COVID-19 has exposed a pandemic of inequality in Asia and the Pacific, a region with the world’s fastest growing economies, but also half of the world’s poor, writes Armida Salsiah Alisjahbana.
After two years of human devastation, the world is learning to live with COVID-19 while trying to balance public health protection and livelihoods.
For countries in Asia and the Pacific, this is difficult not only because national coffers are heavily strained by record government spending to alleviate the suffering of the pandemic, but also because of deeper structural economic problems.
COVID-19 has exposed a pandemic of inequality in a region that has the world’s fastest growing economies, but also half of the world’s poor. A region where almost half of the total income goes to only 10% of the population, while the poorest 10% receive only 0.2%.
This inability to grow together means that the pandemic has made things worse for those left behind. Estimates suggest that over 820 million informal workers and over 70 million children from low-income households have been denied access to adequate income and education since the outbreak. More worryingly, it will leave long-term scars on economic productivity and learning, harming the future earning potential of those who are already marginalized.
Amid continued uncertainty about when the pandemic will finally be behind us, the only certainty for policymakers in the region is that the benefits of recovery and progress must accrue to all.
The outlook for the regional economy is riddled with downside risks related to the pandemic and emerging challenges in the foreign policy environment, according to the 2022 report Economic and Social Survey for Asia and the Pacific released today by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The cumulative output loss for developing economies in the region between 2020 and 2022 is estimated at nearly $2 trillion. The prolonged disruptions of the pandemic will further aggravate the uneven recovery.
COVID-19 has created a generational opportunity to build a more equitable and sustainable world. As the Secretary-General of the United Nations has pointed out, this process of transformation must be anchored in a New social contract with equal opportunities for all.
Countries can pursue a three-pronged policy agenda to lay the foundations for an inclusive participatory economy in Asia and the Pacific.
The immediate priority is to avoid budget cuts so that the development gains of past decades are not irreversibly lost. In a context of fiscal consolidation, developing countries in Asia-Pacific must maintain public spending on health, education and social protection to prevent inequalities from widening and becoming entrenched.
Instead of budget cuts, “smart” fiscal policies can improve the overall efficiency and impact of public spending as well as the extent of revenue collection. Public spending should be directed towards primary health care, universalizing basic education and making higher education more inclusive while increasing and possibly extending social protection coverage for informal workers. At the same time, new sources of revenue should be explored, for example by placing the digital economy under the tax net. Digital technologies can improve the delivery of health care and social protection services.
Given fiscal constraints, as the second pillar of policy, the central bank can move beyond its traditional roles and share responsibility for promoting economic inclusiveness, not least because persistently high levels of inequality can reduce the effectiveness of monetary policy.
Only half of the central banks in the region have access to financial services, financial literacy or consumer protection among their objectives and strategies. It’s a missed opportunity.
Conservative reserve allocation strategies deter central banks from deploying some of the region’s $9.1 trillion in official reserves to financial instruments with a social purpose. Changes in central bank laws and investment strategies can make this possible.
A well-designed central bank digital currency, backed by enabling digital infrastructure and financial literacy, can improve financial inclusion, among other benefits. Central banks should also promote the use of social impact bonds and sustainability bonds for social purposes.
The third policy pillar addresses the root cause of inequality. Economic structure determines the dynamics of inequality and the path to “equitable growth”. Thus, policy makers should focus on pre-distributive rather than redistributive policies. Developing countries can learn from the experiences of advanced economies in the region to proactively guide, shape and manage the process of structural transformation for inclusive development.
The digital-robotics-AI revolution is increasingly influencing economic transformation with great uncertainties for inclusiveness. To prepare for this, public support is needed to develop labour-intensive technologies, inclusive access to quality education, reskilling, building labor negotiation skills and social protection, among others.
AWhile COVID-19 is a major setback for the 2030 Agenda for Sustainable Development, it is also an opportunity to accelerate investments in people and the planet, and accelerate regional progress towards achieving the Goals. of sustainable development.
This is an opportunity we cannot waste.