Abstract:
The COVID-19 pandemic has been recognized as one of the deadliest episodes of human history, which claimed nearly 7 million deaths worldwide. It has also caused an economic slowdown with a significant drop of GDP growth all over the world. This economic crisis today can be compared with the Great Depression of 1930s and the Financial Crisis of 2008-09.
The region of South Asia, which consists of eight developing economies, has suffered immensely during the pandemic. All the major countries of the region including India, Pakistan, Sri Lanka, and Bangladesh have been experiencing a stagnant economic growth in the post COVID-19 years. This paper attempts to analyze the impact of COVID-19 on the economies of South Asia and the post-COVID recovery scenario in the region. As the world economy continues to struggle with a slower growth in the post pandemic period, it is essential for the South Asian countries to come together with a cooperative effort to address the post-COVID-19 stress and strengthen the economy of the region with greater inclusivity and social well-being.
Key Words: Pandemic, COVID-19, Global economy, South Asia, Post-COVID recovery,
Introduction:
The COVID-19 pandemic, often recognized as a global health hazard, caused an economic crisis as severe as the Great Depression of the 1930s (Beirne et al., 2021; Gagnon et al., 2020). The region of South Asia, which includes eight developing economies, suffered immense economic challenges during the pandemic. Like the rest of the world, the pandemic in South Asia was marked by strict travel restrictions, nationwide lockdowns, and other social distancing measures -affecting trade and commerce, production, and services across the region. As a consequence, the South Asian nations suffered significant contractions in GDP, disrupted supply chains, unemployment, and adverse effects on tourism, hospitality, and manufacturing (Rasul et al., 2021). The pandemic not only cost human lives in abundant numbers but also inflicted economic inequality in society, as the poorest section was the worst hit during the period. Even though the pandemic could largely be considered an economic hazard, it also contributed to widening social inequality in the long run (Vitenu-sackey & Barfi, 2021). Vulnerable groups, including the poor, small business owners, low-skill workers, and women in the labor market, had to bear the brunt of COVID-19 because they did not have adequate social safety nets, financial access, and proper health coverage to deal with the pandemic (Beirne et al., 2021).
The post-COVID-19 recovery in the region had to address this inequality with great difficulty as the states fared very poorly in the latest Human Development Indices. Due to its diverse population, South Asia’s economic recovery had become a challenge for the governments. This paper attempts to understand the post-COVID-19 economic recovery in South Asia, aiming to analyze the impact of the pandemic on the economies of South Asian nations and to explore effective strategies to address the economic crisis at hand.
The central objective of the research is to comprehend the extent of the economic and financial burden the pandemic has dumped on the South Asian states and to evaluate the policy measures adopted by the governments to tackle the crisis, along with proposed suggestions to foster a speedy and healthy recovery for the region.
The methodology employed to conduct the study is exploratory, with an extensive review of existing literature on the impact of COVID-19 on global economies and the countries of South Asia. The political nature of the South Asian region is heterogeneous, as the countries have different economic structures, governance systems, and diverse histories. Therefore, it will be a challenge to conduct a holistic study to understand the socio-economic development of the region as a whole. Still, it is also an opportunity to bring to the fore the common elements of each country to help foster regional cooperation in South Asia in the post-pandemic era.
As the world economy continues to struggle with slower growth in the post-pandemic period, it is essential for the South Asian countries to come together with a cooperative effort to address the post-COVID-19 stress and strengthen the regional economy with greater inclusivity and social well-being.
Background:
The novel coronavirus was first identified and reported in Wuhan, Hubei Province of China, in December 2019 and spread rapidly across the world within a period of six months. The World Health Organization (WHO) declared the virus (COVID-19) as a global pandemic in March 2020, warning the world of its fast spread and dangerous nature (WHO, 2020b). As per the WHO Coronavirus (COVID-19) Dashboard, 768,560,727 confirmed COVID-19 cases globally and 6,952,522 deaths were reported to the WHO as of July 2023 (WHO, 2020a).
This staggering number hints about the heavy toll the pandemic has taken on human lives for more than three years. With human lives, the pandemic also struck down market confidence and economic activity across the globe. After the Pandemic took over the world at a rapid pace and with the rising fear and uncertainty, global stock markets crashed down heavily. They recorded the worst one-week decline since the Global Financial Crisis (GFC) of 2008 (Song & Zhou, 2020). The pandemic years 2020 and 2021 observed a slower GDP growth rate worldwide. China, the world’s second-largest economy, had one of the slowest GDP growth rates in 2020, which in turn contributed to the slower global GDP growth rate in that year (Bagchi et al., n.d.).
