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Unsplash / Victor He

Unsplash / Victor He

The global outbreak of the COVID-19 pandemic is causing severe hardship to millions of people from Beijing to Bangkok, Dhaka to Da Nang, Kolkata to Karachi: leaving no place and community untouched.

At this critical juncture, the medical profession is working 24x7 to develop a vaccine and treatment methods that combat COVID-19. Finding a solution through these trials and experiments is raising hopes for normalization around the globe.

Socio-economic hardship is widespread

At the same time, the pandemic has created a synchronized global economic crisis that has significantly downgraded the economic outlook for Asia and the Pacific and the global economy. The unprecedented economic crisis has further worsened socio-economic conditions of the most vulnerable and marginalized groups, which was outlined in the recent Report of the UN Secretary-General and UN ESCAP policy paper.

Around half of the population in the Asia-Pacific region is now in some form of lockdown and curfews. Policymakers are facing the daunting task of carefully formulating policy measures to protect hard-won development gains which, if lost, could further decelerate the progress of the Sustainable Development Goals (SDGs) in Asia and the Pacific.

Policy scenario analysis is needed

Once again, the scientific community has a major role to play in this challenging time. Post–World War II, Lawrence R. Klein developed modelling tools “to the analysis of economic fluctuations and economic policies”, which subsequently changed the interface between modelling and socio-economic policymaking. In this once-in-a-century global economic situation where governments are looking for appropriate policy intervention measures, the scientific community and modelling capability can play a constructive role in the service of policymaking. Modelling and scenarios can inform ambitious policies to continue on a trajectory towards achieving the SDGs by 2030.

It is well known that the economics profession has various well-established modelling approaches to provide possible scenario and impact assessment options.

Firstly, the macro-econometric modelling framework can be used to explore economic relationships by undertaking short-to-medium term scenario analysis and policy simulations. The econometric framework is flexible to add sub-models for the most impacted sectors to identify suitable policy responses including the assessment of changing household consumption patterns and identifying investment to mitigate income loss of households. It can also guide policymakers by estimating the economic loss caused by the COVID-19 pandemic to simulate the dynamics of policy responses within a given time frame.

Secondly, to reflect the complex interactions among governments, markets and consumers across the national, regional, sub-regional and global levels, the computable general equilibrium (CGE) can analyze potential economy-wide effects. CGE models typically identify winners and losers across groups and regions. It can shed light on the effect of potential policy adjustments that are required. As billions of dollars are now being announced and injected as stimulus packages in most of the Asia and the Pacific region, using CGE models is timely in conducting the ex-ante analysis of the impacts of these stimulus packages at the macro-social sectoral and household level. Such policy analysis can certainly help a better design of the stimulus packages and identify scaling-up needs of the socio-economic assessments.

Thirdly, the multi-model framework used to assess ambitious policies for resource efficiency and greenhouse gas abatement that was developed by an international science consortium led by the CSIRO, is equally necessary to explore environmental implications of the COVID-19 crisis. This multi-sector, multi-region economic model which is linked to technology-based models for agriculture, land use, energy, transport and built infrastructure allows to assess development trajectories that are not driven by changes in relative prices. In doing so, it transcends the standard CGE modelling approach by introducing stock dynamics and by reflecting the resource requirements of production and consumption. Such an integrative economy-environment modelling framework is needed to relate the COVID-19 economic changes to the climate mitigation and disaster risk reduction policy domain. This framework can explore the impact of green budget and tax reform, and investment in a circular economy to revive the economy and employment after the COVID-19 with large environmental co-benefits.

Collaboration with experts is key

Now is the time to engage with integrated modelling that allow economic activity and social development aspects to be aligned with resource use and environmental sustainability for creating win-win policy scenarios. A network of modellers based in the Asia-Pacific region can provide a sound scientific and data-driven policy by analyzing alternative scenarios, by identifying policy priorities, by informing the sequencing of policy instruments and financing planning to allow for a sustainable and inclusive recovery and to help countries to maintain their efforts for achieving the SDGs.

Nobody knows what the world will look like after the end of the COVID-19 crisis, but we can already assume that it will be a different world. In that situation, setting up a new modelling framework and integrated assessment for policy scenario analysis will be a welcome proposition to describe plausible pathways in a coherent and collaborative manner for the benefit of policymakers.

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Sudip Ranjan Basu
Deputy Head and Senior Economic Affairs Officer
Selim Raihan
Professor - Department of Economics - University of Dhaka
Heinz Schandl
Senior Science Leader - Commonwealth Scientific and Industrial Research Organisation
Yanqun Zhang
Professor - Institute of Quantitative and Technical Economics
Macroeconomic Policy and Financing for Development +66 2 288-1234 [email protected]