The post-pandemic economic recovery
According to the World Bank, the global economy is expected to expand by 5.6% in 2021. This projection is made after a 3.5% global economic contraction experienced due to the pandemic since 2020. As expected, most of this rise will be primarily attributed to advanced economies such as the United States with emerging and developing economies lagging behind due to a significant number of Covid-19 cases, hindrances in obtaining access to vaccination for the majority population and limited macroeconomic support being offered by advanced economies at this point in time.
Even though an economic recovery is under way, by 2022, global output levels are still projected to be 2% below world output levels achieved before the pandemic hit. Furthermore, these estimates are determined not taking into account any possible further risk from new variants of Covid-19, a highly optimistic assumption. In the worst-case scenario, where more virulent strains come to the fore, it may as well be the case that global debt rises, thereby making the financial system more vulnerable than before and further exacerbating the current global macroeconomic outlook.
In South Asia alone, output is projected to grow by 6.8% in 2021. Even with such a high projected growth, production levels in 2022 would still remain lower by 9% than pre-pandemic estimates. In this region, a significant proportion of the world’s poor also reside, and with the pandemic debilitating the most marginalized and vulnerable shares of the population, more than 50% of the world’s poor are expected to reside in South Asia in the future. A rise in the number of poor by tens of millions is projected, with the extreme poor being classified as those living below the $1.90 per day mark.
While the earlier successes in achieving poverty reduction have been significantly reversed, what is more concerning is that poverty will rise to levels that took decades to combat in the past. This, of course, is contingent on current availability of vaccination and the more hampered this level of availability becomes, the more cumbersome it will be for the region to revert to pre-pandemic output levels.
Moreover, rising food prices may also further deteriorate the economic conditions prevalent in these countries, with the price hike being reported as high as 30% in the last year. To further add to this economic turmoil, the shutdown of schools and educational institutions means that human capital is also severely adversely affected.
In India, the second wave of Covid-19 wreaked havoc and significantly deteriorated its position in rebounding to high economic growth rates. Similarly, in Bangladesh and Pakistan, mobility and retail activities are still restricted because of which economic activity has not sprung back to its potential level. Of the total expected growth of 6.8% forecasted for this region, nearly half of it is attributed to consumption levels. In Bangladesh, economic growth is expected to be 3.6% for 2020-21, rising further to 5.1% in 2021-22.
Countries like Afghanistan and Bhutan faced additional challenges because of which their growth will be protracted for a longer period of time. In the case of Afghanistan, factors such as severe drought and political uncertainty whereas for Bhutan, a country heavily dependent on tourist revenues, play a critical role in reducing growth levels by 1 percentage point. As with Bhutan, Sri Lanka and Maldives are also struggling to revive tourism in order that economic recovery be achieved. For Pakistan, the economy is expected to grow at 1.3% and this too, may further be downgraded by rising Covid-19 cases.
Therefore, it can be seen that there is high economic uncertainty prevalent among the estimates projected as these are heavily contingent on any unforeseen risks posed by new variants of Covid-19, as well as the possibility of mounting financial debt. In order to ensure that such adverse outcomes can be mitigated, it is imperative that a more equitable vaccination distribution scheme is adopted in low-income, developing countries since these are most likely to be adversely impacted and economic recovery achieved through sustained price stability and improved fiscal support, especially from advanced economies such as the United States and China. Policies that aim to undertake growth enhancing reforms need to be drafted and implemented so that a sustainable and inclusive development path that aims to ensure sustained economic growth can be adopted.