Japan International Research Center for Agricultural Sciences | JIRCAS

Pick Up

16. New Coronavirus Pandemic ― Significantly Slow Growth in Developing Countries in the Asia-Pacific Region

2020-04-14

The World Bank in East Asia and the Pacific (EAP) publishes regional economic reports twice a year. With the outbreak of the new coronavirus infection (COVID-19) at the end of 2019 and declaration of a pandemic by the World Health Organization (WHO) on March 30, 2020, the report focused on analysis of the economic impact on the EAP region (World Bank 2020). In this article, we summarized the report of the World Bank by paying attention to scenarios of COVID-19 and its impact on agriculture.

Since the countries of the EAP region are closely linked and interact with the world economy through trade and investment, it is not easy to purely capture the economic impact of COVID-19. Therefore, the World Bank evaluates the impact of COVID-19 by conducting a simulation analysis using an applied general equilibrium model (CGE) called ENVISAGE, assuming two scenarios.

The first of the two scenarios, “baseline scenario” assumes that COVID-19 will have a large impact in China, but the impact will be limited in all other countries and that the economy will recover rapidly. The second scenario, "lower-case scenario", assumes that all countries will be significantly affected by COVID-19 for a long time. The shocks from these scenarios include the following: (1) 3% drop in employment in all industries; (2) 25% increase in trade costs for all imports and exports; (3) a sharp decrease in international tourism (in the model, consumption tax for international tourism-related services is increased by 50%); and (4)15% decrease in demand for services which require close human interaction such as mass transport, domestic tourism, restaurants, recreational activities and increase in demand for other industries. “Large impact” here means receiving all four shocks simultaneously whereas “limited impact” refers to half of all shocks.

According to the simulation analysis, the GDP growth rate of developing countries in the EAP region, which was 5.8% in 2019, was significantly slowed down to 2.1% in the baseline scenario and to -0.5% in the lower-case scenario in 2020. Looking at the impact of COVID-19 on the EAP region by industry, it is believed that the tourism-related service industry will be the most severely affected. In the lower-case scenario, it is predicted that outputs of service industries relating the domestic and overseas tourism will fall by around 10% compared to the case without COVID-19. In particular, it is considered that the impact is large in Cambodia, Laos, Malaysia, Pacific Islands, Philippines, and Thailand, where tourism income accounts for a large proportion of GDP.

On the other hand, the impact on agricultural output is estimated to be relatively small at -3.1% in China in the lower-case scenario and -2.7% in other developing countries in the EAP region. But it must be noted that COVID-19 can have a particularly serious impact on agricultural workers and informal sector workers, which are often found in developing countries in the EAP region. Employment in agriculture account for more than 30% of all workers in Thailand, Indonesia and Vietnam, over 50% in Myanmar and Timor-Leste, and over 60% in Laos and Melanesia (Papua New Guinea, Solomon Islands, Vanuatu). Smallholders, which are likely to be more abundant in the agricultural sector, generally have less access to public social security. If faced with a declining demand for produce and without immediate income compensation and social protection, their income could decline significantly. It is also pointed out that if these people cannot get leave compensation, they will have to continue working even if they are infected with COVID-19, which could endanger not only their own health but also those around them.

The World Bank derives the following six policy recommendations from a series of analyses including the above simulations: (1) Adjustment of health policies (control of rapid increase in infected population) and macroeconomic policies (control of rapid economic slowdown); (2) Enhancement of health capacity; (3) Restructuring of fiscal and monetary policy (support such as cash and in-kind payment for people who are economically vulnerable, and expansionary macroeconomic policy and employment support during the economic recovery period); (4) Improving access to household credit and improving liquidity of companies;  (5) Maintain an open trade policy; and (6) Support for the region’s governments by international organizations (promotion of public-private partnerships to expand the supply of pharmaceuticals etc.). In the words of the chief economist for EAP at the World Bank, "in addition to bold national actions, deeper international cooperation is the most effective vaccine against this virulent threat".

JIRCAS follows the trends in the value chains of the agricultural and food industries in Asian countries (Kusano 2019), and implements a flagship project to form food value chains based on underused resources and traditional foods with high added value, and aim to contribute in improving the livelihoods of agricultural and food producers in the region.

 

References

Kusano E. 2019. Overview of Agri-food Industries in ASEAN: Basic Information on the Food Value Chain. ERIA Research Project Report 2018, 12. 

World Bank. 2020. World Bank East Asia and Pacific Economic Update, April 2020: East Asia and Pacific in the Time of COVID-19. Washington, DC: World Bank.

Contributor:KUSANO Eiichi (Social Sciences Division)