In light of the Covid-19 outbreak, the Asian Development Bank (ADB), in its recently released Asian Development Outlook 2020, forecast 2.2 per cent growth for Developing Asia, and 1.0 per cent growth for Southeast Asia, on the back of China’s economy losing speed. Compared to the forecasts made in December 2019, these lower forecasts give an indication of the extent of the repercussions from the outbreak. Under the assumption that the pandemic is contained this year and has no serious ripple effects on financial systems, a recovery is viable next year and Developing Asia could grow by 6.2 per cent.
Despite limited resources, Vietnam has managed to contain the pandemic relatively well with its prompt and aggressive response. Indonesia’s confirmed Covid-19 cases are rising extremely rapidly, and it tops the region in terms of deaths from the virus. Indonesia’s response has been slow and rather piecemeal. Inconsistent guidelines, failure to enforce self-quarantine, and the weakness of the national government’s communication strategy are the primary reasons. Thailand’s inconsistent policies about travel and quarantine, poor communication, and supply shortages have highlighted the government’s inability to promptly and adequately respond to the surge of Covid-19 cases. Myanmar’s paucity of Covid-19 cases likely results more from the lack of testing than from the absence of the virus. Myanmar’s underdeveloped healthcare system and the lack of a strong response mounted by the government underscore Myanmar’s unpreparedness to cope with the pandemic. Singapore has been hailed as a global public health model due to its early and aggressive response to Covid-19 through widespread testing, comprehensive contact tracing, and mandatory well-enforced quarantines for the infected. Yet despite its early success in containing the virus, Singapore has the most number of confirmed cases in Southeast Asia as of April 20, 2020, with most of the cases linked to foreign workers’ dormitories.
In terms of policy response to the pandemic, ASEAN member countries have introduced various economic stimulus packages. Common measures are tax incentives/breaks for affected businesses/sectors; subsidies such as cash assistance, discounts on electricity bills, etc. to households and workers; deferred tax or loan payments and exemptions from or lower government fees and charges. Central banks have also lowered policy rates and reserve requirements, and bought government securities/bonds. Further, ASEAN member countries have agreed on the establishment of the Covid-19 ASEAN Response Fund and the reactivation of regional bodies for financial stability.
International financial institutions have also pledged to support the countries affected by the Covid-19 outbreak. The International Monetary Fund (IMF) pledged to increase lending capacity for members to $1 trillion, and to work on debt relief for low-income countries through the Catastrophe Containment and Relief Trust (CCRT), while the World Bank has made available $160 billion for long-term financing over the next 15 months. ADB also announced a $6.5 billion package to support the Covid-19 crisis response. So far ADB has approved grants for the Philippines and Indonesia, and has offered support for Vietnam. The Philippines launched a $5 million. Rapid Emergency Supplies Provision Project, a provisional food assistance for vulnerable households and workers in Luzon. Indonesia has availed a $3 million grant to purchase essential medical equipment and supplies such as ventilators and personal protective equipment to tackle the pandemic.
The Asian Infrastructure Investment Bank (AIIB) has announced that it would make $5 billion available to help public and private sector clients navigate the Covid-19 pandemic. It recently doubled the funds under its Covid-19 Crisis Recovery Facility to provide $10 billion due to high client demand. Even the US has acted swiftly to support ASEAN in combating the Covid-19 virus. To date, the US has released over $35.3 million in emergency health funding to help ASEAN countries fight the virus.
The World Bank has also provided financial assistance to help ASEAN fight the pandemic. Some of them are the following:
- A $50 million emergency loan has been approved for Myanmar to initiate hospital improvements and improve public health emergency preparedness.
- The World Bank has approved a $500-million (PHP 25.2 billion) loan to support the Philippines’ Covid-19 response.
- The World Bank has approved $18 million in assistance to Laos to help the country strengthen its health system and response capacity.
Southeast Asian economies have been hurt badly by their dependence on China for raw materials and as an export market. China is now helping Southeast Asian nations respond to the pandemic. It is providing technical advice on how to beat the pandemic and shipping large quantities of medical supplies to the region. China also supports the Covid-19 ASEAN Response Fund and has agreed to provide the necessary support through the ASEAN-China Co-operation Fund and ASEAN+3 Co-operation Fund.
Role of financial institutions
Countries in the region are beginning to respond with stimulus packages and increased spending on front-line healthcare. But the cost will be huge and Developing Southeast Asia needs assistance. Bilateral donors have a role to play, through development assistance and technical advice to central banks and economic ministries. The World Bank, ADB and IMF are also stepping up, putting in place emergency financing measures, debt relief, funding to strengthen health services and primary healthcare, and, have expanded trade finance.
The way forward
A large, targeted and unconditional fiscal stimulus is crucial to effectively respond to the pandemic. To this end, budgetary positions should show flexibility in coming up with the needed resources. For countries with high debt levels and high debt servicing costs, regional coordination is needed for debt relief or deferral of debt repayments. Such measures could be coordinated with multilateral organisations such as the IMF and ADB. Moreover, a public health emergency fund can help mobilise financial resources at the regional level and provide targeted support for countries that are most affected by the virus. Various stakeholders including member countries, multilateral development banks, the private sector, philanthropists and civil society could be roped in.
Traditional industries such as manufacturing and construction need to reduce their reliance on labour and adopt a smart/automation approach to better manage the risks of a similar labour shortfall in the future due to quarantine and immigration control. There are opportunities for investors to provide funding for the upgrade of these businesses and upgrades may be necessary to support supply chain diversification so that firms do not rely on a few countries to procure key resources. ASEAN+3 countries need to leverage their economic complementarities and strong business ties to further ease tariffs, eliminate barriers, boost the flow of trade and investment, and keep markets open to each other to restore growth in the region as quickly as possible.