The Covid-19 pandemic has had a severe impact on the global economy. Ghamz E Ali Siyal argues that the large populations and fragile economies of South Asia warrant particular measures for recovery, including the unfashionable path of autarky, increasing investments in digital competencies and serious debt-relief measures

Siyal, Ghamz E Ali

English

LSE Research Online

Recovering	from	the	Pandemic:	South	AsianEconomies	Need	Greater	Self-SufficiencyThe	Covid-19	pandemic	has	had	a	severe	impact	on	the	global	economy.	Ghamz	E	Ali	Siyal	argues	that	the	largepopulations	and	fragile	economies	of	South	Asia	warrant	particular	measures	for	recovery,	including	theunfashionable	path	of	autarky,	increasing	investments	in	digital	competencies	and	serious	debt-relief	measures.	The	word	‘Coronavirus’	was	at	the	top	of	the	list	of	Google	online	searches	in	2020	but	was	replaced	by	‘cricketmatches’	in	2021.	It	indicates	that	people	feared	Coronavirus	less	in	2021	even	though	some	claim	the	pandemicwill	be	endemic	and	especially	remain	a	threat	to	poor	and	elderly	people	in	the	coming	years.Governments	too	are	attempting	to	build	back	their	economies	from	the	pandemic	but	the	question	is:	will	a	singleapproach	work	for	all	or	different	approaches	are	needed	for	developed	and	developing	countries	–	like	thecountries	in	South	Asia?	This	post	argues	that	one	size	will	not	fit	all.	South	Asian	economies	were	severelyaffected	by	the	pandemic	but	are	recovering	(see,	Fig.	1).	Figure	1:	The	economic	impact	of	the	Covid-19	crisis	on	South	Asia,			https://openknowledge.worldbank.org/bitstream/handle/10986/36317/9781464817977.pdf,Source:	World	Bank.	2021.	“Shifting	Gears:	Digitization	and	Services-Led	Development”	South	Asia	Economic	Focus	(October),	p.	3,	World	Bank,	Washington,	DC.Doi:	10.1596/	978-1-4648-1797-7.	License:	Creative	Commons	Attribution	CC	BY	3.0	IGO	However,	the	recovery	phase	is	still	fragile	and	near-term	growth	is	based	on	low	base	numbers	of	the	year	2020.Challenges	arising	from	the	pandemic	continue	to	require	attention.Challenges	arising	from	the	pandemicCoronavirusSouth Asia @ LSE: Recovering from the Pandemic: South Asian Economies Need Greater Self-Sufficiency Page 1 of 4		Date originally posted: 2022-05-09Permalink: https://blogs.lse.ac.uk/southasia/2022/05/09/recovering-from-the-pandemic-south-asian-economies-need-greater-self-sufficiency/Blog homepage: https://blogs.lse.ac.uk/southasia/The	threat	of	Coronavirus	has	lessened	but	not	ended.	One	can	easily	agree	that	countries	with	a	quick	vaccinationresponse	against	new	emerging	Coronavirus	variants	will	perform	better	than	others.	However,	vaccination	ratesand	health	expenditures	need	to	improve	in	the	region	to	meet	this	threat.	Along	with	that,	it	is	important	to	applysmart	lockdowns	which	means	closing	of	the	economy	for	a	few	days	and	opening	again	for	a	few	days.	With	therecent	Omicron	wave,	CDC	now	recommends	a	quarantine	for	5	days	for	people	with	the	symptoms	of	Omicron(Dur-e-Nayab	and	Haque,	2020;	CDC,	2022).Inflation	and	reduced	food	securityHowever,	even	these	lockdown	restrictions	will	exacerbate	supply	and	demand	mismatch	caused	by	the	earlierones	that	resulted	in	inflation	globally.	According	to	International	Monetary	Fund	(IMF),	since	the	pandemic	startedfood	prices	have	increased	by	40%	and	low-income	countries	were	more	severely	affected	(Lawder,	2021).	In2022,	the	developing	and	emerging	markets	will	face	inflation	of	more	than	6%,	but	advanced	economies	will	peakat	about	3.6%	(Lawder,	2021).	All	South	Asian	countries,	except	Nepal	and	Bangladesh,	have	faced	seriousinflation	in	2019–2020	(Fig.	2).	Figure	2:	Inflation	(GDP	deflator	(annual	%))	in	South	Asia,	Source:	The	data	for	inflation	variable	which	is	defined	as	(Inflation	as	measured	by	the	annual	growth	rate	of	the	GDPimplicit	deflator	shows	the	rate	of	price	change	in	the	economy	as	a	whole.	The	GDP	implicit	deflator	is	the	ratio	of	GDP	in	current	local	currency	to	GDP	in	constant	local	.)	