The pandemic disrupted the global supply and demand chain and created chaos economically around the world. The International Monetary Fund (IMF) predicted an economic crisis and a global fall in economic growth in the following years. Industrial and factory shutdown in countries like China led to severe contractions in the macroeconomic supply of goods and services. COVID-19 affected the global economy in three significant ways – by directly reducing production around the globe, by disrupting the supply chain and market, and by its stressful impact on firms and markets (Barzani, n.d.). The impact of the pandemic has been exceptional, affecting countries of all sizes, economic structures, and development levels. The pandemic also negatively impacted consumers’ and farms’ confidence about future financial endeavors because of the extensive uncertainty shock.
The immediate causes of the sharp economic contraction worldwide were the strict nationwide lockdowns, travel restrictions, and closure of non-essential businesses. These sudden moves halted most economic activities and disrupted trade and consumer spending. The sectors that suffered the most during the complete lockdowns were travel and tourism, hospitality, manufacturing, retail, and entertainment. The pandemic forced governments to take up extraordinary and tremendous human budgets to provide healthcare arrangements to tackle quarantine, lockdowns and extensive closures in containing the virus (Bagchi et al., n.d.).
With businesses closing down uncertainly, millions of wage workers working in the formal and informal sectors found themselves unemployed or faced reduced working hours. The pandemic left the informal laborers, daily wage earners, and those in the gig economy in a vulnerable state. The surge in unemployment at the same time added to the strain on social safety nets and accelerated income inequality in most countries.
Due to the pandemic, trade networks went downhill as transportation got disrupted and demand for non-essential goods and services declined. States, dependent on imports for essential goods, including medical necessities and pharmaceuticals, experienced supply shortages throughout the pandemic. The pandemic affected the developed nations as severely as the developing economies. In Europe, sectors like railways, airlines, hotels, pubs, and banks were at the receiving end of the economic chaos. Oil prices crashed during the pandemic when the demand for crude declined extensively, followed by an untimely price war between Russia and Saudi Arabia (Siddiqui, 2020).Global economic recovery began with the coming of vaccines and the reopening of economies. However, the trajectory of recovery and its pace varied across nations depending on their capability of containing the virus, administration of vaccination, and the effectiveness of economic policies.
The South Asian experience:
COVID-19 journeyed to the South Asian region through tourists and students from different parts of the world. Nepal, Sri Lanka, and India reported COVID cases as early as January 2020 whereas the virus was identified in the remaining five nations in February and March 2020 (WHO, 2020a).
In South Asia, each country had its fair share of economic contractions during the pandemic. Like the rest of the world, the region resorted to nationwide lockdowns to contain the virus, which led to a severe economic hazard. The pandemic affected the region's formal and informal economies as lockdowns in every country created mass unemployment, pushing millions of people to the Below Poverty Line (Younus, 2021). Before the pandemic, the countries of South Asia had a steady growth in the economic sector. In fact, according to The World Bank data, the macro scenario of the per capita GDP of South Asian economies was one of the highest during the period of 2015 to 2019, with India and Bangladesh having the highest per capita GDP growth (Yadav & Iqbal, 2021). India, being the largest economy in the region progressed rapidly with private investment and more lavish consumer spending; Bangladesh was growing through the export of garments; Bhutan, with its clean energy and hydropower reserves; and Nepal, Sri Lanka, and Pakistan, with several economic reforms were on the path of growth (Yadav & Iqbal, 2021). The pandemic put a break on these developments and halted economic growth significantly in the following years.
Notes: (e)=estimate; (f)= forecast. Data are in calendar years.
Source: The World Bank, the Economic Impact of COVID-19 on South Asia: 3 Visuals, Reported, 16 April. 2020, Online Available at: https://blogs.worldbank.org/endpovertyinsouthasia/economic-impact-covid-19-south-asia-3-visuals
South Asia is one of the most populous regions in the world with a population of nearly 8 billion people and it preserves around 1.7 billion working age population of the world (Bloom & MacKenna, 2015) as cited in (Yadav & Iqbal, 2021). The pandemic caused extensive job losses across the region, particularly in labor-intensive sectors, including manufacturing, construction, and services. Workers in the informal sector, which constitutes a significant portion of the workforce in South Asia, were brought to the streets overnight by the sudden shutdown of work. These workers, most of them migrants, had to return home with no money and job prospects and with a panic about the rapidly spreading virus.
