The World Bank in its assessment  has  stated that  the world economy is on its way to expanding at the rate of 5.6 percent in 2021 — which is so far the most robust that has taken place in 80 years.

However, according to the Bank, the global recovery is expected to be uneven. Such unevenness is reflective of the sharp bouts of economic recovery in some advanced countries led by the US, owing to substantial fiscal stimuli in the midst of highly unequal vaccine access in many parts of the world. For instance, such unevenness in vaccine access has not aided the economic revival process in many middle and low-income countries.

In many emerging markets and developing economies (EMDEs), high Covid-19 caseloads, obstacles to the progress of vaccination, and a partial withdrawal of macroeconomic support are slowing down some of the benefits of strengthening external demand and rising commodity prices.

By 2022, global output is likely to remain about 2 percent below pre-pandemic projections, and there are apprehensions that per capita income losses incurred last year will not be fully met in about two-thirds of EMDEs. The global outlook, however, remains subject to significant non-occurrence of events and contingencies, which include the possibility of large Covid-19 waves due to new variants of the virus, higher levels of financial stress and growing EMDE debt levels.[i]

Where does South Asia figure in the global recovery process given the uneven size of countries in the region and the complex regional inter and intra-country problems including fragility that it has acquired due to internal conflicts that have of late assumed global dimensions?

Afghanistan

One of the countries of the region – Afghanistan - figures in the list of fragile and conflict-affected low-income countries (LICs) which have been hit the hardest by the pandemic, with GDP falling by an estimated 1.2 percent in 2020. In per capita terms, output in Afghanistan contracted by an estimated 3.8 percent last year, reversing per capita income gains by at least a decade.

In some countries, the negative effects of the pandemic have got aggravated by severe floods, droughts, locust infestations, and rising insecurity (Afghanistan, Eritrea, Mali, Sudan).[ii]

South Asia happens to be part of the EMDEs. We shall first see how the EMDEs figure in the global economic recovery process and thereafter separately examine the South Asian region in the perspective of the growth dynamics that drive the region.

Table One: Real GDP Trends

Note: GDP measured in average 2010-19 prices and market exchange rates

Source:  The World Bank Global Economic Prospects June 2021, p4

e-estimated, f-forecast, EMDE a-commodity exporting, EMDE b-commodity importing

The trends (See table one) show that as more information became available, the forecast has also changed which points towards the slowing down of the recovery process between 2021 and 2023. The tardiness is more gradual for the EMDEs as compared to the advanced economies.

Among the EMDE countries included as commodity exporters are more in number than commodity importers. Commodity exporters despite witnessing lower growth rates in real GDP  are expected to see a less sharp decline in GDP as compared to commodity importers. Seven of the eight South Asian countries belong to the group of countries included as EMDE commodity importers. These countries are Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

The pace of growth is expected to be less sharp for commodity exporters among the EMDEs primarily due to  uncertain demand conditions in the overseas markets for commodity exports.

Commodity importers among the EMDEs in which most countries of the South Asia region will be analyzed taking into consideration the growth dynamics of the region, (see table two )

Table Two: Growth dynamics of South Asia

Note:GDP measured in average 2010-19 prices

 and market exchange rates

*Excludes Afghanistan, Maldives and Bhutan due to data limitations that prevent forecasting.

fa- percentage point differences from January 2021 projections

Source:  The World Bank Global Economic Prospects. JUNE 2021.p92

Robust recovery process

The South Asian region between 2021 and 2023 is expected to show a more robust recovery process as compared to the global economy and advanced economies despite showing a much sharper slide in the growth rate of real GDP in 2020 (see tables one and two).

While growth in public consumption and fixed investment would drive the recovery process in the region, growth in private consumption will be an area of concern and needs to be constantly monitored to ensure that the recovery process maintains its growth momentum and considering more numbers of poor people are expected to increase in the region.

Though both exports and imports are expected to show buoyancy with the growth momentum, an area of concern would be the net exports contribution to growth, which is expected to turn negative. In other words, the growth in world markets for exports of the region is not expected to trigger the growth dynamics of the region despite exports from the region showing a buoyant trend.

The focus of growth in the South Asian region would therefore have to be the internal economy and therein lies the challenge. With all three engines of growth - private and public consumption  and fixed investment - showing a declining trend between 2021 and 2023 (see table two), the challenge becomes all the more daunting.

To further examine the recovery prospects of South Asia we turn to the information given  in the Asian Development Outlook published by the Asian Development Bank in its July 2021 supplement. (See table three)

Table Three: Gross domestic product growth and inflation (%)

Note: GDP measured in average 2010-19 prices

 and market exchange rates

AD0-Asian Development Outlook ADOS - Asian development outlook supplement.

Source: Asian Development Bank, Asian Development outlook supplement, July 2021 https://www.adb.org/sites/default/files/publication/715491/ado-supplement-july-2021.pdf

Hurdles ahead

The Asian Development Bank has stated that in South Asia the new wave of Covid-19  between March and June 2021 has somewhat dampened the economic outlook of the region. The adverse economic impact of the new wave is, however, according to the ADB, expected to be limited, with businesses and consumers able to adapt to the pandemic and containment measure better now than they were able to do so a  year ago.

The inflation forecast for South Asia in 2021 has also been  raised from 5.5 percent to 5.8 percent, based on higher inflationary expectations in the region.[iii]

Projections by the World Bank and the ADB point towards the revival of the major advanced economies of the world as also the South Asian region. The caveat of both the international financial institutions has one common underlying theme, which is the ability of nations to control the spread of the virus, since a lot depends on the effectiveness of such a control, particularly the new variants of the virus.

If the virus is better controlled, economies would open up and the growth momentum would pick up through revival of public and private investment and removal of the demand constraint in the form of reduced private consumption through the creation of jobs and livelihood opportunities.

The implicit assumption of such a policy would be that control of the virus and revival of the economy would go hand in hand, with steps for economic revival getting more priority after the Covid cases reduce.

However, equitable vaccine distribution has to be ensured, as otherwise, cases could mount and regions would not get the much-needed opportunity to create conditions germane to a revival of growth. This is more so in the South Asian region, which is also seeing new uncertainties in the form of internal strife and change of regimes over and above the prospects of a renewed spread of the pandemic.

[i] JUNE 2021 Global Economic Prospects© 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC, p3-4 20433https://openknowledge.worldbank.org/bitstream/handle/10986/35647/9781464816659

Ii Ibid,P30[i]

iiiAsian Development Outlook (ADO) Supplement, July 2021https://www.adb.org/outlook

(The writer is a retired Indian Economic Service officer who worked in the labor ministry. The views expressed are personal. He can be contacted at ppmitra56@gmail.com)