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The Financial Express

Pandemic and economic crisis: What does experience show


Pandemic and economic crisis: What does experience show

The Covid-19 pandemic that started at the beginning of 2020 is still raging in many parts of the world. Although the rate of infection fell somewhat during summer, it started to rise again in autumn, and struck a number of countries with full fury in winter. Repeated restrictions imposed on human movements and economic activities with a view to containing the spread of the virus are jeopardising living and livelihoods irrespective of the level of development of countries.

The global economy fell into recession right from the spring of 2020 and is still struggling to come out of it. The recession has led to increased unemployment and joblessness in various countries, and huge numbers of people without work are struggling to find work as economic activities are being forced to remain shut. Measures have been undertaken to mitigate the adverse effects of the crisis and provide relief to those who are suffering. But challenges remain - for both developed and developing countries. And it is perhaps time to see what can be said on the basis of the experience so far. 

WHY HAVE SOME COUNTRIES BEEN AFFECTED MUCH MORE THAN OTHERS?: The global map of the pandemic shows that in general, the rate of infection has been much higher in countries of Europe, the USA, Latin America, and a few countries of Asia than in others. But some countries in Asia (like China, South Korea, Taiwan, Thailand) and many countries in Africa escaped with lower rates. Even scientists have scratched heads in their efforts at explaining such differences and are admitting that many aspects of the virus are still unknown. Factors put forward by them include genetic differences, weather, hygiene practices of common people, the speed and efficiency with which steps were taken to combat the virus, etc. And yet, it is still not clear why, for example, rates of infection in countries like China, Thailand and Vietnam were much lower than in Bangladesh and India. Why Portugal (neighbouring Spain) had a low rate of infection during the first wave but is having a much higher rate during the second wave in winter.

IS THE DEPTH OF ECONOMIC DOWNTURN LINKED TO THE SEVERITY OF THE PANDEMIC?: In order to address this question, we have looked at the experience of a few countries that have been more successful in controlling the pandemic, e.g., South Korea, Taiwan, Thailand, with those that have been less successful, e.g., Bangladesh and India. Looking at the growth rates of GDP in 2020, we see that countries in the former category have not been able to avoid an economic downturn. In fact, the decline in GDP growth has been quite sharp in Thailand. Also, Vietnam suffered a sharper decline in GDP growth than Bangladesh.

Another comparison that was being done during the early months of the pandemic is between countries who didn't go for lockdown, e.g., Sweden, with those who did, e.g., Denmark, Finland and Norway. We find that while Sweden was not able to control the pandemic, it was also unable to avoid economic slowdown.

HOW HAS THE ECONOMIC CRISIS AFFECTED THE LABOUR MARKET?: While economic downturns generally affected the labour markets adversely, not all countries have been affected in the same manner. There are clear differences even among developed countries as exemplified by the manner in which labour markets in the USA and European countries were affected. The unemployment rate rose sharply in the USA during the spring of 2020 while the countries of Europe, e.g., France, Germany, and the U.K. were able to avoid such sharp increases in unemployment.

Differences can be seen also between countries in the developing world. In India, for example, the unemployment rate increased sharply during the period of lockdown. But China has been able to avoid such a sharp rise in unemployment.

In order to understand the causes of these differences, one has to examine the differences in the economic systems in various countries and the strategies adopted by them. We shall return to this subject in a subsequent article.

HOW MUCH IS BEING SPENT TO STIMULATE THE ECONOMIES AND PROVIDE RELIEF?: The present economic crisis is unprecedented in nature and magnitude, and many countries have come forward with fiscal measures to stimulate their economies and provide relief to struggling enterprises. Compared to the size of such measures adopted during the global economic crisis of 2008-09, developed countries like the USA, UK, France, and Germany are spending larger amounts this time around. The initial amounts allocated by these countries ranged between 9 and 12 per cent of their GDP (compared to some three to four percent during 2008-09). There are, however, significant differences in approach between these countries. While the basic approach in the USA has been to top up and extend the duration of unemployment benefits as well as to provide financial support to enterprises in trouble, a major focus of support in the countries of Europe has been to prevent retrenchments by supporting salary payments. These measures have helped keep the rate of unemployment in those countries from shooting up like in USA.

Coming to the developing countries, China allocated an amount equivalent to 4.5 per cent of its GDP which is substantially lower than the 13 per cent it allocated during the global economic crisis of 2008-09. Of course, the difference is that during the earlier crisis, the entire country was affected, while this time only certain regions were. India's allocation consisted of some 1.7 per cent in terms of direct assistance and another 4.9 per cent in terms of credit for supporting enterprises. In Bangladesh, the value of the stimulus package was 3.7 per cent of GDP.

HAS CORONAVIRUS ACTED AS THE GRAND EQUALISER?: As the virus started infecting high profile people like heads of states and governments, ministers, parliament members, rich business people, high profile people in other walks of life, it was thought that this disease would act as a great equaliser. In reality, it was seen that although the virus does not discriminate by status and class, the probability of some segments of the society being affected is usually higher. And the adverse effects of the economic crisis may also be more severe for certain classes. For example, people from lower income groups, immigrants and minorities usually reside in crowded conditions as a result of which they are more likely to be affected by the virus. This has been found to be the case in developed as well as developing countries. Data from big cities like New York, London, Montreal etc., lend support to this view.

The adverse effect of the crisis also varies by gender and age. The youth are finding it more difficult to enter the labour force and to keep their jobs. Women are more affected for a variety of reasons. On the one hand, they are disproportionately represented in sectors that have been hit particularly hard by the pandemic, e.g., export-oriented industries, tourism, hospitality, travel etc. On the other, because of their multiple burdens of child care (and looking after school-going children at home) and household work, they are either falling behind in competition or are being compelled to withdraw from work. 

VACCINES HAVE ARRIVED, BUT WHEN CAN WE EXPECT THE PANDEMIC TO BE OVER?: News of vaccines against COVID-19 started coming towards the end of 2020, and programmes of vaccination have been launched in some countries including Bangladesh. This is great news for mankind, raising hopes of ending the pandemic. That, however, would be contingent on attaining so-called "herd immunity" which, in turn, requires that a certain minimum proportion of the population be immunised or have acquired natural immunity. According to current opinions, this proportion is in the range of 70-80 per cent -- something that can be a tall order for any society. While supply is an important issue, also critical is to ensure that all classes of a society get access to the vaccine and come forward to take it. Even in developed countries, disadvantaged groups like immigrants and minorities are found to be falling behind in the campaign.

Bangladesh has done a commendable job of rolling out the vaccine ahead of many countries of the world - both developed and developing. The efficiency with which the programme is being implemented is also impressive. However, the challenge ahead should not be underestimated. In order to attain a reasonable target for vaccination, it would be essential to address - apart from the issue of ensuring the needed supplies - the issue of "vaccine equity". Currently, about half of those who have taken the vaccine are women. They have to be encouraged to come forward in larger numbers. If appropriate, the logistics will have to be made more women-friendly. The same goes for low-income people and those residing in rural areas. Their reticence to the vaccine and ease of access are important issues that need to be addressed.

 

Rizwanul Islam is an economist, is former Special Adviser, Employment Sector, International Labour Office, Geneva. [email protected]

[This article draws on his book "Coronaghatay Orthoniti O Shromobazar" (Batighar, Dhaka) which has just come out.]

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