implement for them. They also have less access to health care or even water and soap, are more likely to have lost their job, and are more vulnerable to spikes in food prices.

Food security

While there are no signs yet of widespread food shortages, the report warns that a protracted COVID-19 crisis may threaten food security, especially for the most vulnerable.

The report said: Supply disruptions and panic buying can jeopardize food security. The sudden disappearance of service sector jobs and the rise in food prices have created economic hardship, especially for people in the informal sector.

Governments need to “ramp up action to curb the health emergency, protect their people, especially the poorest and most vulnerable, and set the stage now for fast economic recovery,” the WB said.

The WB recommended temporary work programs for migrant workers, debt relief for business and individuals, and cutting red tape on imports and exports of essential goods. And once the crisis is over, governments need urgently to pursue “innovative policies” and jumpstart economies.

Amid the mounting human toll and global economic fallout triggered by the pandemic, South Asian governments must ramp up action to curb the health emergency, protect their people, especially the poorest and most vulnerable, and set the stage now for fast economic recovery, says the WB.

In the short term, the report recommends preparing weak healthcare systems for greater COVID-19 impacts, providing safety nets and securing access to food, medical supplies, and necessities for the most vulnerable.

To minimize short-term economic pain, the report calls for establishing temporary work programs for unemployed migrant workers, enacting debt relief measures for businesses and individuals, and easing inter-regional customs clearance to speed up import and export of essential goods.

Expansionary fiscal policies

The report said: Once lockdown restrictions are loosened, South Asian governments should adopt expansionary fiscal policies combined with monetary stimulus to keep credit flowing in their economies. Since many South Asian countries have limited fiscal space, these policies should target people worst hit by the freeze on economic activity.

The report urges governments to adopt temporary spending measures and coordinate with international financial partners to avoid unsustainable long-term debt levels and fiscal deficits.

The report said: Public banks might be part of the solution by providing countercyclical lending to the most vulnerable parts of the economy.

The report said: The unfolding economic crisis is unique in several ways. While normal downturns are caused by lack of effective demand, this crisis is caused by supply constraints. While typically manufacturing is the most cyclical part of the economy, this time service sectors are hardest hit. While usually, GDP decelerates faster than consumption, as consumers smooth their spending over economic cycles, this time consumption is falling sharply.

The WB report added: All governments in South Asia have responded rapidly to the crisis, but their task is daunting. Governments have imposed social-distancing measures, introduced relief packages to secure access to food, and provided for delays in payments on taxes, rent, utilities and debt service. Central banks have loosened monetary policy to increase liquidity. This all has been done in the face of a deteriorating global environment, and while The economic outlook for South Asia is dire.

The report said: International capital is being withdrawn and inflows of remittances are being disrupted in the region. On top of the deterioration of the international environment, the lockdown in most countries has frozen large parts of the domestic economy.

Unchartered territory

The report said: Policy makers are in unchartered territory and must consider innovative policies. In their immediate response, the focus has been rightly on mitigating the spread of COVID-19. While doing that, conditions should be created to jumpstart the economy, once countries emerge out of the immediate health crisis. A combination of temporary work programs and a moratorium on debt servicing and rent payments could help prepare for the restart of the economies. After tackling the immediate COVID-19 threat, South Asian countries must keep their sovereign debt sustainable through fiscal prudence and debt relief initiatives.

Diversify international connections

The WB report said: In the longer run, South Asia would do well by diversifying its international connections, while there are great opportunities to expand digital technologies for payment systems and distant learning to unlock remote areas in South Asia.

Public banks

The report said: Public sector banks are more prevalent in South Asia than elsewhere. Over 40 percent of South Asia’s banking assets are owned by the public sector, the largest share among global regions and more than twice the level of East Asia (excluding China). The share of bank assets owned by public banks is highest in India (62 percent) and Bhutan (56 percent), followed by Sri Lanka and the Maldives (somewhat over 40 percent).

It said: Public banks’ lending can be countercyclical, and they are more likely than private banks to provide services to people in remote areas and poor people. That is an opportunity in the current crisis.

It added: To reap the benefits and mitigate the problems of public banks, they should be reformed according to best practices. They need much better-defined objectives and missions, in order to separate social mandates from profit-maximizing objectives. They need to be more transparent in their financial results, including in the amounts of implicit government subsidies and in contingent liabilities assumed by governments. Stronger governance and accountability could improve the performance.

“The priority for all South Asian governments is to contain the virus spread and protect their people, especially the poorest who face considerably worse health and economic outcomes,” said Hartwig Schafer, World Bank Vice President for the South Asia Region. “The COVID-19 crisis is also an urgent call-to-action moment to pursue innovative policies and jumpstart South Asian economies once the crisis is over. Failure to do so can lead to long-term growth disruptions and reverse hard-won progress in reducing poverty.”

The WB is taking “broad, fast action”, deploying up to $160 billion in financial support over the next 15 months to help countries protect the poor and vulnerable, support businesses, and bolster economic recovery.


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One Comment

  1. The World Bank’s financing of and ardent support for destruction of all life is at the root of the shutdown of modern civilization. Nature and its gross natural product must be the bottom line of any civilization. See
    https://livingnormally.blogspot.com/2020/03/coronavirus-and-life-in-2020-macro.html?m=1
    The World’s dams are generating the Covid19 viruses.