The COVID-19 pandemic, and government responses to contain spread of the virus, have led to economic contraction across developing Asia and the Pacific. The region is expected to record virtually no GDP growth for the year and, in fact, may experience its lowest growth rate since 1961. The pandemic has killed thousands, wiped out millions of jobs, and exacerbated deprivation in the world’s most populous region.
World Bank researchers estimate that between 134 million and 172 million people in South Asia and East Asia and the Pacific will be plunged into poverty by the crisis. The ILO has reported that curtailment of business activity led to a drop of 6.5% in aggregate working hours in the first quarter of 2020 compared to the pre-crisis baseline (fourth quarter of 2019). In the second quarter of this year, aggregate working hours dropped 10% compared to the baseline.
Most workers in developing Asia and the Pacific perform jobs in the informal economy. They lack basic social protection, like unemployment insurance, job training, health insurance, and pensions. They and their families generally do not receive benefits for the elderly, children, and persons with disabilities.
Spending on social protection in most middle-income Asian and Pacific countries remains below 3% of GDP per capita, while the region’s low-income countries tend to spend even less. The Asian Development Bank advises that 5% of GDP per capita for social protection is a realistic medium-term objective for middle-income countries in Asia and the Pacific.
Quarantines and full-scale lockdowns in many jurisdictions have prevented urban informal workers from pursuing their livelihoods for many weeks. Those dependent on agriculture have seen critical farm supplies curtailed and traditional sales channels disrupted due to restrictions on mobility and business activity. Public health systems have been tested by the surge in COVID-19 patients, many with few means to pay for treatment.
Governments in Asia and the Pacific have responded with the largest increase in social protection expenditures since the global financial crisis more than a decade ago. According to a regularly updated global review of social protection measures adopted during the pandemic, the vast majority of government spending in Asia and the Pacific has been on social assistance measures, rather than social insurance or labor measures. Examples of such social assistance include conditional and unconditional cash transfers, school feeding programs, food voucher schemes, and utility and financial support (e.g., waivers on electricity bills).
The global review also reveals a significant scale up of cash transfers in some countries. At the extreme end is Myanmar, which has increased the coverage of grant recipients from a low base of 240,000 individuals to more than 21 million, an eye-popping 8,684% rise. The number of cash transfer beneficiaries in both Bangladesh and Indonesia increased by more than 100%. In the case of Bangladesh, the number of people receiving cash transfers went from about 15 million before COVID-19 to close to 40 million today. The number of recipients in Indonesia grew from 75 million to 158 million. Kazakhstan and the Republic of Georgia recorded double digit increases.
The global review further shows that, following the expansion of social assistance programs during the pandemic, everyone in the small Pacific island nation of Tuvalu is receiving a cash transfer. Several other countries in developing Asia and the Pacific are also providing cash transfers to a large part of the population, including Malaysia (83% of the population), Philippines (79%), Myanmar (39%), and Pakistan (35%).
One developing Asian country that had already invested substantially in social protection prior to the pandemic is Mongolia. Nonetheless, disruption of markets for Mongolian exports (like cashmere) contributed to a 6.1% reduction in GDP in the first quarter of 2020. Among the measures taken by the government was to increase benefits provided through the universal child money program, and to expand a food stamp program reaching the poorest 5% of the population. The food stamps are cash-like benefits that can be used to purchase staple food items.
Governments of developing countries in Asia and the Pacific have ramped up spending to soften the pandemic’s blow on vulnerable populations. Yet many of the measures are temporary (Mongolia’s extra benefits end in September). In addition, new social protection spending has in some cases been modest (just $3 per capita in South Asia, according to the global review). Given that recovery from the global shock will take more than a few months, governments need to consider how to maintain anti-poverty expenditures for a longer period, and, looking beyond the crisis, how to build more robust and financially sustainable social protection systems that provide an adequate safety net for all.
This commentary was first published on 7 July 2020 on the IMF’s PMF blog.