The effects of Covid-19 on the national economies and the global economy are going to be unprecedented. Among immediate concerns are public health and related life safety issues. The global economy is facing "a double crisis" of an unmatched magnitude—the danger to public health due to the pandemic, and a growing risk of global economic recession. It is now commonly agreed that Covid-19's blow to the global economy will be stronger and sharper than the global financial crisis of 2008, and even the Great Depression in the 1930s. To be precise, each part of the aggregate demand—consumption, investment, and exports—is being badly affected in most of the countries. Also, domestic, regional and global supply chains are severely disrupted, and it may take a long time to get back to the normal state.
Countries from South Asia are no exception in the aforementioned scenario. This double crisis at the global level can lead to a widespread national setback in most of the countries in South Asia. Most countries of this region are vulnerable to the Covid-19 outbreak and may have large humanitarian and economic effects if the situation goes out of control. More specifically, a prolonged shutdown—as it is happening in most of these countries—as well as a possible global slowdown would strike all of the region's economies very hard. Major sectors in the economy, both the export and domestic market-oriented, would be affected. Also, the marginalised groups may fall into further deprivation. Even some other sections of people in society may become highly vulnerable.
While national governments in South Asia are in the process of undertaking different policy measures in the wake of this crisis, the situation, however, might and should act as a wake-up call for regional leaders to look beyond narrow national and geopolitical interests. To avert this crisis, countries in South Asia must respond quickly and have concerted efforts. These countries also need to cooperate with international organisations and key global actors to ensure an effective and sustainable strategy.
What kind of actions are needed at the national level? The monetary policy should include lowering interest rates and credit easing. Countries should ease credit to help households and firms survive the immediate shocks of the outbreak. The fiscal policy should deploy fiscal stimulus, including direct cash disbursements to households and affected firms. Given the size of the economic shock, fiscal deficits in these economies may need to be increased from the levels in usual years.
How can the regional response in South Asia help? In South Asia, despite significant potentials, regional integration and cooperation processes have been low. Historically, there is a serious lack of mutual trust among most of the nations. However, a common crisis like the one brought by Covid-19 can bring these countries together.
First, public health systems are in an underdeveloped state in most of the South Asian countries. In such a crisis, the private health system also fails. While there is no denying that countries in the region will have to invest in their public healthcare capacities in the medium to longer terms, during this crisis they can explore the use of the pool of doctors, nurses and medical facilities available in this region to help each other. Under the SAARC process, there is a forum of meeting for SAARC health ministers. One may recall that in the wake of the outbreak of the SARS, an emergency meeting of SAARC Health Ministers was held in Male in April 2003 to develop a regional strategy to deal with the deadly epidemic. Between 2003 and 2017, there were six meetings of the SAARC health ministers. So an emergency meeting of SAARC health ministers on Covid-19 is a need of the time now. Countries should explore greater regional collaboration and new cross-border public-private partnerships to expand the production and delivery of essential medical supplies and services, and collaborative medical research. Eventually, a South Asian monitoring centre on Covid-19 can be set up.
Second, South Asian countries need to share their experiences of the national policy measures to combat the crisis. The SAARCFINANCE Forum, which was established in 1998 as a regional network of the SAARC Central Bank Governors and Finance Secretaries, needs to be reactivated. Though the primary function of the network is to conduct a dialogue on macro-economic policies of the region and share experiences and ideas of the member countries, the forum has been suspended since 2014 with the deadlock in the SAARC process. As the prime minister of India, in a video conference with SAARC leaders on March 16, 2020, proposed an emergency Covid-19 fund for SAARC countries, now is the high time to revitalise the SAARCFINANCE Forum to discuss how this emergency fund can be created, expanded and used.
Third, given that the global supply chain is broken for a large number of sectors, South Asian countries should explore the use of regional supply chain as much as possible. The current crisis sends a strong message that heavy reliance on a few countries, both in the cases of exports and imports, is counterproductive. Despite the huge potential of intra-regional trade, South Asian countries have not been able to exploit this potential for a number of reasons including unfavourable economic and trade policies, underdeveloped regional trade logistics, and political conflicts. The current situation underscores the need for a much greater regional integration in South Asia by addressing the aforementioned unfavourable factors with a positive mind-set.
Finally, the SAARC process needs to be rejuvenated. The crisis brought by Covid-19 stresses the importance of a deeper regional cooperation in South Asia. Countries in this region need to comprehend this need and make sincere efforts to put aside their differences which forbid such cooperation.
Dr Selim Raihan is Professor, Department of Economics, University of Dhaka, and Executive Director at the South Asian Network on Economic Modeling (SANEM). Email: firstname.lastname@example.org