The new variant of Cvod-19, Omicron, has come as a fresh threat to the global economy, heightening pressure on policymakers to adopt policies to address the key issues of inflation and debt that is impinging on the countries’ ability to spend freely and mitigate its impact. 

In an ominous warning on January 24, Dr. Tedros Adhanom Ghebreysus, General Secretary of the World Health Organisation (WHO), said that it was dangerous to assume that Omicron will be the last Covid variant. He said: “We will be living with Covid for the foreseeable future, and that we will need to learn to manage it through a sustained and integrated system for acute respiratory diseases, which will provide a platform for preparedness for future pandemics.” 

The warning should come as a signal to policy makers of healthcare and financial managers to adopt a balanced policy to address the impact of the pandemic expected to last for longer time that could be wished. 

Recovery outlook  

Dr. Tedros’s comment on the pandemic potential for replication should be taken as a cue by policy makers to integrate the element of pandemic in the budget head of healthcare or separately. Experts in the field of disease control and policy makers could coordinate to arrive at a suitable policy for financial allocation in the annual budget. 

Viewed in this background, the bristling optimism over the recovery of the world economy faces the question if it was sustainable vis-a-vis rapid increase in the daily positive cases of Covid. The global economy was facing financial stress due to mounting inflation and debt, with Covid nibbling a great measure of share towards reducing the spread of disease and relief to affected households. 

In a perspective on the prospects of the recovery, the Managing Director of the International Monetary Fund, Kristalina Georgieva, had said optimism seems to be diluting after an initial expectation as the new Covid variant is likely to make policy makers’ life complicated by already strained finances. With the level of debt “boosting dramatically’, not see since World War II, economic recovery would be vulnerable to the impact of the factors affecting business continuity. 

On increasing debt burden, a separate media report citing an earlier IMF report said that public debt in advanced countries has soared since the 2008 financial meltdown from about 70 percent in 2007 to 124 percent of GDP in 2020. And the recent report about Sri Lanka facing one of the most serious financial crises in years and facing default in the payment of $5 billion falling due this year could sound a warning to the island nation’s neighbours too. 

Debt challenges 

Containing the mounting debt was a challenging task, Georgieva said building strong defences against Covid assumes greater importance to protect the economy from becoming more vulnerable. She said it was seen that countries with weaker fundamentals and higher debt levels, especially the low-income countries, were affected considerably. Even the emerging markets which were on recovery path, with a few hoping to return to the pre-pandemic level of growth, have joined the category.   “One can recognize that though the recovery would continue this year but against strong winds.”  

In an encouraging note last year, the World Bank in its twice-a-year update (released in October) had noted the signs of economic rebound in South Asia, though with a caveat that though South Asian economies were showing signs of strong recovery, “the recovery remained fragile and uneven, and most countries were far from the pre-pandemic level”. 

Later, in its Global Economic Prospects report 2022, the Bank projected that growth in South Asian Region (SAR) will accelerate to 7.6 percent this year, as pandemic-related disruptions fade, before slowing to 6 percent in 2023. India, the strongest economy in the region, will post 8.3 percent and Bangladesh 6.4 percent. Pakistan’s GDP has been put at 3.4 percent. 

Pandemic impact 

However, India and Pakistan, have come out with higher rates of GDP for FY 22, the former pegging at 9.2 per cent after contracting to 7.3 percent in FY 21 and the latter setting a target of 4.8 percent for FY 22 (policy makers hope it will touch 5 percent) against its previous year’s projection of 5.37 percent after revising it from 3.9 percent. 

GDP calculation has been a subject of critical debate with figures varying with from one agency to another. While many analysts from foreign and domestic credit appraisal agencies have come out with their own figures, the more commonly followed agency, the IMF, has in its January update of World Economic Outlook has lowered India’s GDP for the current FY 2022 by 0.5 percent (50 basis points) from its October estimate if 9.5 percent. However, it has maintained the same rate for FY 22-23 (October 8.5 percent) and 7.1 percent for FY 24 (October 6.6 percent). 

However, with the debt burden already running high at about 90 percent of GDP and the impact of the current variant still to be factored, it remains to be seen what India’s final GDP rate would be. That would give an idea about the health of the economy vis-à-vis the behaviour of the Covid in the last quarter. 

With the presentation of India's Union Budget only days away, former  Reserve Bank of India governor Raghuram Rajan has urged the government to tread caution on expenditure as the fiscal situation was not good even before the pandemic. While the government must spend where necessary, it should carefully target to avoid a huge deficit.   

As Covid-19 has left long-term scars on the region’s economy, its impact is expected to last well into the recovery. Many countries including India had lower investment flows, disruptions in supply chains and setbacks to human capital accumulation as well as substantial increases in debt levels. The pandemic is estimated to have caused 48 to 59 million people to become or remain poor in 2021 in South Asia. 

(The writer is a senior journalist and economic policy writer. The views expressed are personal. He can be contacted at varadarajan.krishnamurthy@gmail.com)