is	taken	from	WorldData	Bank.Political	instabilityAs	people	are	already	tired	of	facing	outcomes	of	a	pandemic,	like	lockdowns,	unemployment	and	inflation,	thecontinued	hike	in	prices	of	consumer	goods	will	result	in	political	instability.	India	has	elections	in	2022	whilePakistan	is	faced	with	huge	political	unrest	and	one	of	the	key	factors	the	opposition	has	been	highlightingeverywhere	is	inflation	after	the	pandemic.	It	is,	therefore,	important	for	policymakers	from	South	Asian	countries	todevise	resilient	economic	growth	policies	for	the	short	and	long	run.AutarkyIn	the	short	run,	I	argue,	that	developing	countries	should	support	autarky	even	though	it	is	not	a	favourite	pathamong	trade	economists	nowadays.	Self-sufficiency	can	sound	like	a	utopian	idea,	butparticularly	for	the	developing	countries,	it	is	important	to	mark	a	boundary	or	a	threshold	of	export	andimport	dependencies	to	avoid	economic	vulnerability	to	unexpected	shocks	to	the	global	economy.South Asia @ LSE: Recovering from the Pandemic: South Asian Economies Need Greater Self-Sufficiency Page 2 of 4		Date originally posted: 2022-05-09Permalink: https://blogs.lse.ac.uk/southasia/2022/05/09/recovering-from-the-pandemic-south-asian-economies-need-greater-self-sufficiency/Blog homepage: https://blogs.lse.ac.uk/southasia/These	countries	do	not	have	the	economic	resources	of	richer	nations	and	so	avoiding	shocks	is	more	important	forthem.	South	Asian	countries,	like	other	countries,	were	greatly	dependent	on	Chinese	products	prior	to	Covid-19because	China	is	home	to	one	third	of	global	manufacturing.	However,		the	pandemic	worsened	the	global	supplychains	and	increased	the	cost	of	container	shipment	(Bradsher,	2022).	Das	(2021)	found	evidence	of	sharp	tradedeclines	between	South	Asian	countries	and	China,	though	the	rate	of	decline	varies	across	countries.	China’sexport	to	South	Asian	countries	is	recovering	now	but,	in	a	significant	effort	to	avoid	such	dependence	in	future,India	has	initiated	a	movement	for	self-reliance,	known	as	the	‘Self-reliant	India	Movement’	(Atmanirbhar	Bharat).This	movement	stresses	making	local	products	and	providing	a	special	package	to	industries	and	workers.	OtherSouth	Asian	countries	like	Pakistan	and	Bangladesh	should	also	focus	on	self-reliance.The	current	economic	crisis	is	the	second	time	that	the	South	Asian	economies	have	faced	huge	shocks	due	tobeing	closely	tied	into	the	international	economic	systems,	after	the	global	financial	crisis	of	2008–2009,	whenexcessive	dependence	on	international	financial	markets	had	resulted	in	huge	losses	to	developing	economiesglobally	(Truman,	2009).However,	trade	is	considered	the	engine	of	economic	growth	and	in	the	long	run	cutting	off	linkages	entirely	is	notpossible	for	any	country.	What	is	being	argued	here	is	that	it	is	important	to	set	a	threshold	of	dependencies	(forimports	as	well	as	exports)	to	avoid	sudden	shocks.	For	example,	more	than	50%	of	trade	in	a	product	or	servicewith	one	country	highlights	a	dependence	on	that	single	country.	To	illustrate,	the	current	Russia–Ukraine	war	has,since	the	first	month	of	the	war	itself,	hit	India’s	economy	hard,	e.g.,	India	imports	85%	of	its	edible	oil	from	Ukraineand	14%	from	Russia,	creating	a	problem	in	that	sector.	Similarly,	sanctions	on	Russia	have	negatively	impactedIndia’s	exporters’	incomes.	Around	$400	million	to	$600	million	of	India’s	exporters’	income	payments	are	delayed.Bangladesh’s	Petroleum	Corporation	suffered	a	loss	of	€2	million	per	day	and	reported	a	huge	shipping	costincrease	which	has	significantly	impacted	the	textile	industry.	Pakistan’s	economy	is	affected	too.	The	war	willincrease	oil	prices	too	which	will	further	devalue	the	importing	country’s	currency	leading	to	higher	current	accountdeficits	and	inflation	(ANI,	2022).Strengthening	their	economiesTo	avoid	such	dependence	in	the	long	run,	South	Asian	countries	have	to	assess	their	strengths	and	weaknessesin	the	production	of	goods	and	services	to	gain	greater	control.	These	countries	still	have	a	comparative	advantagein	business	processes	and	tourism	(World	Bank,	2021).	