South Asia’s worsening woes

Apr 18 2020

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The writer is an analyst.
The writer is an analyst.

IT has been widely noted that viruses do not distinguish between the rich and the poor. Granted, when exposed to it, a virus, being a natural being, is indifferent to our income levels, but the socioeconomic divisions we humans have cultivated over time nonetheless ensure that epidemics will affect the underprivileged populations disproportionally. This is precisely why, in today’s South Asia, most worrisome are the growing signs that the Covid-19 pandemic and the subsequent economic fallout will cause the scourge of widespread poverty and inequality to fester.

For those who have the economic means to sustain themselves over an extended period, the epidemic is primarily a health emergency, which has confined them to their homes and stripped them of the freedom to visit friends and family. But for a vast majority employed chiefly in the informal sectors of the economy, it set off an economic crisis. When many governments brought — rather belatedly — the wheels of commerce to a grinding halt in their attempt to curb the virus, it deprived millions of workers of their livelihoods. They are now left with no choice but to await handouts from their government.

Within a few weeks of the lockdowns, the pandemic has put governments on a war footing across the globe. Decision-makers find themselves in uncharted territory where they are relying on imperfect information to match their people’s expectations of impeccable combat strategies to counter the multifaceted risks to public health and the economy. One can argue that poor and rich countries alike face the challenge of uncertainty, but that’s about it. A macro-level overview of South Asia and advanced economies reveals how these nation states are poles apart in their ability to fight the virus and reduce the ensuing economic loss.

Let’s start with the health crisis. In the pre-pandemic world, Italy and Spain rightfully took pride in their universal healthcare systems. Although state-funded and highly regulated, their healthcare sector was functioning very well. On the contrary, consider India and Pakistan that couldn’t cater to even the basic healthcare needs of their massive populations. Despite excellent healthcare facilities, Italy and Spain have beenoverwhelmed by the epidemic. Imagine a South Asian country facing the ferocity of the outbreak that the south European duo are battling. That’s a chilling thought because a human tragedy of inconceivable enormity may unfold in the absence of external medical support, which is presently nonexistent.

With a dearth of fiscal space and regional cooperation, South Asia is prone to a vicious circle of crises.

Bear in mind that the availability of the vaccine or the introduction of more effective prophylactic treatment will help the health crisis subside. But what almost everyone is clueless about is the intensity with which the virus-suppression measures will ultimately rock regional and global economies. Why clueless despite innumerable economics PhDs? For the simple reason that today’s assessments of the magnitude of the subsequent recession must assume a timescale for when the pandemic will wane, and commerce is scaled back to normal (only if we knew what would be normal in the post-Covid-19 world). Everyone knows such assumptions don’t hold ground amidst epidemics, reducing such estimates to mere guesses.

Whatever the future holds, the Covid-19 pandemic has dealt an unprecedented blow to the global economy. On this front, developed countries have enormous firepower, ignited by very cheap sovereign debt, to protect the livelihoods of their citizens and stimulate economic activity. Many are firmly committed to the ‘whatever-it-takes’ approach to drag their markets away from the verge of collapse. The industrialised world has announced stimulus packages ofover $8 trillion to date– far more than South Asia’s combined annual economic output of $3.5tr.

Even if these efforts do not make up the economic loss and fail to lower the risk of a global recession, the scale and structure of the rich world’s measures demonstrate their wide-ranging choices. Some are printing money to fund their relief efforts — an unthinkable measure in normal circumstances. South Asian countries, on the other hand, face the unenviable trade-off of saving lives or the livelihoods of their massive populations. Governments in the region, such as Pakistan, are striving to reinforce their social safety nets and support businesses, but their fiscal resources are slim with fewer, and costly policy choices. And then there are the unknown knowns.

First, the world is bracing itself for a deep recession in the next few months, which will dampen prospects for South Asia’s garments and textiles industry that employs tens of millions of semi- and unskilled workers. Second, the region relies heavily on workers’ remittances to finance imports (India) and foreign debt repayments (Pakistan and Bangladesh). On this front too, low-skilled South Asians, mainly construction workers, drivers etc, are most vulnerable to economic shocks in their host countries — take the Arabian Gulf where commercial shutdowns, coupled with the recent oil price slump, may render several thousand workers jobless in the coming months.

In short, a prolonged global economic meltdown will compound the woes of South Asian nations in multiple ways. Against this backdrop, it is unfortunate to note the lack of economic and political integration in the region owing to hawks inhabiting the power corridors of the region’s two nuclear powers. An earlier effort for a ‘joint regional response’ yielded the usual brawl between the two governments. It leaves the region critically exposed to the dual challenge of the pandemic and the subsequent crippling of the economy.

The grim reality, as usual, is that those who perpetuate disharmony and deprive the region of a joint response are least vulnerable to this crisis. Saarc, the regional cooperation organisation, is riddled with such divisions that it cannot engage effectively with multilateral organisations, such as the IMF or EU to carve out a mitigation framework for the regional economy.

While national governments scramble to allay the adverse impacts of the pandemic with their awfully limited resources, millions of South Asians will be forced into extreme poverty. It is agonising to imagine that the gains of poverty alleviation programmes of the past many years will be reversed in a few weeks and the gulf of socioeconomic inequalities that has plagued the region since forever will widen further.

The writer is an analyst.

Twitter: @sohaibrmalik

Published in Dawn, April 18th, 2020