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Empowered lives. Resilient nations.

Position Note Prepared by UNDP Regional Bureau for Asia and the Pacific April 2020

OF COVID-19 IN THE ASIA-PACIFIC REGION

THE SOCIAL AND ECONOMIC IMPACT

UNDP partners with people at all levels of society to help build nations that can withstand crisis, and drive and sustain the kind of growth that improves the quality of life for everyone. On the ground in more than 170 countries and territories, we offer global perspective and local insight to help empower lives and build resilient nations.

Disclaimer:

The views expressed in this publication are those of the authors and do not necessarily represent those of the United Nations, including UNDP, or UN Member States.

The designations employed and the presentation of material on maps in this publication do not imply the expression of any opinion whatsoever on the part of United Nations or UNDP concerning the legal status of any country, territory, city or area or its authorities, or concerning the delimitation of its frontiers or boundaries.

Copyright © UNDP 2020

Proposed citation:

UNDP (2020). The Social and Economic Impact of COVID-19 in the Asia-Pacific Region. Position Note prepared by UNDP Regional Bureau for Asia and the Pacific. Bangkok: United Nations Development Programme.

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Acknowledgements

This position note is a collective endeavour by UNDP Regional Breau for Asia and the Pacific. It involved colleagues in UNDP country offices and in the UNDP Bangkok Regional Hub (BRH).

It was prepared by Balázs Horváth, Taimur Khilji, Uyanga Gankhuyag and Tianyu Meng from BRH, and Violante di Canossa, Jiawen Chen and Shi Rong from UNDP China country office.

We are thankful to Kanni Wignaraja, Director of the Regional Bureau for Asia and the Pacific of UNDP and Jaco Cilliers, Manager of UNDP Bangkok Regional Hub for providing guidance. Bishwa Tiwari, Hannie Meesters, Christine Wellington Moore, Sanny Jegillos, Christopher Oestereich, Paul Buckley, Sebastian Boll and George May from BRH shared very useful insights. Kieren McGovern supported processes leading to the production of the report. Yuhan Yang provided data-related support. The report also benefited greatly from inputs from and deep discussions with UNDP Asia-Pacific country economists—Shamsur Rahman, Bangladesh; Tandin Wangchuk, Bhutan; Richard Marshall, Cambodia and Kongchheng Poch, Economist at the Cambodia UN Resident Coordinator Office; Basudeb Guha-Khasnobis, India; Rima Prama Artha, Indonesia; Arghavan Farzin Motamed, Iran; Somsay Ouanphilalay, the Lao People’s Democratic Republic; Haniza Khalid and Norhafiza Shafie, Malaysia; Fathimath Sharfa Shareef and Aishath Raniya Sobir, Maldives; Delgernaran Tumurtogoo, Mongolia; Biplove Choudhary, Myanmar; Yanki Ukyab, Nepal; Umer Akhlaq Malik, Pakistan; Christopher Hnanguie and Constance Vigilance, Papua New Guinea; Andrew Parker, the Philippines; Salote Itagia Meredith, Samoa; Kirthisri Rajatha Wijeweera, Sri Lanka; Anuk Serechetapongse, Thailand; and Nguyen Tien Phong, Viet Nam.

The UNDP Asia Pacific Economist Network supports UNDP country offices in the region, the Bangkok Regional Hub and the Regional Bureau for Asia and the Pacific (RBAP) in delivering policy advice to counterpart governments and implementing programmes through evidence, analysis and insights. Our aim with this position note is to highlight the social and economic impact of COVID-19 in Asia and the Pacific, the economic policy responses to the pandemic-induced crisis, as well as gaps and possible directions in these responses, from the perspective of sustainable and people-centred development. Since the Asia and the Pacific region was the first to enter the battle against the pandemic and has some successful emerging experiences, it is hoped that this position note will be useful not only for this region, but also for the rest of the world.

