Impact of COVID-19 and Future Prospect in South Asia

Afghanistan: 

While the country's economy was already struggling with political unrest and internal conflicts, lockdown imposed for a long period has hit the Afghan economy very hard leading it to shrink by 5.5 percent in FY 2019/20 as estimated by the World Bank compared to an average growth of 2.23 percent in last five years. More than 72 percent of the population is expected to fall below the poverty line. 11.2 percent of the total labor force is estimated to remain unemployed in FY 2019/20. However, the economy is expected to improve in 2020/21 slightly and grow by 2.5 percent. 

Bangladesh:

 Bangladeshi economy managed to grow amidst COVID unlike other South Asian economies. It has been estimated to expand by 2 percent in FY 2019/20 in comparison to that by 7.4 percent on average in the last five years. Sluggish growth is expected to continue in upcoming years as well though at a small rate. Demand contraction globally amidst COVID including decreased demand for garments which has been strength of Bangladesh is estimated to result in contraction in export by 15.3 percent. 4.15 percent of the total Impact of COVID-19 and Future Prospect in South Asia  labor force is estimated to remain unemployed in FY 2019/20.

Maldives:

 Maldives mainly relies on tourism for running its economy. Among South Asian countries, largest plunge in the economic growth has been estimated for this economy by the World Bank in FY 2019/20 i.e. by 21.5 percent since tourism is the most influenced sector by COVID. Decreased global purchasing power and depressed tourism sector have hard hit export of Maldives. Export of Maldives which is mainly fish items has been estimated to decline by more than 59.90 percent in 2019/20 probably because of decline in non-vegetarian consumptions due to decline in purchasing power. Decline in revenue and increase in expenditure will have additional pressure on fiscal balance of the country thus widening fiscal deficit to 22.54 percent of GDP from 6.4 percent.

 India:

 Indian economy is not as severely affected as Maldives’ economy. But it is the second most affected South Asian economy by COVID. The economy somehow managed to grow at 4.2 percent in FY 2019/20 but the economy is projected to further deteriorate and contract by 9.6 percent in FY 2020/21. Service sector mostly Civil Aviation, Hotel Industries, Travel and Tourism sector, automotive sector are the most affected sectors. Growth of the Industrial Sector has also been contracted. 5.4 percent of the total labor force is projected to remain unemployed for India in 2020. Pakistan: Pakistan’s economy was not doing well even during the pre-pandemic periods. In addition, further fi ne contraction is estimated for Pakistan in FY 2019/20. 4.4 percent of the total labor force is expected to lose their jobs. Economy is expected to contract by 1.5 percent in FY 2019/20; however recovery is expected soon in the subsequent years. A slight contraction of 7.5 percent is estimated in the export sector. Hence, Pakistani economy seems to remain less affected by COVID. 

Nepal:

 Nepal is estimated to achieve a negligible growth of 0.2 percent in FY 2019/20 as per World Bank data based on data till December 2020 against the estimated growth rate of 2.27 percent declared by the Government of Nepal for the same fiscal year on the basis of data till June 2020. Tertiary sector especially, the Hotel and Restaurant business representing the tourism sector, transportation sector and wholesale and retail trade sector has been the one hardest hit by pandemic resulting in the growth to get limited to a nominal percentage of 1.99 percent as per data till June 2020. 1.5 percent of total labor force is projected to remain unemployed in 2020/21 for Nepal. 

Bhutan:

Bhutan has reported a growth of 5.46 percent for FY 2019/20 on the basis of data till October 2020 whereas World Bank has estimated growth of 1.5 percent for the same period on the basis of data till December 2020. The growth is expected to remain on average 2 percent in subsequent years. Gross National Savings growth is estimated to be 2.34 percent. Consistent increase in final consumption of household and general government combined with poor netrin flow of primary and secondary income from abroad led to sluggish growth in GNS. Only 2.4 percent of the total labor force is projected to remain unemployed in 2020/21. 

Sri Lanka:

Sri Lanka is the second country of South Asia after Maldives with large contraction in export due to COVID. Export has been estimated to contract by 42.4 percent in FY 2019/20. The World Bank estimates the Sri Lankan economy to contract by 6.7 percent in FY 2019/20 and growth is projected to improve nominally in further years. Sri Lanka has published an estimated 18 year low GDP growth of 2.3 percent for FY 2019/20 and a decline in Gross National Savings by 3.29 percent. 4.2 percent of the total labor force is estimated to remain unemployed during FY 2019/20.

What measures have been taken by South Asian central banks to cope up with the scars of COVID?

 1. India: 

RBI has been trying to inject liquidity in the economy through the banking system. Repo and reverse repo rates have been set such that banks will need to pay interest if they park money in the central bank and will have to bear the cost if they hold money instead of moving their funds out of the banking system. Reverse rate has been decreased down to 3.7 percent and repo rate has been kept up to 4.4 percent. Besides, the central bank is providing refinance to institutions such as to reach the small scale firms, housing finance firms and MFIs. 

2. Bangladesh: 

Central Bank of Bangladesh has reduced repo rate as well as reverse repo rate so that bank would get initiative to borrow from rather than park in central bank. 

3. Afghanistan:

 Since liquidity has not been an issue during the pandemic in Afghanistan, the central bank is more focused on using macro prudential policies rather than monetary tools. For. e.g. DAB ended freeze on loan classifications and has adopted flexibility in penalties and prudential triggers in recognition of persisting risks.

 4. Maldives:

 Maldives have reduced minimum required reserves for banks and forwarded short term loans to financial institutions to overcome shortage in liquidity. Similarly, a moratorium package has been offered to those affected by the pandemic. 

5. Sri Lanka: 

The required rate of reserves, monetary policy rates, interest rates on borrowing for banks have been reduced. Selected sectors have been granted moratorium periods for repayment of bank loans. 

6. Nepal: 

Cash reserve ratio has been decreased to 3 percent from 4 percent. Borrowing costs for banks have been reduced. Lower boundary of the interest rate corridor has been reduced to 1 percent. Regulatory provision of maintaining countercyclical buffers has been relaxed. Size of refinance has increased. In order to ensure a fast track in refinance facility, 70 percent of the refinance fund has been directly availed to commercial banks which the bank can further forward to ultimate beneficiaries on its judgments. Business continuity loans have been offered to business houses. 

7. Pakistan:

 State bank of Pakistan has reduced policy rate by 625 basis points to 7.0 percent. It has added the sectors and purposes such as medical centers and hospitals, investment in new plants and machineries and business continuity purposes and purposes of avoiding labor terminations to have access to refinance facilities. Relaxation in capital conservation buffer provision, relaxation in debt burden ratio, restriction on downgrading borrowers in case of delay in making payment of loan have been instructed. 

8. Bhutan:

 Bhutan has adopted phase wise monetary relief measures to overcome effects of pandemic. Phase-I monetary relief measures were implemented on April 14, 2020 and Phase II monetary relief measures were introduced on July 8, 2020. Under the measures, macro prudential policies have been adopted such as relaxation in collateral requirements for small and medium enterprises, national level credit guarantee to these enterprises, concessional term loans to business enterprises through financial institutions, waiver of interest on loans. RMA further reduced its CRR ratio by 200 basis points to 7 percent.