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Equity in Water and Sanitation Key to Regional Recovery from COVID-19

  • A World Health Organization (WHO) and UNICEF report shows that at the onset of the COVID-19 pandemic, 3 in 10 people worldwide could not wash their hands with soap and water at home. Photo: iStock.

Article | 23 June 2022
Read time: 6 mins

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Key Takeaways

  •  Enhancing access to safe water, sanitation, and hygiene (WASH) in homes, schools, hospitals, and public facilities is key to ensuring the wellbeing of communities and equips them to better handle health crises, such as the COVID-19 pandemic.
  •  Many economies in developing Asia still lack access to safe water services. Only about 30% of populations in Cambodia, Mongolia, and Tonga have access. In Lao PDR and Nepal, it is just 18% of the population.
  •  ADB’s annual sanitation investments have risen steadily over the past decade, amounting to a total of $4.9 billion or 21% of ADB’s water portfolio for 2011-2020.

As economies in Asia and the Pacific get better at managing the impact of the coronavirus disease (COVID-19) on their societies and economies, they are turning their attention to building resilience to future pandemics. Safe water, sanitation, and waste management are essential for protecting human health and enabling economic growth and development. Enhancing access to safe water, sanitation, and hygiene (WASH) in homes, schools, hospitals, and public facilities is key to ensuring the wellbeing of communities and equips them to better handle similar health crises.

A recent World Health Organization (WHO) and UNICEF report shows that,   in 2020, about 1 in 4 people lacked access to safe drinking water in their homes and nearly half the world’s population lacked access to safely managed sanitation. At the onset of the COVID-19 pandemic, 3 in 10 people worldwide could not wash their hands with soap and water at home.

The UN’s Sustainable Development Goal (SDG) 6 aims to “ensure availability and sustainable management of water and sanitation for all” by 2030. While the world has seen significant progress towards SDG 6 targets in the past 20 years, the Asia and the Pacific region needs to work very hard to meet any of the targets for safe water and sanitation.

WASH data highlights

New data from the Asian Development Bank’s (ADB’s) Basic Statistics 2022 highlights the enormity of the task. In 2020, at least seven developing economies in the region had populations with access to safely managed drinking water services at or below 30%, including Cambodia, Mongolia, and Tonga (Figure 1). In Lao PDR and Nepal, only 18% of the population enjoy a potable water supply on their premises. For Kiribati, that figure is 15%.

Where available, Basic Statistics 2022 data is disaggregated by region and gender, which is very useful for monitoring progress towards the SDGs. For access to safe water, the rural–urban divide in many economies in developing Asia is stark. In 2020, at least seven economies in Asia and the Pacific had an access percentage in rural areas of half or less, compared to those living in towns and cities (Figure 2). Such data point to the need to focus on rural areas when policymakers and development professionals plan WASH projects.

Basic Statistics 2022, for the first time, includes information on access to handwashing facilities, which is identified by WHO as critical to improving health outcomes and reducing the spread of COVID-19. The data show that the proportion of the population with access to sustainable handwashing facilities in developing economies in Asia and the Pacific only increased slightly from 2019 to 2020, with growth stronger in rural areas (Figure 3).

Together,   the data assembled in Basic Statistics 2022 show the immensity of our region’s challenges at the start of the pandemic, which could have contributed to the human toll in the last 2 years.

Limited water resources

Moreover, the Asia and the Pacific region is home to only 36% of the world's water resources, with the lowest per capita water availability globally, according to a UNESCAP policy brief highlighting the urgency of action, like safeguarding quality and better managing limited freshwater resources. In addition, wastewater management in developing Asia is very poor, with more than 80% of the wastewater discharged into the environment without treatment.

The squeeze on limited resources is also more intense as Asia’s urban population, expected to reach 3.5 billion by 2050, creates enormous demand for water and wastewater treatment systems. This population expansion will create additional pressure on the region’s agriculture and energy sectors that are heavily dependent upon a reliable supply of fresh water.

