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How are countries in developing Asia responding to COVID-19? | by Jesson Pagaduan | Sep, 2020

The COVID-19 pandemic has severely hit various economies across the world, with global impact estimated between USD 6.1 trillion and USD 9.1 trillion, equivalent to a loss of 7.1% to 10.5% of global gross domestic product (GDP).[1] More than one-fifth of the global loss accrues to developing Asian economies, where the impact could cost as much as USD 2 trillion, equal to 8.5% of developing Asia’s GDP. To combat the adverse effects of outbreak-induced economic crises, authorities in the region have designed policy responses to support households, businesses and other sectors.

This article looks at the COVID-19 policy responses in developing Asia and is organized as follows:

  1. The data set
  2. Size and distribution of policy response packages
  3. Measures to provide direct support to income
  4. Other measures
  5. How does the Philippines fare against others?
  6. Conclusion

The data set

Data used in this analysis come from the Asian Development Bank’s (ADB) COVID-19 Policy Database, which collects information on economic measures taken and monetary amounts announced or estimated by authorities in developing Asia in response to COVID-19.[2] Policy actions are classified into five types: a) support the normal functioning of money markets; b) encourage private credit creation; c) provide direct long-term lending to nonfinancial sector; d) equity claims on the private sector; and e) provide direct support to income of households and businesses.

Size and distribution of policy response packages

Figure 1. East Asia dominates the region in terms of size of packages. Image by the author.

East Asia has the biggest policy response package amounting to USD 2.8 trillion, more than thrice the combined amount of the rest of the region (Figure 1). Relative to GDP, East Asian countries are also above par against others with packages equivalent to 21.5% of GDP on average.

The largest stimuli in the region come from countries in East and Southeast Asia, as well as India. China tops the list with USD 2.4 trillion, which is equivalent to almost 90% of the total response in East Asia (Figure 2). India’s package comes next at USD 363 billion, followed by South Korea with USD 235 billion. In terms of share in GDP, Hong Kong’s USD 192 billion-response is massive accounting for more than half of its GDP. Singapore’s response is equivalent to 25.4% of its GDP, while Malaysia 21.5%.

Figure 2. China’s package most enormous; biggest packages come from East and Southeast Asia, India. Image by the author.

There are some clear differences in the magnitude of packages as share in GDP across and even within sub regions (Figure 3). East Asia, for example, has an interquartile range of 14% to 17%, while Central and West Asia has 0.2% to 5%. Within sub regions, the variation is most pronounced for countries in Southeast Asia ranging from 0.04% (Lao PDR) to 25% (Singapore). The Pacific, on the other hand, tend to have less heterogeneity at below or equal to 10% of GDP, with Marshall Islands as an exception. Other outliers include Hong Kong and Taiwan for East Asia and Kazakhstan and Georgia for Central and West Asia.

Figure 3. There is sizable variation in the size of packages across and within sub regions. Image by the author.

Measures to provide direct support to income

Figure 4. Policy responses are mainly dedicated to providing direct support to income. Image by the author.

Providing direct support to income of households and businesses appears the most important objective of packages in the region (Figure 4). The whole block dedicated USD 1.9 trillion for measures such as in-kind and cash transfers to low-income households, insurance coverage for medical front liners, and wage support for low-wage workers. In per capita terms, Singapore provides the most generous support to income allotting more than USD 9,000 per person, followed by Hong Kong at more than USD 5,000 per person (Figure 5). In the Philippines, meanwhile, income support amounts to less than a hundred bucks per person.

Figure 5. Singapore and Hong Kong are the most generous to provide income support. Image by the author.

Other measures

In addition to providing income support, authorities also put importance on ensuring normal functioning of money markets, encouraging private credit creation, and offering direct long-term lending to households and businesses (Figure 6). Measures to purchase equities in the private sector, on the other hand, play less role in many packages in the region.