Tourism and hospitality are some of the most significant sectors that the pandemic hampered in South Asia. The region has a thriving tourism industry as some of its states depend on tourism for economic growth like Maldives and Sri Lanka. The travel restrictions impacted hotels, airlines, tour operators, and related businesses. The region reportedly created around 50 million jobs in 2018 in the travel and tourism sector, which boosted the national GDP significantly. In India, the sector employed nearly 43 million people with 9% of the GDP; in Pakistan, it was 7% of the GDP, and in Nepal, around 8% of the GDP with nearly 1 million people employed (Rasul et al., 2021).South Asia contributes handsomely to the global supply chain, with many countries being significant exporters of textiles, garments, electronics, and other goods and services. Disruption in production and transportation had a serious effect on the global supply chain. The lockdown measures adopted by the states in line with WHO suggestions resulted in a tremendous drop in regional consumption rates and investment motives, along with a serious reduction of business and vacation travel, supply-side production, and demand-side shocks creating an anxious environment in trade and production linkages (Khan et al., 2022). The pandemic discouraged exports and imports of food in different parts of the region, which led to a distressing price drop of farm products because of which local farmers had to give away their hard-earned harvest and products at very cheap prices (Rasul et al., 2021).
The governments had to invest a tremendous amount of their budgets on healthcare and infrastructure to improve medical facilities, equipment, testing, and vaccination drive which further extended the financial burden of the region. Each country invested early in rapid testing technology. India and Sri Lanka focused mostly on limiting human mobility with strict quarantine norms and even used local police forces to help achieve this goal; Pakistan went with a “Smart localized lockdown”, Bangladesh formed a six-pillar plan with the help of its army and followed WHO’s recommendations relating to lockdown;. At the same time, Nepal had a somewhat undefined plan of action, both the Maldives and Bhutan emphasized on economic support and stability starting from the early stage of the pandemic (Irfan et al., 2023).
The paper “Socio-Economic Implications of COVID-19 Pandemic in South Asia: Emerging Risks and Growing Challenges” (Rasul et al., 2021) discusses some major socio-economic impacts that South Asia faced because of the pandemic, which includes- declining GDP growth in the region with one of the worst economic performances in 40 years, declining trade volume, inflation, high fiscal deficits, impact on migration and remittances, losing of jobs in informal sector and MSMEs, inadequate social security coverage, effects on travel and tourism, and impact on agriculture and rural livelihoods.
Post COVID-19 economic scenario in South Asia:
“As the gusts of the COVID-19 pandemic quieten, South Asian economies, left fragile and uneven in their recovery, are facing renewed headwinds with high level of inflation, rising fiscal deficits, and deteriorating current account balances are disrupting growth” (XIE, ZOE LEIYU & ZHU, 2022). Even though the anxiety around COVID-19 started to disappear by the end of 2021, it left the economic sector vulnerable for the years to come. Global growth will slow down significantly in 2023 to 2.1% from 3.1% last year before heading for a steady recovery of 2.4% in 2024 (World Bank, 2023). The World Bank predicted slower GDP growth in the years 2021, 2022, 2023, and 2024 across the world, including the South Asian Region (SAR).
In general, the region's GDP has gone downward, with the Maldives experiencing the highest fall, with a sharp decline from 41.7% in 2021 to 5.3% in 2023.Sri Lanka went through an economic disaster with worrying political instability in 2022 and saw a decline with a negative growth rate of -4.3% in 2022 and a slight increase to 1.2% in 2023. Sri Lanka faced a balance of payment crisis, which forced the state to default on external debt of more than 50 billion US dollars in April 2022, which led to economic contractions and high inflation by the end of the year (Wignaraja, 2023). However, the Sri Lankan economy is recovering slowly, with an expected steady growth by 2023 according to IMF forecast. India experienced a decline from 9.1% in 2021 to 6.3% in 2023, with an expected recovery in 2024.
Each country in South Asia resorted to a large-scale vaccination drive to contain the virus. Still, a second wave of infections hit the states in April 2021 and forced the governments to operate new socio-economic restrictions, which put the economic recovery to a complete halt, particularly in India where the second wave created havoc with growing cases and deaths leading to a crisis as severe as the partition of 1947 (Younus, 2021).
The world is currently going through an economic slow-down with the never-ending Russia-Ukraine War which has led to a sudden rise in commodity prices all over the world and a climate crisis that has posed a serious threat to human survival. There is a remarkable drop in energy demand and price rise of most of the commodities all over the world due to the impact of COVID-19 (Priya et al., 2021).
