South Asia facing sharp economic downturn due to COVID-19

Within the four sub-regions of South Asia, Bangladesh, India, Nepal, and Bhutan will be doing better as compared to other countries of the region, writes Partha Pratim Mitra for South Asia Monitor

Partha Pratim Mitra Aug 28, 2020
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The COVID-19 pandemic continues to weigh heavily on economic systems and employment around the world. Migrant workers who send remittances back home are the first to be hit, with many facing scant job security and limited access to social assistance.  Large-scale unemployment and wage reduction among migrant workers has affected the wellbeing of many households in Asia and the Pacific who depend on remittances to meet their daily requirements.

Remittances in South Asia are expected to fall furthest, by $28.6 billion (24.7 percent of 2018 receipts) among all the sub-regions of Asia, followed by remittances to Central Asia ($3.4 billion, 23.8 percent), Southeast Asia ($11.7 billion, 18.6 percent), and East Asia  (1.7 billion, 16.2 percent).  The Middle East accounts for 41.4 percent of the total remittance loss in Asia. This is followed by a slump in remittances from the United States, (37.9 percent of total). The fall in remittances from the EU and the United Kingdom accounts for 6.3 percent of the total. 

The employment-to-population ratio ranged from 26 percent in Southern Asia to approximately 41 percent in Eastern Asia and 42 percent in South-Eastern Asia and the Pacific. Before the COVID-19 crisis, labour force participation of young people in most countries in Asia and the Pacific was higher than the global average. In Eastern Asia, 45 percent of youth were economically active, compared to the global rate of 41 percent. The share in South-Eastern Asia and the Pacific was even higher at 47 percent. Only in Southern Asia was the participation rate below the global average, at 32 percent, driven entirely by the extremely low participation rate of young women at 14 percent. The low employment to population ratio and low labour force participation of young people in South Asia could become lower even further due to the economic dislocation of COVID-19.

South Asia: Once booming economy, now sees decline

Looking at the macro picture on the trends in per- capita GDP South Asia registered one of the highest growth rates in Asia during 2015-2019, came only next to the prosperous East Asian region. Within South Asia, if we divide the region into four sub-groups, depending upon growth rates in per capita GDP during 2015-2019, India and Bangladesh could be included in subgroup 1 which had registered higher rates than the other countries of the region, Bhutan and Nepal came next and could be included in subgroup 2, Pakistan, and Sri Lanka in subgroup 3 and Maldives and Afganistan in subgroup 4. As the COVID-19 pandemic hit the region initially South Asia was the least affected. Recovery is also quicker in the region as compared to other parts of Asia. 

Within the four sub-regions of South Asia, Bangladesh, India, Nepal, and Bhutan will be doing better as compared to other countries of the region. Bangladesh has been maintaining a 6 percent, plus growth rate, followed by Bhutan with 5 percent, plus growth rate in per capita GDP. Pakistan, Sri Lanka, and Afghanistan will have a slow recovery process. The recovery process in the Maldives will have wide fluctuations and is the worst hit in the region due to the pandemic. (See tables and figures 1 and 2)

Table 1: Growth rate in per capita GDP per capita GDP

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Note1: Figures and forecasts are of ADB's Asian Development Outlook (ADO) 2020, released in April 2020(Dataset, June 22,2020

Note2: This dataset provides the growth rates of real per capita GDP, which is defined as GDP at constant prices divided by the population

Source: ADB Data Library,https://data.adb.org/dataset/capita-gdp-growth-asia-and-pacific-asian-development-outlook

FIGURE 1: Trends in estimated  Annual Average variation in per capita GDP-2015-2019

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Source:  Original data from ADB Data Library,https://data.adb.org/dataset/capita-gdp-growth-asia-and-pacific-asian-development-outlook
 

Figure 2: Trends in estimated Annual  Average variation in per capita GDP-2020-2021(Forecast)

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Source: Original data taken  from  ADB Data Library,https://data.adb.org/dataset/capita-gdp-growth-asia-and-pacific-asian-development-outlook

Table 2: Estimates of average annual per capita GDP Growth based on annual, growth rates

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Source: Original data taken  from  ADB Data Library,https://data.adb.org/dataset/capita-gdp-growth-asia-and-pacific-asian-development-outlook

Looking at certain sectoral impacts of COVID-19, tourism and allied sectors have been severely affected by the pandemic. Countries which have significant tourism earnings are Nepal, Sri Lanka, and Bhutan India, and Pakistan.

Table 3:Contribution of tourism in GDP and employment.2019.