Figure 6. Measures adopted by authorities vary according to its effect on financial systems, incomes and debt. Image by the author.

All economies in East Asia have dedicated significant budget for measures that provide liquidity support (Figure 7). Hong Kong is notable with almost 70% of its total package accounted for by increasing banking sector’s liquidity, encouraging banks to deploy more flexible liquidity buffers, and easing interbank funding conditions. About one-fifth of China’s policy response is intended to expand lending facilities to aid manufacturers of medical supplies and daily necessities, micro-, small- and medium-sized firms, and workers in the agricultural sector.

Figure 7. East Asian economies provide liquidity support. Image by the author.

In South Asia, secondary market purchases of securities, interest rate reductions, and loan guarantees account for a sizeable proportion of total packages (Figure 8). The whole package of Nepal, for example, consists of a USD 2 billion refinancing fund to provide subsidized credit for banks willing to lend at a concessional rate to priority sectors including small and medium enterprises (SME). In Sri Lanka, about two-fifths of the package is intended to implement new credit schemes to support lending to construction and other business segments severely hit by the pandemic.

Figure 8. Authorities in South Asia encourage private credit creation. Image by the author.

Long-term direct loans to businesses and households, primary market purchases of private debt securities with long-term maturities, as well as forbearance are measures prominent in many packages in Southeast Asia (Figure 9). Brunei’s package consists of a USD 320 billion stimulus, equivalent to 2.6% of GDP, to extend deferment on principal payments of loans to all sectors. More than 70% of Myanmar’s response is accounted for by a USD 71 million fund to provide soft loans garments and tourism sectors, as well as SMEs, at reduced interest rates.

Figure 9. Southeast Asian countries boost long-term direct lending to businesses and households. Image by the author.

How does the Philippines fare against others?

The Philippines has allotted USD 21 billion, equivalent to 5.9 of GDP, for COVID-19 policy response, about half of which, or 2.9% of GDP, consists of an emergency subsidy program for 18 million low-income families in the informal sector, wage subsidy for employees of small businesses, and assistance funds for local governments, among others (Figure 10). A substantial USD 5.2 billion additional liquidity, equal to 1.5% of GDP, also accounts for a sizeable portion of the country’s stimulus. Measures under providing liquidity support include reductions in the reserve requirement ratio for SMEs and large enterprises.

Figure 10. The Philippines’ COVID-19 policy response mix. Image by the author.

Despite efforts to push government spending though, Philippine figures still lag peers in Southeast Asia (Figure 11). Indonesia, a good base to compare Philippines with, allotted USD 116 billion stimulus, equivalent to 10.4% of GDP. The Philippine response is behind even Vietnam’s USD 26.5 billion (10.1% of GDP), a country notable for containing the severity of outbreak. Budget for income support also lags most levels in developing Asia (Figure 12).

Figure 11. Philippines still lags peers in Southeast Asia. Image by the author.
Figure 12. Budget for income support still below Asian levels. Image by the author.

Conclusion

It has been challenging for policymakers in developing Asia to design right-sized policy responses to combat the negative effects of the COVID-19 pandemic on incomes of households and business as well as on the financial system. While this exploratory data analysis suggests sizable efforts taken by governments to prevent further worsening of the economy, it says nothing about how such policy actions affect the number of COVID-19 cases. Nevertheless, the region’s policy responses, among other factors, will influence the recovery of developing Asian economies from the COVID-19 pandemic.

Data and codes used in this article are available in this Github repository.

References:

[1] A. Abiad, M. Arao, E. Lavina, R. Platitas, J. Pagaduan, and C. Jabagat, The Impact of COVID-19 on Developing Asian Economies: The Role of Outbreak Severity, Containment Stringency, and Mobility Declines (2020), CEPR Press

[2] J. Felipe and S. Fullwiler, ADB COVID-19 Policy Database: A Guide (2020), Asian Development Review, 37(2), 1–20