The COVID-19 pandemic is imposing economic and broader development challenges as never before. Job losses, reduced income and lack of access to social protection will push millions back into extreme poverty, with consequences for persistence in inequality. There is a significant risk that the pandemic will push the Asia-Pacific region further back from achieving the 2030 Agenda for Sustainable Development and leave it even more vulnerable to future shocks.
To avoid the devastating consequences of such shocks in the future, policymakers need fresh thinking and strategies to improve the resilience of economies, that is, their ability to absorb various shocks and adapt to change and prevent systemic breakdowns. Rather than looking back, they should start anew: i.e., instead of turning on the old ‘doomsday machine’ that churned out respectable GDP growth figures but performed poorly in eradicating poverty, inequalities and protecting the environment, they must “build forward” towards more resilient, inclusive, and sustainable economies.
Making the 2030 Agenda the centre of post-COVID-19 recovery efforts
To understand various aspects of resilient economies and seek ways to improve the situation in Asia and the Pacific, ESCAP organized an Expert Group Meeting, Towards post-COVID-19 resilient economies, from 16 to 18 November 2020. This meeting brought together multiple stakeholders, including current and former high-level policymakers from the region as well as leading experts from around the world. The outcome of the discussions will inform the Economic and Social Survey of Asia and the Pacific 2021 focused on building resilient economies, to be published in March 2021.
As the experts discussed the multi-faceted recovery from COVID-19, there was broad consensus on some issues:
o Recovery will be incomplete: There was a general understanding that output will not return to its pre-COVID-19 trend level, even though its growth rate may. Hence, economies will be “scarred” for life due to the damage to investment, human capital accumulation and productivity. The extent of the permanent damage will vary within and across countries. Informal workers and SMEs are particularly vulnerable. Despite no confirmed cases of COVID-19, Pacific island countries are facing huge losses through tourism and remittances channels.
o Macroeconomic policies can help: To avoid K-shaped recoveries (wherein only certain groups or sectors recover while others suffer further declines) and double dips, it was recognized that emergency relief measures and macroeconomic stimulus should be sustained for the foreseeable future. Lessons from past episodes of adverse shocks suggest that strong and sustained policy support is essential to shorten the recession and minimize long-term scars to the economy.
o Maximize synergies, minimize trade-offs: While there was no disagreement regarding the important role of fiscal policy, there was also recognition that government debt will rise considerably. How to finance this debt will be a dominant policy question in the near future. Some policies, like eliminating fossil-fuel subsidies, can help achieve multiple objectives (create fiscal space, reduce environmental damage and support balance of payments). However, available data also show that developing countries have afforded higher spending on health and social protection by cutting their spending on education and other development areas.
o Strengthen the policy toolkit: To meet immediate fiscal needs, public debt relief is unavoidable for some countries. At the same time, governments should strive to widen the tax base, improve tax administration and increase the progressivity of the tax system. Governments can also explore innovative deficit financing methods like sustainability-oriented bonds. Going forward, less conventional financing mechanisms, such as catastrophe risk insurance and multilateral financial safety nets (e.g. the Chiang Mai Initiative Multilateralization) can help in enhancing the fiscal buffer for future shocks.
o Focus on building resilience going forward: Given the long-term damage from crises that go beyond just declines in output, recovery packages should aim to build forward better by making the economies more inclusive and greener. The main elements for this, as outlined by the Executive Secretary of ESCAP, Ms Armida Alisjahbana, are to prioritize people by investing on strengthening health and social protection systems, close the digital divide such as through promoting digitalisation; and ensure a green recovery by developing green infrastructure and integrating environment-social-governance (ESG) principles in channelling public and private investments towards SDGs.
As Gil Beltran, Undersecretary and Chief Economist, Department of Finance of the Philippines noted in his keynote address: “Sustainable Development almost sounds redundant. Development by definition is sustainable, otherwise it would not be development.”
It is time to put “sustainability” back into “development” by putting people and planet at the centre of policymaking. And prioritizing people and planet will help build resilient economies and societies.
Stay tuned for the launch of the 2021 edition of the ESCAP flagship Economic and Social Survey of Asia and the Pacific which will explore how to build resilience towards future shocks.