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Source: COVID-19 AND TOURISM IN SOUTH ASIA Opportunities for sustainable regional outcomes, World Bank,2020https://openknowledge.worldbank.org/bitstream/handle/10986/34050/COVID-19-and-Tourism-in-South-Asia-Opportunities-for-Sustainable-Regional-Outcome

Travel and tourism

The two sectors - travel and tourism -  have been estimated to have created in the South Asian region 47.7 million jobs in 2019 by the World Bank. With fewer economic options, countries such as the Maldives is particularly dependent on tourism while other countries of South Asia have relatively more diversified sources of GDP including agriculture and foreign remittances 

Every sector of the travel and tourism industry is badly impacted by COVID-19. These sectors include airlines, transport, cruise lines, hotels, restaurants, attractions (such as national parks, protected areas, and cultural heritage sites), travel agencies, tour operators, and online travel entities. Small and medium enterprises (SMEs), and micro-firms, which include a large informal the tourism sector, make up around 80 percent of the tourism sector and many may not survive the crisis without substantial support. Tourism job losses have a disproportionate impact on women, youth, and indigenous people. According to a recent  Global Report on Women and Tourism, 53 percent of hotel and food service workers in the Asia Pacific are female.

Some measures have been taken by governments in South Asia to break the economic deadlock created by COVD-19. One such measure is aimed to facilitate travel and economic activities in the region. India recently signed an Air Bubble Agreement with the Maldives, making it the sixth country where Indians can travel.

An Air Bubble between countries permits citizens to travel freely between specified nations without having the need to undergo an on-arrival quarantine protocol. India at present has allowed travel to the US, the UK, Germany, France, and Kuwait. The agreement with the Maldives was signed during a video conference where India also announced a new Indian Line of Credit (LoC) of USD 400 million along with a grant component of USD 100 million for the Greater Male Connectivity Project. This will be the single-largest infrastructure project in the Maldives and will link Male with Villingili, Gulhifalhu, and Thilafushi islands. 

It is expected that such steps become an integral part of economic cooperation and the region comes out of the pandemic induced economic lockdown.

(The writer is a retired Indian Economic Service officer of the Government of India. The views expressed are personal. He can be contacted at ppmitra56@gmail.com)

References:

James Villafuerte,et al (2020) Tracking COVID-19’s devastating toll on Asia’s remittancesAsian Development BlogStraight Talk from Development Experts https://blogs.adb.org/blog/tracking-coviremittancesd-19-s-devastating-toll-asia-s- 3 August

Tackling the COVID-19 youth employment crisis in Asia and the Pacific Co-publication of the Asian Development Bank and the International Labour Organizationhttps://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/documents/publication/wcms_753369.pdf,August,2020

NO. 128 6 March 2020 abdul AbiadThe Economic Impact of the COVID-19 Outbreak on Developing Asia1https://www.adb.org/sites/default/files/publication/571536/adb-brief-128-economic-impact-covid19-developing-asia.pdf

COVID-19 AND TOURISM IN SOUTH ASIA Opportunities for sustainable regional outcomes, World Bank,2020

https://openknowledge.worldbank.org/bitstream/handle/10986/34050/COVID-19-and-Tourism-in-South-Asia-Opportunities-for-Sustainable-Regional-Outcome[v] Express Web Desk | New Delhi | Published: August 13, 2020 1:59:25 pm. https://indianexpress.com/article/india/india-inks-air-bubble-deal-with-maldives-6552972/

[1]James Villafuerte,et al (2020) Tracking COVID-19’s devastating toll on Asia’s remittancesAsian Development BlogStraight Talk from Development Experts https://blogs.adb.org/blog/tracking-coviremittancesd-19-s-devastating-toll-asia-s- 3 August

[1] Tackling the COVID-19 youth employment crisis in Asia and the Pacific Co-publication of the Asian Development Bank and the International Labour Organizationhttps://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/documents/publication/wcms_753369.pdf,August,2020

[1] NO. 128 6 March 2020 abdul AbiadThe Economic Impact of the COVID-19 Outbreak on Developing Asia1https://www.adb.org/sites/default/files/publication/571536/adb-brief-128-economic-impact-covid19-developing-asia.pdf

[1] COVID-19 AND TOURISM IN SOUTH ASIA Opportunities for sustainable regional outcomes, World Bank,2020https://openknowledge.worldbank.org/bitstream/handle/10986/34050/COVID-19-and-Tourism-in-South-Asia-Opportunities-for-Sustainable-Regional-Outcome

[1] Express Web Desk | New Delhi | Published: August 13, 2020 1:59:25 pm. https://indianexpress.com/article/india/india-inks-air-bubble-deal-with-maldives-6552972/

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