The COVID-19 crisis is an opportunity to rebuild stronger and smarter
The pandemic provides an opportunity for Asia and the Pacific to undertake reforms that can make it more resilient.
Economic and social progress in developing countries across Asia over the past six decades has been phenomenal. The region’s share of global output grew to 24% in 2018, from just 4% in 1960, while poverty fell dramatically.
However, the COVID-19 crisis has reversed some of this success. Last year, developing Asia’s economy contracted for the first time in five decades. Without COVID-19, the number of extremely poor people in the region was set to decline to about 100 million in 2020, from 1.6 billion in 1981. Instead, it is estimated that the pandemic has added another 78 million people to the extremely poor in the region.
In its first year, COVID-19 afflicted more than 80 million people around the world, took 1.8 million lives, and set back global output by more than two years. The pandemic is now in its second year, with new waves of infections. Estimates indicate that developing Asia’s economic losses from COVID-19 may be equivalent to more than 8% of regional gross domestic product last year and 3.6% to 6.3% this year.
As devastating as the pandemic has been, it provides an opportunity for the region to undertake reforms that can make it more resilient. Past crises have taught us that developing economies in Asia can learn and adapt, with each extreme event sparking major policy changes.
In the wake of COVID-19, it’s critical that the region do so again, as the lingering pandemic and other hazards – both natural and human-made – remain a threat to the gains that developing Asia has worked so hard to achieve over the past half-century.
Less than a generation ago, the Asian Financial Crisis of 1997-99 posed a large macroeconomic challenge that significantly influenced the region’s policy framework in the subsequent decades. The crisis shaped how Asia’s economies conduct macroeconomic management and financial supervision and regulation, facilitating the shift toward more flexible exchange rate regimes.
We can turn the COVID-19 challenge into an opportunity to rebuild smarter.
The crisis also led to increased self-insurance through reserve accumulation, as well as generally more prudent conduct of fiscal and monetary policy. Asia set up a formal regional framework for better financial stability—for example by strengthening the Chiang Mai Initiative Multilateralization safety net.
The region has worked to develop and nurture local currency bond markets in order to alleviate currency and maturity mismatches, further mobilize a local investor base, and make financial markets more resilient. By the end of March 2021, emerging East Asia’s local currency bond market reached $20.3 trillion, 15.9% higher than a year earlier.
With its massive loss of life and economic output, leading to rising poverty and inequality, the current COVID-19 crisis has highlighted the importance of effective policies for disaster resilience to mitigate both short- and long-term effects. The pandemic has demonstrated that disasters can strike the most vulnerable, persist over prolonged periods, and cross borders. This experience underscores the need for disaster preparedness, swift and targeted responsiveness, a sustainable recovery, and regional cooperation.
Shifting more resources toward disaster prevention and preparedness, instead of disaster response, can provide multiple development benefits. Carefully planning, designing, and investing in climate-resilient and disaster-resilient infrastructure can reduce the exposure and vulnerability to various disaster risks. Insurance mechanisms in developing Asia can be more broadly available and accessible. And comprehensive planning and strategies for reconstruction can be undertaken to make health systems resilient.
While COVID-19 has affected all sectors, it has disproportionately impacted the poor and vulnerable, along with the services sector. An accelerated digital transformation can help micro-enterprises access supply chains and enhance consumer welfare. Investing in digital readiness and developing the required skills for the digital economy can help mitigate the impact of post-pandemic structural changes in both work and the workplace.
Governments should ensure there is adequate investment in accessible and affordable broadband and fiber networks, while designing appropriate regulatory regimes with proper incentives and governance mechanisms, including fair competition policies. They should invest in skills development for those unemployed and furloughed due to disasters, as well as for the future workforce.
In these ways, we can turn the COVID-19 challenge into an opportunity to rebuild smarter.