Is there an opportunity here for greater economic cooperation among South Asian countries?
South Asia is one of the most dynamic and diverse regions of the world, home to more than 1.9 billion people -- almost a quarter of the world’s population. This sub-continent shares a regional leitmotif, along with cultural, linguistic, topographical, and economic commonalities which lend the region a distinct identity.
During recent years, economies of this region have demonstrated a remarkable economic boom and resilience amid global recessions. Even after that, the countries of this region are prone to high rates of poverty, inequality, and infrastructure and connectivity constraints.
Like the other regions of the world, the countries of this region have been hit hard by the global Covid-19 pandemic. What would be the geo-economic implications of this pandemic to the South Asian countries, both as economies and as a region?
India, one of the fastest growing economies and a country aspiring to be the hegemon in this region, has been badly affected by the coronavirus pandemic. A nationwide lockdown that continued for several months has decreased industrial production, business activities, and consumer confidence.
According to a Global Economic Prospects report released by the World Bank, India’s Gross Domestic Product (GDP) is expected to contract by 3.2% in 2020-2021, resulting in a drop of income and loss of jobs. Though Modi’s government has announced a $266 billion support package that is worth around 10% of India’s GDP, economists predict that this package will do little to stimulate growth.
Pakistan was already in a period of economic downturn before the pandemic broke out due to a balance of payments crisis as the imports ($40-45 billion) were much higher than the exports ($25 billion). Experts predict that the Pakistani economy will be severely hit by the Covid-19 crisis as 80% of the economy is driven by consumption. Moreover, according to estimation, over 18.5 million people could face unemployment and at least 10 million more Pakistanis would drop below the poverty line because of the pandemic.
Afghanistan, another South Asian country, stands on the verge of a massive economic crisis due to its high dependence on foreign aid and imported food. Serious economic consequences of the pandemic on the Afghan economy include an unprecedented decline in business activity, increasing rates of inflation due to an overdependence on food imports, an increase in poverty by 70%, an upward trend of unemployment by 40%, and a blow to fruit exports to neighbouring countries.
According to a recent study conducted by Biruni Institute, the Afghan economy will contract by 3.3%, at least, in a moderate scenario, and by 9.9% in acute effect of the pandemic. In addition, a $1 billion reduction in US aid to Afghanistan will cost more to the already fledgling economy.
What Bangladesh faces
Being one of the fastest growing economies in South Asia, Bangladesh now faces serious issues due to coronavirus. The pandemic could counter the economic boom in two ways. One is external trade shock, which means a reduction in trade volume with foreign trade partners, such as North American countries and the EU.
Another could come in the form of demand shock induced from the reduction of demand in the local market due to decrease in income. According to estimates, 50 million people have lost their jobs and the poverty rate has jumped up to 40% as the immediate impact of the pandemic.
Sri Lanka, Maldives, and Nepal, being highly dependent on the tourism industry, also face the risk of severe economic consequences, as the pandemic has caused a steep fall in earnings from tourism. In addition, a decline in remittances is also adding more woes to the economies of these countries.
Although Bhutan has succeeded in keeping the number of infections under control, the small country must be worried about its dependence on the tourism industry and overreliance on India for the supply of essential goods. The tourism sector has been the worst hit sector in Bhutan as the UN World Tourism Organization predicts a loss of $300-$450 billion due to the pandemic. On the other hand, reliance on India for necessary goods could cause vulnerabilities if the crisis becomes prolonged.
According to the World Bank, South Asia is set to experience its worst economic performance in the last four decades due to the pandemic, and half the region could suffer from an economic recession. Experts predict the chance of worsening poverty and unemployment situations, engulfing income inequalities more than ever, and limiting cross-border trade flow in the form of restrictions.
However, the pandemic has brought a new ray of hope in the form of opportunities for regional cooperation in South Asia with the establishment of an emergency fund of $10 million to fight the pandemic. Such regional cooperation should be extended to initiate a joint regional research program for the development of a vaccine, keep borders open to allow trade flow and foster intra-regional connectivity, and promote collective action to revive the economic growth of the countries of this region.
Arefin Rahman is a graduate of political science.