Recovery strategy

Recovery strategy

Region's governments face challenge of keeping Covid at bay while improving social protections, says World Bank.

Governments in developing East Asia and the Pacific need to invest more in testing and tracing capacity, while expanding social protection to cover the poor and the informal sector, to cope with the "triple shocks" from the Covid-19 pandemic, says the World Bank.

Without action on multiple fronts, the pandemic could reduce regional growth over the next decade by one percentage point a year, the bank warns in its October 2020 Economic Update for East Asia and the Pacific (EAP).

The greatest impacts are now being felt by poor households, because of lower levels of access to healthcare, education, jobs and finance, it said.

Even though the novel coronavirus originated in Asia, the region in general has suffered less from the disease than other parts of the world. Countries that have contained the spread of the disease to date -- China, South Korea and Vietnam are among the standouts -- used a combination of stringent mobility restrictions, extensive testing-based strategies, and information programmes to encourage precautionary behaviour.

However, the pandemic and efforts to contain its spread have led to a significant curtailment of economic activity. Country outcomes were generally related to how efficiently the disease was contained and how exposed countries were to external shocks. Output in China contracted by 1.8% in the first half of this year and by 4% on average in the rest of the region, the World Bank noted.

And while domestic economic activity is reviving in some countries, the region's economy is heavily dependent on the rest of the world, and global demand remains subdued. The region as a whole is expected to grow by only 0.9% in 2020, the lowest rate since 1967.

China is forecast to grow by 2% on the back of government spending, strong exports and a low rate of new Covid infections since March, but growth is being checked by slow domestic consumption. The rest of the region is projected to contract by 3.5%, said the report released early last week.

"Many EAP countries have been successful in containing the disease and providing relief, but they will struggle to recover and grow," said Aaditya Mattoo, chief economist for East Asia and the Pacific at the World Bank.

Victoria Kwakwa, the bank's vice-president for East Asia and the Pacific, said governments are facing tough choices. "But there are smart policy options available that can soften these tradeoffs -- such as investing in testing and tracing capacity and durably expanding social protection to cover the poor and the informal sector," she said.

Poverty in the region is projected to surge for the first time in 20 years, with as many as 38 million people expected to remain in, or be pushed back into poverty as a result of the pandemic, said the report, based on an upper-middle income poverty line of US$5.50 a day.

In the wake of Covid-19, the region's governments have, on average, committed nearly 5% of their GDP to strengthen public health systems, support households, and help businesses to avoid bankruptcy. However, several countries have found it hard to scale up their limited social protection programmes, on which they previously spent less than 1% of GDP, and continued support will put pressure on government revenue bases.

Mr Mattoo said governments' priorities now should be safe schooling to preserve human capital; widening narrow tax bases to avoid cuts in public investment; and reform of protected service sectors to take advantage of emerging digital opportunities.

Prospects for the region are brighter in 2021, with growth expected to be 7.9% in China and 5.1% in the rest of the region, based on the assumption of continued recovery and normalisation of activity in major economies, linked to the possible arrival of a vaccine.

Meanwhile, the World Bank's recently published the 2020 Human Capital Index cautions that the pandemic threatens hard-won human capital gains made over the past decade in health and education, particularly in the world's poorest countries.

Human capital outcomes progressed in almost all countries by about 4% on average from 2010 up to March 2020, as a result of better health and more access to education, the report said.

Before the pandemic, most countries had made steady progress in building and improving human capital for children, with the biggest strides in low-income countries. The analysis is based on health and education data in 174 countries, covering 98% of the world population.

The improvements in health are reflected in better child and adult survival rates and reduction in stunting as well as increases in school enrollment.

Human capital consists of the knowledge, skills and health that people accumulate over their lives, enabling them to realise their full potential as productive members of society.

More human capital is associated with higher earnings for people, higher incomes for countries, and stronger cohesion in society. It is thus a central driver of sustainable growth and poverty reduction, the World Bank says.

Despite the progress, and even before the pandemic struck, globally a child could expect to achieve an average of 56% of their potential productivity as a future worker, relative to a benchmark of complete education and full health.

However, the prolonged pandemic has threatened to reverse many of those gains, World Bank Group president David Malpass said.

Almost 1.6 billion children worldwide have been out of school because of restrictions put in place to stop the spread of Covid-19. This could lead to considerable losses in learning.

The report suggests that school closures combined with the income shocks related to Covid-19 have forced many students to drop out and had an impact on the accumulation of human capital for the current generation of school-age children.

"The economic impact of the pandemic has been particularly deep for women and for the most disadvantaged families, leaving many vulnerable to food insecurity and poverty," said Mr Malpass.

And while human capital outcomes for girls are slightly on average higher than for boys, these have not translated into comparable opportunities to use human capital in the labour market.

On average, employment rates are 20 percentage points lower for women than men, with a wider gap in many countries and regions. In the Middle East and South Asia, and in North Africa, the gap is more than 40 points.

The pandemic is also exacerbating risks of gender-based violence, child marriage and adolescent pregnancy. which further reduces opportunities for learning and empowerment for women and girls, the bank stated.

It called for urgent action to protect the gains in human capital, particularly among the poor and the vulnerable.

"Protecting and investing in people is vital as countries work to lay the foundation for sustainable, inclusive recoveries and future growth," Mr Malpass pointed out.

To protect and even extend earlier human capital gains, countries need to expand health service coverage, access and quality among marginalised communities, improve learning outcomes as well as school enrollments and support vulnerable families with social protection measures adapted to the scale of the Covid crisis.

Singapore tops all ranked economies as the best for developing human capital with a Human Capital Index (HCI) value of 0.88 followed by Hong Kong, Japan, South Korea, Canada, Finland, Macau and Sweden.

Thailand's index is 0.61, equal to that of Malaysia but below the 0.69 recorded by Vietnam.

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