The global economic crisis caused rising inflation in the South Asian region in the post-COVID period. Wheat, cooking oil, and crude oil are some of the commodities that have experienced rapid price rises in all the South Asian states simultaneously. Micro, small, and medium enterprises (MSMEs), which is responsible for nearly 34% of South Asian GDP on average, are at the receiving end of the post covid-19 recovery.
The poor, elderly, and the women remain vulnerable even after the pandemic nearing an end. Therefore, the governments of the region have been trying resiliently to rebuild the economic damages caused by the global pandemic. They have taken several initiatives and implemented policies to restore growth, create employment opportunities, and address socio-economic inequalities brought about by the global pandemic. An extensive vaccination campaign is one of the highlights in South Asia in the last two years. All the states have sought to secure vaccine supplies, administer vaccines efficiently, and raise awareness to increase vaccination among their populations.
Source: WHO Coronavirus (COVID-19) Dashboard
Towards a steady recovery: The way forward
The world has witnessed a rapid change after the COVID-19 pandemic. Today, it is important not to compare the present crisis with previous crises the world had faced while taking economic recovery measures, because the pandemic has come with a double burden of combined demand and supply shock, and the world possesses limited economic tools to deal with it (Fernandes, 2020). The pandemic has exposed the vulnerable healthcare and public health infrastructure of the South Asian states as they were largely unprepared for the global pandemic. India, with the largest population in the region, has had the highest number of COVID-19 cases and confirmed deaths during the pandemic. Therefore, as the region is approaching a healthy recovery, the first step for the governments would be to strengthen their healthcare system with updated medical equipment and infrastructure and to increase the availability of vaccines and essential medical supplies everywhere. Robust growth in healthcare will have a positive impact on faster economic recovery in the region.
In all parts of the world, the pandemic has targeted the most vulnerable communities with a lack of access to healthcare facilities, including migrant workers, refugees, stateless persons, indigenous populations, and people living in poverty who have no access to water, sanitation and proper housing arrangements, women, the elderly, and children (United Nations, 2020). In South Asia, this population category was most exposed to economic vulnerabilities during and after the global pandemic. Therefore, the region's governments should adopt specific policies to uplift these vulnerable groups, such as targeted social safety nets, cash transfers, and food security programs. India, the largest economy in South Asia, has introduced a financial incentive worth 1.7 trillion rupees during the pandemic period to provide monetary help to the poor families of the country (Islam et al., 2020). In Pakistan, due to the enormous job losses, the country would have to provide a minimum income to every family for their survival; in Bangladesh, the government would have to create job opportunities in different sectors as a million people lost their jobs during the pandemic;
In Afghanistan, as the country has the largest oil industry in the world, the first step towards recovery would be to deal with the falling crude oil prices due to the pandemic; in Maldives, as the economy is dependent on tourism, the government needs to invest a higher proportion of their budgets in rebuilding the tourism sector (Islam et al., 2020). Access to education, healthcare and social services can also help reduce socio-economic inequalities and help in achieving an inclusive recovery in the region.
South Asian economies are heavily reliant on tourism, manufacturing and services. The governments in the region can take measures to boost international and domestic tourism by providing monetary incentives. They can assist struggling businesses financially and promote investments in innovation and technology. The Indian government’s “Make in India” initiative could contribute significantly. Investing in infrastructure projects can act as an economic stimulus while enhancing long-term growth prospects. South Asian countries can prioritize infrastructure development in transportation, energy, telecommunications, and digital connectivity.
Poverty alleviation programs should be a priority in the post-COVID recovery agenda in all the South Asian states. According to World Bank reports, the region had a significant success in reducing extreme poverty almost to half during the last decade before the pandemic from 500 million poor people in 2000 to almost less than 250 million in 2017 (Hellwig, 2023). However, the global pandemic brought a serious halt to these developments, followed by the negative economic consequences of the Russia-Ukraine War (Hellwig, 2023). As per UNESCAP data, The COVID-19 pandemic has created 131.8 million new poor in the region (Yadav & Iqbal, 2021).
One of the key areas to focus on while aspiring for a healthy economic recovery is regional cooperation. This is the best time for the South Asian countries to draw lessons from the past and revive the organization of “SAARC” to promote collaborative economic growth in the region. Strengthening trade ties, reducing trade barriers, and promoting regional value chains can enhance economic integration and diversify export markets. Regional cooperation in public health, disaster management, and infrastructure development can enhance mutual benefits in the long run. The people of South Asia are in need of rigorous policy reforms, both short-term and long-term, from their governments to have a holistic recovery in the post-pandemic period. The states should adopt a people-centric approach to deal with the post-pandemic stress, aiming at sustainable growth with human development.
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