If	we	compare	the	contribution	of	tourism	to	their	GDPbefore	and	after	the	pandemic,	we	can	see	that	it	has	not	reduced	significantly.	For	example,	the	contribution	of	thesector	to	Pakistan’s	GDP	reduced	from	5.7%	in	2019	to	4.4%		in	2020,	and	to	India’s	GDP	from	6.9%	in	2019	to4.7%	in	2020	(World	Tourism	and	Travel	Council,	2021).Further,	diversifying	trade	and	industry	through	investing	in	Information	and	Technology	(I&T)	and	Research	&Development	(R&D)	is	important.		India	once	again	leads	by	example.	During	the	pandemic,	a	need	for	digitalremote	services	was	faced	by	every	economy.	India	exported	software	services	worth	$133.7	billion	during		2020–2021,	which	accounts	for	4%	growth	compared	to	last	year	(Reserve	Bank	of	India,	2021,	Tab.2).Moreover,	connecting	regionally	can	offer	a	middle	ground	between	economic	isolation	and	dependence	ondeveloped	economies,	but	due	to	man-made	differences,	South	Asian	economies	have	the	lowest	share	ofintraregional	trade	as	compared	to	other	regions,	globally.	World	Bank	report	“A	Glass	Half	Full’’	estimates	thatSouth	Asian	economies	can	triple	their	trade	volumes	from	$23	billion	to	$67	billion	(World	Bank,	2018)	throughincreased	regional	trade.One	significant	issue	facing	these	economies	is	that	of	debt.	Particularly,	in	this	pandemic	for	South	Asianeconomies	the	share	of	non-financial	corporation	loans	has	increased	significantly	in	Maldives	and	Sri	Lankacompared	to	other	South	Asian	countries	(Fig.	3).		Similarly,	share	of	non-performing	loans	has	crossed	5%	warningthreshold	for	every	country	in	South	Asia	except	Nepal	(World	Bank,	2021).South Asia @ LSE: Recovering from the Pandemic: South Asian Economies Need Greater Self-Sufficiency Page 3 of 4		Date originally posted: 2022-05-09Permalink: https://blogs.lse.ac.uk/southasia/2022/05/09/recovering-from-the-pandemic-south-asian-economies-need-greater-self-sufficiency/Blog homepage: https://blogs.lse.ac.uk/southasia/Figure	3:	Debt	Situation	in	South	Asia,	 			https://openknowledge.worldbank.org/bitstream/handle/10986/36317/9781464817977.pdf,	Source:	World	Bank.	2021.	“Shifting	Gears:Digitization	and	Services-Led	Development”	South	Asia	Economic	Focus	(October),	p.	76,	World	Bank,	Washington,	DC.	Doi:	10.1596/	978-1-4648-1797-7.	License:Creative	Commons	Attribution	CC	BY	3.0	IGOThere	is	an	urgent	need	for	these	countries	to	bargain	with	donors	to	pay	back	debts	later,	request	short-term	debtrelief	programmes,	or	a	debt	standstill	option	to	provide	relief	to	their	poor	already	suffering	from	inflation.	Increasedrevenue	from	increasing	import	tariffs,	as	argued	here,	can	be	used	to	pay	back	debt	in	the	short	run.	It	will	shift	thetax	burden	from	consumer	to	exporter	countries.To	have	a	better	global	future,	developed	countries	should	help	developing	economies	strengthen	their	capabilitiesby	investing	in	increasing	innovations	and	promoting	their	homemade	products	until	they	stabilise.	As	Confuciussaid	“Give	a	man	a	fish,	and	you’ll	feed	him	for	a	day.	Teach	a	man	to	fish,	and	you’ve	fed	him	for	a	lifetime.”The	views	expressed	here	are	of	the	author’s	only	and	do	not	reflect	the	views	of	any	institutions,	organisations	or	countries	that	he	may	have	been	affiliated	with.Banner	Image:	Photo	by	manzur	alam	on	Unsplash.The	views	expressed	here	are	those	of	the	author	and	not	of	the	‘South	Asia	@	LSE’	blog,	the	LSE	South	AsiaCentre,	or	the	London	School	of	Economics	and	Political	Science.South Asia @ LSE: Recovering from the Pandemic: South Asian Economies Need Greater Self-Sufficiency Page 4 of 4		Date originally posted: 2022-05-09Permalink: https://blogs.lse.ac.uk/southasia/2022/05/09/recovering-from-the-pandemic-south-asian-economies-need-greater-self-sufficiency/Blog homepage: https://blogs.lse.ac.uk/southasia/

Recovering from the pandemic: South Asian economies need greater self-sufficiency

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Recovering from the pandemic: South Asian economies need greater self-sufficiency

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