GP Insights

GP Insights # 424, 11 October 2020

World Bank's latest report on South Asia: Economic vulnerabilities and repercussions
Apoorva Sudhakar

What happened?
On 8 October, the World Bank released its biannual South Asia Economic Focus report. South Asian countries were quick to respond to the Covid-19 pandemic and impose strict lockdowns in March itself. Yet, the World Bank Vice President for South Asia observed that the collapse of South Asian economies during the pandemic has been more brutal than anticipated. 

The report forecasts a GDP contraction of 7.7 per cent for the region this year. Attributing the number to artificially repressed consumption, the report says this is the largest decline for the region. 

The World Bank said, private consumption, which had been consistent during the previous investment and export-led recessions, is set to fall by over 10 per cent this year making a recovery difficult and uncertain. World Bank Chief Economist for South Asia says the number of people living below the poverty line has increased by 33 per cent in a single year due to the pandemic. An estimated 49 to 56 million South Asians people are expected to become poor by the end of 2020.

What is the background?
First, the uneven impact of the pandemic across South Asia. While some countries are already experiencing a second and more serious wave, some are still reeling under the first wave. Bhutan and Sri Lanka have been able to curb the spread of the virus. Cases in Bangladesh and Pakistan increased after a respite. However, in India, Maldives, and Nepal, the number of cases is still on the rise.

Second, the temporary fiscal stimulus relief. For now, the countries have controlled the pandemic's impact on the economy through fiscal stimulus packages. The central banks have eased interest rates to keep the credit line functioning. However, a more comprehensive approach needs to be adopted. Otherwise, the economies will be bound by rising fiscal deficits and falling revenues.

Third, the limitations of digital economies. Around three-quarters of the region work in the informal sector. While the formal sector transitioned easily into remote working spaces, the informal sector was largely isolated due to lack of education, awareness, and access. Countries like Pakistan and India push for digital economies without comprehending the reality on the ground.

What does it mean?
The COVID-19 has highlighted the fragile health sector in the region and the need to allocate more funds to augment the same. While the development versus defence debates are witnessed every year, the pandemic has brought out the need for a balanced budget allocation between service sectors like education and health. On an average, South Asian only spend 3.4 per cent of their GDP on healthcare. 

The pandemic has also highlighted that countries need to look beyond their geopolitical differences and hold dialogues on issues related to health, environment, and the like. Though SAARC has failed to materialize into a substantial platform, now may be the time to rise to the occasion. India created a SAARC COVID-19 fund recently, but governments are yet to decide on the operations. However, given the history of SAARC's operations, it is doubtful that the countries, especially India and Pakistan, will see eye to eye.

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