Millions of families who were already poor and vulnerable before the COVID-19 outbreak face impossible decisions about food, healthcare, and survival. We have a responsibility to act immediately and protect those most in need.
As I write this blog post, a global pandemic has spread across countries and territories with daily reports of new cases and deaths. Although most cases of COVID-19 are currently being reported in more advanced economies, the extent of the crisis in developing countries remains unclear. The World Health Organization has urged all countries to test all suspected cases, but many low-income countries do not have adequate health systems to effectively diagnose the virus.
Despite this uncertainty, we can still estimate how economic activity and people’s livelihoods will be impacted. We also know well from the region’s past experiences that shocks hit poor and vulnerable groups the hardest and that these groups often take the longest to recover. To protect them effectively, governments can expand social protection, and especially social assistance, to provide vital support and strengthen resilience.
Importantly, disease outbreaks have both direct and indirect impacts resulting from sickness, death, and preventative measures to contain the spread of the virus.
The direct economic impacts of sickness and death are higher costs and lower incomes for families affected by the virus. Rising health care costs coupled with lost wages and jobs can trigger spikes in poverty. Direct impacts also include a substantial increase in risk for vulnerable groups. Unlike a one-time shock, such as an earthquake, contagious health epidemics can quickly multiply, particularly in densely populated areas. This is precisely what happened in the case of Ebola, where researchers found that urban slums in Liberia became hotspots for the spread of the disease, infecting 3.5 times as many people as those in less densely populated and richer neighborhoods. In developing Asia, many migrant workers similarly live in crowded dorms without access to health insurance, increasing the risk of infection and forcing others to return home.
Disease outbreaks also have indirect impacts, disrupting production and consumption across the economy. These impacts disproportionately affect poor workers and families, particularly in the informal sector. On the supply side, business closures (either due to government orders or firm decisions) affect workers’ ability to earn wages. We have already seen such closures across most economies impacted by the virus. On the demand side, people are spending less. This is hurting workers in many sectors in developing countries, especially tourism which provides a vital source of income and sustains small businesses and communities with limited access to alternative livelihoods or social protection. In the food and agriculture sector, panic purchases, illness-related labor shortages, transport interruptions, and limited access to markets may break supply chains and cause localized price hikes or result in food loss and waste.
These channels of disruption and economic impact can translate into significant GDP losses for countries. According to ADB estimates, the global impact of COVID-19 will range from $77 billion to $347 billion in lost output (or 0.1% to 0.4% of global GDP), with some countries experiencing larger losses while others being impacted by disruptions to trade and tourism.
So how can governments strengthen social protection to minimize the economic impact of COVID-19?
Poverty in Asia and the Pacific has fallen dramatically, but the region was still home to more than 264 million people living in extreme poverty in 2015 and 1.1 billion people living on less than $3.20 a day. Many of the region’s governments have already been investing in social protection systems to mitigate chronic poverty, reduce vulnerability, and nurture inclusive growth. But in the face of the COVID-19 crisis, governments will need to radically expand social protection to cushion the shocks and combat both existing and new poverty. Based on promising global evidence, here are three ways that can do exactly that.
- Strengthen social assistance. Expanding cash assistance can support poor and vulnerable households during a crisis. Temporary expansion of an existing program can be horizontal (adding more people) or vertical (increasing benefit amounts). In a crisis, it is also essential to disburse funds faster by setting up or strengthening digital payments, and relaxing the eligibility criteria or conditions of existing programs that already have the cash delivery infrastructure in place. In the Philippines, conditional cash transfer program beneficiaries will receive full grants without having to comply with program conditions (school attendance, health center visits) during the quarantine. Governments may also introduce new unconditional cash transfers: the state of Uttar Pradesh in India will provide direct electronic transfers to poor and daily wage workers in the informal sector who lose their jobs due to the pandemic. Cash transfers have the double benefit of helping people in need while stimulating consumption, which in turn strengthens the economy. In expanding social assistance, governments should find effective ways to reach informal settlers and urban migrant workers, since these groups face unique challenges in terms of livelihoods and access to government services.
- Provide social insurance. Unemployment insurance should be temporarily expanded by extending its duration, increasing benefits, or relaxing eligibility. Where paid sick leave is not offered by employers, governments may fund it to allow unwell workers and caregivers to stay home without losing their jobs. Measures such as emergency employment for informal sector workers and financial support to affected workers in private enterprises are now in place in the Philippines. Subsidizing health insurance to expand coverage and/or waiving fees may also become necessary to help the most vulnerable, including support to enterprises that serve these populations.
- Upgrade labor market policies and programs. With COVID-19 likely to affect all workers, governments should review passive and active labor market policies and programs, including protective labor rules. Given the inevitable impact on workers in terms of temporary or permanent layoffs, governments need to think about ways to support workers in the short and medium term, including through job facilitation, training, and other interventions during and after the crisis. Although Europe’s social policies and protection are often seen as too generous, they are shielding workers from some major disruptions caused by the virus.
Many of us will be feeling anxious about restrictions being implemented to limit the spread of COVID-19. But the millions of families who were already poor and vulnerable before this began will be facing impossible decisions about food, healthcare, and survival. More than ever in the face of this unprecedented crisis, we have a responsibility to act immediately and protect those most in need.