As I write this blog, the global pandemic has spread to countries and territories with daily reports of new cases and deaths. While most cases of COVID-19 are now being reported in the more advanced economies, the extent of the crisis in developing countries remains unclear. The World Health Organization has urged all countries to review all suspected cases, but many low-income countries do not have adequate health systems to effectively diagnose the virus.
Despite this uncertainty, we can still assess how this will affect economic activities and people's livelihoods. We also know very well from experience in the region that shocks hit the poor and vulnerable hardest and that these groups often take longer to recover. For their effective protection, Governments can extend social protection, and especially social assistance, to provide vital support and build resilience.
It is important to note that outbreaks have both direct and indirect impacts on disease, death and preventive measures to contain the spread of the virus.
The direct economic impact of disease and death is increased costs and decreased income for households affected by the virus. Rising health-care costs, combined with the loss of wages and jobs, can trigger increased poverty. The direct consequences also include a significant increase in risk for vulnerable groups. Unlike single shocks such as an earthquake, contagious epidemics can multiply rapidly, especially in densely populated areas. This is what happened in the case of Ebola, where researchers found that Liberia's urban slums had become breeding grounds for the disease, infecting 3.5 times more people than in the less populated and wealthier areas. In developing Asia, many migrant workers also live in overcrowded dormitories without access to health insurance, increasing the risk of infection and forcing others to return home.
Outbreaks also have an indirect impact by disrupting production and consumption throughout the economy. These effects disproportionately affect poor workers and families, especially in the informal sector. On the supply side, the closure of enterprises (whether by government order or by company decision) affects the ability of workers to receive wages. We have already seen such closures in most countries affected by the virus. On the demand side, people are spending less. This hurts workers in many industries in developing countries, especially tourism, which is a vital source of income and supports small businesses and communities with limited access to alternative livelihoods or social protection. In the food and agriculture sector, panic buying, disease-related labour shortages, disruption of transport and limited access to markets can disrupt value chains and lead to local price spikes or food losses and wastage.
These channels of disruption and economic impact can result in significant GDP losses for countries. The ADB estimates that the global impact of COVID-19 will range from $77-347 billion in production losses (or 0.1-0.4% of global GDP), with some countries suffering large losses and others experiencing disruption of trade and tourism.
So how can governments strengthen social protection to minimize the economic impact of COVID-19?
The poverty rate in Asia and the Pacific has declined dramatically, but in 2015 the region still had over 264 million people living in extreme poverty and 1.1 billion people living on less than $3.20 a day. Many Governments in the region are already investing in social protection systems to alleviate chronic poverty, reduce vulnerability and promote inclusive growth. However, in the face of the COVID-19 crisis, Governments will need to radically expand social protection to mitigate shocks and combat existing and emerging poverty. Based on promising global data, there are three
Strengthen social assistance. Expanding cash assistance can help poor and vulnerable households in times of crisis. The temporary expansion of an existing programme can be horizontal (increasing the number of people) or vertical (increasing the amount of benefits). In times of crisis, it is also important to disburse funds more quickly by creating or strengthening digital payments, as well as to mitigate the eligibility criteria or conditions of existing programmes that already have a cash delivery infrastructure. In the Philippines, beneficiaries of conditional cash transfer programmes will receive full subsidies without having to meet programme conditions (school attendance, health facilities) during quarantine. Governments can also introduce new unconditional cash transfers: the state of Uttar Pradesh in India will provide direct electronic transfers to the poor and to informal sector workers who lost their jobs due to the pandemic. Cash transfers are doubly beneficial, helping those in need while stimulating consumption, which in turn strengthens the economy. In expanding social assistance, Governments must find effective ways to reach informal settlers and urban migrant workers, as those groups face unique challenges in terms of livelihoods and access to public services.
Provide social insurance. Unemployment insurance should be temporarily extended by prolonging it, increasing benefits or weakening eligibility. Where employers do not provide paid sick leave, Governments can fund it to allow unhealthy workers and caregivers to stay home without losing their jobs. The Philippines is currently implementing measures such as emergency employment for workers in the informal sector and financial support for affected workers in private enterprises. There may also be a need to provide subsidized health insurance to extend coverage and/or abolish user fees to assist the most vulnerable groups, including support to enterprises serving these groups.
Updating labour market policies and programmes Since COVID-19 can affect all workers, Governments should review passive and active labour market policies and programmes, including labour protection standards. Given the inevitable impact on workers of temporary or permanent layoffs, Governments need to consider ways to support workers in the short and medium term, including through employment promotion, training and other interventions during and after the crisis. While social policies and protection in Europe are often considered too generous, they do protect workers from some of the serious disruptions caused by the virus.
Many of us will be concerned about the imposition of restrictions on the spread of COVID-19. However, millions of families who were already poor and vulnerable before this began will face the inability to make decisions about nutrition, health and survival. More than ever, in the face of this unprecedented crisis, we have an obligation to act now and to protect those who need it most.