The global focus is centered on the situation of the economy as it stands today and what the projections forecast. Economists are looking for ways and means in a discovery process to execute skills and knowledge to explore different approaches and develop mindsets to address the unprecedented gaps the world is experiencing due to the pandemic. The challenges confronted by humanity brought in as effects of the Covid 19 disaster require new skills of navigation to steer clear in a stormy sea of high waves from the grave to gay. It is a situation quite different to any one nation or group planning to prosper over the others and gaining economic expansion, with their competitive and political advantages.
Latest report released by the World Bank in June 2020 on Global Economic Prospects provides grounds for both intuitive and analytical thinking which helps us to make sense of the reality of the prevailing situation. Authentic information is of great importance to formulate policies and apply careful reflection and analysis in such an exercise. The fast-changing and unpredictable developments tend to distort even these projections slightly but nevertheless would serve the purpose of providing a guided visualization to any approach to address the identified gaps. Therefore, I would refer to the contents of the report with particular reference to the South Asian Region as the data will provide an insight to the post pandemic consequences and the projected views in a wider scope of relative comparative analysis.
Quote, “The COVID-19 pandemic has sharply weakened consumption and manufacturing activity, and has damaged the tourism and other services industries across the South Asia region.
The deterioration in domestic conditions, together with spillovers from a global economic contraction, are expected to result in an output contraction of 2.7 percent in 2020.
Growth in 2021 is projected to rebound to around 3 percent after the effects of the
pandemic fade and global headwinds taper.
Downside risks to the outlook predominate and could materialize as a stronger surge of COVID-19 within the region, an intensification of financial market stress, a deeper pullback in remittance inflows, or a stronger-than-expected global economic contraction.”
WE are well aware of the current status of the economic consequences in our country and it would be prudent to examine it in relation to what has transpired in the region in common. The projections of the World Bank report however, are highly doubtful and debatable in a context of unpredictable developments such as the sudden resurgence of the number of Covid 19 victims, we are now experiencing in our own country.
The following chart will highlight the position of the direction of the Economy in the SAR.
Source: World Bank.
Note: e = estimate; f = forecast. EMDE = emerging market and developing economies. World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects do not differ at any given moment in time.
1. GDP and expenditure components are measured in 2010 prices and market exchange rates.
2. National income and product account data refer to fiscal years (FY) for the South Asian countries, while aggregates are presented in calendar year (CY) terms. (e.g., aggregate under 20/21 refers to CY 2020). The fiscal year runs from July 1 through June 30 in Bangladesh, Bhutan, and Pakistan, from July 16 through July 15 in Nepal, and April 1 through March 31 in India.
3. Subregion aggregate excludes Afghanistan, Bhutan, and Maldives, for which data limitations prevent the forecasting of GDP components.
4. Exports and imports of goods and non-factor services (GNFS).
The statistics speak to explain the actual situation. The following relevant and gloomy picture is also highlighted in the report.
Per capita incomes are expected to drastically contract in this year and many millions are likely to fall back into poverty.
The global economy is expected to shrink by 5.2% this year according to a baseline forecast.
Industrial and services activity has plummeted in the region after global demand collapsed.
Tourism activity was on a path to recovery but became severely damaged by the pandemic. This includes sharp declines in tourist arrivals in economies like Bhutan, Nepal, Sri Lanka and
especially Maldives, where tourism directly and indirectly accounts for more than two-thirds of
GDP. This includes a decline in arrivals from China, a key market, since early in the year.
International travel bans and other restrictions adopted by regional economies (e.g., airport
closure for arrivals in Sri Lanka) have further contributed to the weakness in tourism.
A sharp decline in tourism is also expected to weigh on activity in Bhutan and Sri Lanka, and
even more so in the Maldives. In Sri Lanka, the combination of falling tourism, manufacturing
activity and services associated with the pandemic is envisaged to cause output to contract by 3.2 percent, despite the earlier recovery from the April 2019 terrorist attacks.
Risks to the outlook are heavily titled to the downside. The most acute of these risks are
associated with the COVID-19 pandemic.
Although reported COVID-19 outbreaks in SAR have started later and remain smaller in per capita terms compared to most other regions, they are expanding at a faster pace.
This gloomy outlook, worsened in a back ground of a serious debt sustainability issue and the vulnerability of receding international markets in our own situation require the economists to look inwards with more commitment to putting the house in order to increase production towards import substitution, improve the efficiencies of SOEs and eliminate waste and corruption.
The local banking industry will need a complete face lift in addition to the relaxation of liquidity coverage requirements already in place. Temporary loan repayment holidays to distressed borrowers and further encouragement of banks to lend into development oriented activities utilizing the capacities created to draw on capital and liquidity buffers will have to be effected as a CBSL monitored task.
State banks now saddled with stringent capital adequacy regulations should be addressed with serious policy changes. The capital adequacy requirements known as CAR are based on international norms set up and regulated by the BIS(bank for International settlements) but the regulations apply only to those banks involved in International Transactions. Authorities should seriously address this issue by amalgamating the foreign business activities segment of the two State Banks, creating a single Import Export bank which will maintain capital adequacies in terms of CAR and allowing the local banking activities with a more development orientation to be handled by the two state banks (minus their foreign wings) so that the CAR barrier will not affect their operations.
GOSL will have to take a complete new approach regarding the improvement of the Energy sector with prime attention on the renewable energy sources which will eventually contribute to save much foreign exchange now spent for importing fuel for energy supply. Banks would be able to take the advantage of this sector as a source of safe and sound lending which activity can be further encouraged with special liquidity requirement relaxations offered under a specialized scheme under the CBSL. It will also provide an opening for investment of idling capital from foreign sources into macro areas such as Solar Power and Wind Power farms.
Covid debacle has created a need for our planning and thinking to be more intuitive and analytical. Time has come to think new and forward than trying to become experts only guided by WB /IMF directives.