Building Resilience Requires Change
The COVID-19 pandemic is a crisis like no other. It also offers opportunities like no other. In being forced to adjust, we have seen lives, workplaces and habits transformed in fundamental ways. This chapter discusses at length how excessive focus on economic growth over the last decades led to the neglect and weakening of buffers against economic and non-economic shocks. The chapter identifies existing socioeconomic fault lines and outlines how changes in economic policymaking can make a difference in building resilience. Even with the unprecedented economic and social damage that the COVID-19 pandemic brought to the region, it presents an opportunity to build forward better towards a resilient, inclusive and sustainable future.
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Macroeconomic Outlook: Uncertain Turnaround after an Unprecedented Recession
Chapter 2 analyses Asia and the Pacific’s macroeconomic performance, with an economic outlook for 2021/2022 and near-term policy recommendations. The region registered its worst economic performance in decades in 2020. Despite the relatively quick economic turnaround led by East and North-East Asia, the recovery remains incomplete, fragile and highly uneven across countries. The outlook for 2021/2022 is cautiously optimistic, driven by expected progress in pandemic control, economic stimulus packages, strong merchandise export, and continuing recovery in production and consumption. However, near-term risks are tilted to the downside, given significant uncertainties in COVID-19 vaccination, risks in fiscal and monetary stability and policy continuity, as well as ongoing trade tensions and “tech-decoupling”. In particular, the prospect of a “K-shaped” recovery, characterized by uneven post-pandemic recovery across countries and widened inequality gaps within countries, is highlighted as a primary policy challenge. Near-term macroeconomic policies need to prioritize pandemic control, strengthen policy quality and synergy, and most importantly back an inclusive recovery, which shortens the pandemic threat to all, reduces the risk of post-pandemic unrest and supports the recovery in aggregate demand.
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Understanding Resilience: Learning from past crises and recoveries
Chapter 3 examines the wider risk landscape. COVID-19 is a stark reminder that public health emergencies and climate disasters pose economic risks, in addition to their social and environmental damage. For policy makers, it is important to know their likely impacts and how policy choices and country characteristics may amplify or mitigate the shocks. Drawing lessons from the Asia-Pacific region's past crises and recoveries, the chapter finds that all adverse shocks - natural disasters and pandemics as well as financial crises and trade shocks - reverse hard-won gains across the three dimensions of sustainable development. Following a financial crisis, investment remained below the pre-crisis level even after five years. The unemployment rate and income inequality increased considerably following epidemics such as SARS, H1N1 and MERS. All adverse shocks resulted in weaker environmental performance. At the same time, the chapter finds that that countercyclical fiscal and monetary measures can facilitate post-crisis recovery, while flexible exchange rates and adequate social protection serve as important shock absorbers. Remittances and foreign aid can help reduce the poverty impact. More diversified economies tend to suffer smaller environmental damage. The chapter recommends that countries respond aggressively to future shocks to minimize long-term scars and incorporate risk management into development planning and policymaking.
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Building Forward Better: Policy Scenarios
As Asia-Pacific countries combat the COVID-19 pandemic, a key consideration is how to implement a coherent policy package that envisages a future that is more resilient, inclusive and green. That is, how can countries build forward better? This chapter first demonstrates that there remains large room to integrate social and environmental considerations into the region’s recovery packages. Against this background, it then proposes an illustrative policy package that seeks to ensure access to health care and social protection, close the digital divide, and strengthen climate and energy actions. Based on a newly developed macroeconomic model for Asia and the Pacific, this chapter estimates that such a package would help reduce poverty and income inequality, cut carbon emissions and improve air quality to a notable extent in the long run. Yet, given the large fiscal needs to finance this policy package and address the pandemic, an analysis shows that public debt sustainability could be at risk in many Asia-Pacific economies, especially less developed ones.
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Building Forward Better: Fiscal and Financing Policy Options
How can Asia-Pacific countries afford a vision to build forward better? In the immediate term, they are obliged to service maturing public debts. Over the next years, the region will face wide fiscal deficits and rising public debt levels. At the same time, countries will need to look beyond fiscal sources to meet their SDG investment needs. To address these fiscal and financing challenges, this chapter explores six selected policy areas, namely, debt service suspensions, sovereign bond financing, debt swaps for development, public debt management, emergency financing mechanisms, and sustainable investing by public institutional investors. While offering specific policy recommendations for these policy areas, this chapter also emphasizes that, to build forward better together, multilateral cooperation is essential. Asia-Pacific countries and their international development partners need to work closely together, as creditors and debtors, investors and investees, and guarantors and beneficiaries. Moreover, as available policy options are vast and diverse, countries need to carefully consider the instruments and modalities that leverage their strengths and are implementable given their institutional capacity.
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Towards a Resilient Future
The concluding chapter briefly summarises how to navigate the complex risk landscape while building forward better and proposes an illustrative policy package of basic social services, access for all to digital technologies and stronger climate and clean energy actions:
- Universal access to health-care services and a social protection floor;
- Closing the digital divide;
- Improving energy efficiency, building climate-resilient infrastructure and preserving biodiversity.
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- Combating COVID-19 in Asia and the Pacific: Measures, lessons and the way forward
- Coping with COVID-19 and enhancing long-term resilience to future shocks: An assessment of fuel-exporting countries in Asia and the Pacific
- Can this time be different? Challenges and opportunities for Asia-Pacific economies in the aftermath of COVID-19
- An assessment of fiscal space for COVID-19 response and recovery in Asia-Pacific developing countries
Towards post-COVID-19 resilient economies, 16-18 November 2020
Policy responses to COVID-19 in Asia and the Pacific
Virtual South Asia Policy Dialogue, ESCAP SRO-SSWA, New Delhi, 12 April 2021, 14.30 - 16.00 hours, Indian Standard Time (16:00 - 17:30 hours, Bangkok Time)