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Contents Key messages 4

Executive summary 6

Background 10

The social and economic impact of COVID-19 16

Global value chains and the supply and demand shock 17

The social crisis 18

Gender impacts 19

Financial stability on the brink 20

Response to the crisis 21

UNDP’s role 31

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The Social and Economic Impact of COVID-19 in the Asia-Pacific Region

Executive summary

1  ILO (2020). ILO: COVID-19 causes devastating losses in working hours and employment. Press release. 7 April 2020. Available at https://www.ilo.org/global/about-the-ilo/ newsroom/news/WCMS_740893/lang--en/index.htm%E2%80%8B

Two concurrent global crises—a health crisis and an economic crisis—are engulfing the world. The necessary public health response to the COVID-19 pandemic is setting in motion a globally synchronized economic recession—leaving no obvious robust engine of global growth. The humanitarian dimension of these two linked events is taking the majority of mankind into uncharted waters. The compound crisis threatens to overwhelm health care systems and government policies. The policy response will determine the human toll of the virus; the length and severity of the downturn; and economic, social and environmental progress towards (or regression away from) attaining the Sustainable Development Goals (SDGs), placing a large responsibility on policymakers.

The global recession induced by COVID-19 is escalating along a feedback-reinforced spiral. Massive production disruptions that started in China have led to a lower supply of goods and services that reduces overall hours worked, leading to lower incomes. The impact of this is compounding the immediate global drop in demand stemming from social distancing measures being enacted around the world, which are disrupting highly integrated trade links and value chains. This in turn is again putting downward pressure on supply as producers cut back their output if less of it is bought. Furthermore, as the pandemic becomes global, lower demand from major consuming countries and worsening expectations about the economic outlook are accelerating a vicious downward spiral. As activity contracts and unemployment rises, the rapidly deteriorating economic fundamentals caused by the shock to the real economy spreads to the financial sector, risking a liquidity crisis as availability of credit diminishes and asset prices fall.

A rapid response is needed. Even if rough around the edges, a fast response is better than one that is perfect but slow. This position note calls for policies that meet immediate needs—containing the virus’s spread and strengthening health systems to prepare for the next shock, including a possible recurrence of COVID-19, while simultaneously responding to the looming economic downturn. Different approaches in some countries and territories in East and South-East Asia have proved fairly successful in “flattening the curve” of caseloads, allowing them to start reviving their economies.

Given the expected size and incidence of the economic downturn, a large part of stimulus packages should be directed towards the poor and most vulnerable. Governments should use stimulus packages to safeguard public goods such as health, employment and human security, while avoiding leakages that would enrich the well-off. Small and Medium Enterprises (SMEs) and informal enterprises are the most affected businesses, with informal workers—estimated at 1.3 billion people or two-thirds of the workforce in Asia and the Pacific—expected to be the hardest hit by the economic shock. The ILO expects a devastating 6.7 percent loss in working hours globally in the second quarter of 2020, equivalent to 195 million full-time workers—125 million of which are in Asia and the Pacific.1 Migrants, displaced people and informal

workers are facing a stark trade-off between safeguarding their lives and livelihoods. Already 100 million migrant workers in India are on the move in search of safety and basic sustenance, defying a nationwide lockdown.

Governments should attach simple, sustainable development– oriented conditions to their stimulus measures. These can help focus support to people in need and preclude major leakages; or set the stage for improving the social safety net and extending the coverage of formal employment.

Countries should globally coordinate and optimize the COVID-19 response, while seizing the opportunity to decisively make development more sustainable. The global spread of the virus in our interconnected world offers little chance of success if each country devises a health and economic response on its own. To make the response more effective and reduce the cost of the crises, strong coordination and cooperation among governments is needed, coupled with clear and transparent communication. These will help enhance governance and build public trust inside and across borders.

Fiscal space needs to be created to respond to the crisis by revisiting existing policies, rather than applying patches to them. The optimal approach includes redeploying existing resources to their best use, so as to avoid very large deficits that would lead to surging national debt—at a time when a sudden stop in capital inflows is a real risk in developing countries. To this end, governments need to re-examine budget revenues, expenditures and financing, as well as contingent liabilities. Although painful, such revisions are justified on the grounds of the national emergency they are facing and the need to avoid unsustainable increases in national debt. Along similar lines and given the global nature of the emergency, globally coordinated action is needed to address long-standing instances of ‘fiscal termites’ that undermine national budgets, such as transfer pricing, tax havens, tax avoidance by multinational enterprises, the untaxed digital economy and fossil fuel subsidization. Once some of the resources needed for the fiscal stimulus packages are covered from such sources, the remaining fiscal costs will become more feasible to finance.

