COVID-19 has brought the worst economic impacts in the modern era, hitting the world from both, demand and supply sides simultaneously.
By 18 September 2020, COVID-19 has infected more than 543,180 people in ASEAN which consists of the 10 member countries that are Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, the Philippines, Thailand, Singapore, and Vietnam. It has taken more than 13,265 lives, with a mortality rate of 2.4 percent in ASEAN with Indonesia recording a mortality rate of 4.1 percent – one of the highest in the world.
At the same time, COVID-19 has caused more than 30 million people in ASEAN to become unemployed, pushing about 18 million people into poverty, of which 3 million are in extreme poverty. What worries us most is that if we fail to make good corrections, rising unemployment and poverty may persist in the long term. In five-years’ time, it will be very difficult to help people who are currently unemployed return to their previous employment as their skills will be obsolete and they will be crowded out by fresh graduates. This will create structural unemployment, and structural unemployment will lower gross domestic product (GDP) in the long run.
COVID-19 has hit the ASEAN economy from at least three channels. First, lower global demand decreases ASEAN’s exports. Second, dry global capital markets reduce foreign direct investment (FDI) into ASEAN. Third, sluggish tourism hits the services sector and many small and medium enterprises (SMEs). As of now, most ASEAN countries are experiencing a recession with two consecutive quarters of negative economic growth - the first and second quarters of this year.
In the best scenario, ASEAN’s growth will contract by 2.7 percent this year, and even if ASEAN can inject domestic consumption in the third and fourth quarters, it can only grow by three to four percent next year.
The good thing about the ASEAN economy is that ASEAN has recorded an average economic growth of 5.2 percent in the last two decades. This growth is supported by low budget deficits and reasonable public debt.
In the last 10 years, ASEAN countries recorded an average government budget balance of -2.7 percent of its GDP (budget balance is government revenue minus expenditure, a negative number means expenditure is higher than revenue). This is relatively low compared to the average in developing countries of -7 percent.
Most ASEAN countries also had relatively reasonable public debt of between 22 to 53 percent of their GDP. Only Singapore had more than 100% of its GDP with a public debt of 154% of its GDP this year. But Singapore has manged its public debt very well investing it in infrastructure, industry, and education. On average, ASEAN had public debt of 43% of their GDP over the past 10 years.
This low budget deficit and reasonable public debt gives ASEAN governments enough space to provide stimulus.
By September, ASEAN countries had allocated a total fiscal stimulus of US$207 billion (or about 6.5 percent of their GDP). This is much higher than the average of developing countries at three percent. The fiscal stimulus goes to health care, social safety nets, tax incentives and economic recovery programs.
The fiscal stimulus is accompanied by monetary stimulus that includes reducing interest rates, lowering reserve requirements for banks, increasing maximum duration of repo auctions, easing liquidity, and buying back government bonds.
Many experts consider that Eastern countries, including those of ASEAN member states, have been managing COVID-19 relatively well compared to their Western peers in terms of managing cases and mitigating the economic fallout.
But despite ASEAN’s good management interventions, there is room for improvement, especially in terms of implementation.
At the national level, there is a need to improve the implementation of stimulus. First, health and economy are not a trade-off. We should prioritise health first at all efforts. Society can run business and return to normal daily activities only if they are safe and healthy. When we prioritise health first, then economic recovery will be automatic.
Second, ensure COVID-19 social safety nets work effectively and efficiently, but only temporarily. It is crucial to target the right beneficiaries. Third, allocate tax incentives to productive activities (agriculture, industry, and services), not consumption goods. Fourth, increase disbursement rates of fiscal and monetary stimulus, and ensure the programs are ‘purely social and not political’’.
Last, we need a clear post COVID-19 strategy that places health and education at the top of the development agenda, as well as a trade and investment strategy to help business to recover quickly.
ASEAN has had a large number of good commitments among its member states; but this is the time for not only commitments, but for real, solid ASEAN cooperation. At the regional level, we need to prioritise health first. ASEAN may cooperate with China, Japan, Korea, and Germany to ensure availability of health supplies at affordable prices for all levels of society. Second, we need to ensure availability and price stability of food supply, particularly basic foods.
Third, streamline export-import and investment procedures and put automatic licencing systems in place at zero cost. Last, improve capacity in digital-based-activities (assisting ASEAN countries in need) to ensure development in education, industry, and public services.
COVID-19 is an awakening for all of us to understand the real meaning of development. Other than GDP and economic growth, it is crucial to pay attention to human development (the percentage of literate population, the percentage of graduates and the percentage of engineers), health (protein consumption every day, life expectancy, and the number of doctors per thousand for new-born babies), and institutions (the percentage of population living in poverty, the percentage of population having access to electricity and school, and the number of crimes per 1,000 people).
The success of a country is not merely determined by levels of GDP or economic growth. It is determined by the success in improving ‘the quality of life of its people’ – a safe, healthy, and educated society.