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Position Note

In countries riven by conflict, a focused effort is needed to unite all warring parties against the common enemy: the novel coronavirus. Halting conflicts in these countries could release sufficient resources for highly ambitious fiscal stimulus packages that would markedly strengthen health system capacity, address COVID-19–induced disruptions in supply and trade, and help sustain and regenerate domestic demand weakened by large-scale social distancing measures. These, in turn, would begin building much- needed trust to set the stage for progress toward a lasting peace.

Measures are needed to alleviate the crisis of care that has disproportionately fallen on women’s shoulders and to make policy responses gender-sensitive. The pandemic has clearly led to gender-differentiated impacts in the Asia-Pacific region. It thus requires gender-differentiated responses. Given the emerging care crisis, and experience from past outbreaks, it is important to incorporate a gender analysis into preparedness and response efforts to improve the effectiveness of health interventions, promote gender and health equity, and enhance future access to opportunities for all.

Post-pandemic, a new social contract will be needed, featuring greatly reduced inequalities, strengthened resilience to shocks and protection of human rights. The pandemic has exposed the vulnerabilities and inadequacies inherent in current systems. These risk reaching thresholds that could spur waves of social unrest, conflicts, mass migration, and human rights violations. A new social contract needs to emerge from this crisis that rebalances deep inequalities prevalent in societies. For the Asia-Pacific region, systemic changes to policy frameworks are needed to reduce the current high levels of inequality, raise the woefully low levels of coverage and spending on social security, and address regressive taxes and inequitable access to opportunities, while protecting human rights and the rule of law. In the post-pandemic world, decent connectivity for all will be an essential part of reducing inequalities.

The response will need to set the stage for additional elements of a strategy to “build back better”. COVID-19 comes against the backdrop of an escalating climate crisis and an unsustainable model of development based on ever-growing exploitation of natural resources that pushes against the limits of natural systems. Rapid urbanization, increased density of human settlements, unsustainable changes in land use, and growth in animal-sourced products, coupled with the destruction of animal habitats on land and under water have all contributed to zoonosis—jumping the species barrier to humans, which gave us COVID-19. This note calls for rebuilding systems better by attending to social and environmental aspects that are critical on a decade-long horizon to attain the SDGs.

This would require shifting away from the previous environmentally unsustainable development path to low-carbon development that minimizes environmental degradation, shifts consumption and production patterns, uses resources efficiently, and fosters the circular and sharing economies.

Relevant and timely information is critical to shape the response. Governments, policymakers and all stakeholders need to know where we are, where we aim to be, and how much progress we are making. This underscores the importance of the provision of data to the public and promptly sharing proven and successful practices. In this rapidly changing, complex crisis, extrapolating from the past does not tell much about the future, yet we need to see the way forward. This note offers two ways for doing so. First, it examines possible future scenarios of the COVID-19 pandemic crisis. Second, it shares the experience of China and Asia and the Pacific, which had to confront COVID-19 before other regions. The note also highlights key points from the plethora of relevant analytical reports and briefs by international financial institutions (IFIs), governments, development banks, think tanks and consulting companies, without aiming to reproduce those in full depth.

UNDP is leveraging its integrator role, global networks, flexibility and rapid mobilization capacity to support developing countries. A key direction for UNDP, reflecting the SDGs, is to “leave no one behind”, helping protect the swelling ranks of the most vulnerable people to avoid escalating economic, social and environmental stresses that threaten overall global sustainability. The crisis brings to the fore the need for integrated policies and responses that coordinate between crisis response, health, inclusive growth, poverty reduction, climate change, access to justice and services, and urbanization, where UNDP is well-placed to leverage its integrator role. In the Asia-Pacific region, UNDP is working hand- in-hand to support governments and the wider society to find and scale up innovative ways of mobilizing the response to the compound economic and health crisis.

GOVERNMENTS SHOULD USE STIMULUS PACKAGES TO SAFEGUARD PUBLIC GOODS SUCH AS HEALTH, EMPLOYMENT AND HUMAN SECURITY, WHILE AVOIDING LEAKAGES THAT WOULD ENRICH THE WELL-OFF.