The COVID-19 pandemic has exacerbated many of these trends and compounded them by increasing vulnerability of poor and marginalized populations, and by threatening the sustainability of water infrastructure and services in many economies. For example, ADB research published in July 2021 shows the impact that the pandemic had on water service providers across the region. Based on an ADB survey, two-thirds of water providers saw a decrease in commercial and industrial revenues in the region. The International Benchmarking Network for Water and Sanitation Utilities also found that, as of June 2020, collection rates had fallen by 40% among utilities in its index, while a report by the Global Water Intelligence show steep losses in South and Southeast Asia.

To address these constraints and accelerate progress towards SDG 6, the first step is to identify gaps in WASH provisions within our region. By introducing disaggregated statistics on WASH, Basic Statistics 2022 aims to disseminate such information more broadly to researchers and policymakers.

ADB support for improving water and sanitation services

ADB research also suggests that boosting recovery in the region’s water sector following the pandemic means supporting the financial recovery of water service providers. The report calls for a balance between the need to support low income and vulnerable customers while prioritizing critical capital investment in the sector. Other measures needed to build a sustainable and resilient water sector include accelerating universal access to water and sanitation; adopting appropriate digital technologies; and improving irrigation systems to deliver long-term water and food security.

Better water governance of the water sector and increased and innovative financing are also important in helping the region get back on track to SDG 6.   Based on ADB's Asian Water Development Outlook 2020, it is estimated that an average investment of $53 billion per year up to 2030 is needed for water and sanitation, about one-third of which will be needed from the private sector. ADB annual sanitation investments have risen steadily from $218 million in 2011 to $717 million in 2020, amounting to a total of $4.9 billion for 2011–2020, or 21% of ADB’s water portfolio for the period.

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ADB Data Show the Extent of COVID-19 Trade Disruption in Developing Asia

  • The coronavirus disease (COVID-19) pandemic has had a significant negative impact on global trade and supply chains with many vulnerable economies in low-income countries being disproportionately affected.

Article | 13 August 2021
Read time: 5 mins

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Key Takeaways

  •  The countries in developing Asia that fared worst during the pandemic tended to be those reliant on a single product, service or export commodity, making them particularly vulnerable.
  •  Middle-income Central Asian countries where oil and gas are exports mainstays experienced significant economic contraction in 2020.
  •  The pandemic highlights how susceptible to economic shocks many countries in developing Asia remain. Creating more mixed, high-value economies will lead to greater resilience and sustainability.

The coronavirus disease (COVID-19) pandemic has had a significant negative impact on global trade and supply chains with many vulnerable economies in low-income countries being disproportionately affected. Although developing Asia’s trade recovered somewhat in the latter half of 2020, mainly due to the People’s Republic of China (PRC), the rebound was less pronounced in other economies in the region.

The Asian Development Bank’s (ADB) Basic Statistics 2021 is a publication presenting relevant social and economic data. It indicates the extent of trade disruption in many countries in developing Asia in 2020, at the height of the pandemic. Particularly badly hit were the oil and gas exporting countries, who had to deal with low prices and plummeting demand for hydrocarbons globally as industrial activity, trade, and international travel tanked.

Azerbaijan’s large oil and gas reserves are a major contributor to its economy. Exports from the country contracted by 36.6% in 2020, the data show. On the demand side, in 2020 imports declined by 11.1%, compared with import growth of 3.5% in 2019. Azerbaijan’s economy as a whole reversed 2.5% growth in 2019 to contract by 4.3% in 2020, according to the data. Growth is forecast to resume in 2021 and accelerate in 2022 as the pandemic eases and global demand for energy recovers, the Asian Development Outlook (ADO) 2021 forecasts.

The gas rich Central and West Asian country, Turkmenistan, experienced a similarly severe economic downturn in 2020. ADO 2021 noted a dramatic decline in external demand and prices for hydrocarbons, which provide more than 80% of exports and 30% of Gross Domestic Product (GDP) meant exports were down by 24.2% in 2020, according to Basic Statistics 2021. This is in marked contrast to the previous year, when exports had been growing by 8.2%. Neighboring Kazakhstan, another major oil producer, saw its exports dive by 19.4% during 2020.

Azerbaijan and Kazakhstan saw their economies contract significantly due to COVID-19. Although both are resource-rich, upper middle-income countries, economic shocks like the COVID-19 pandemic underline the need to expand economic diversification to make their economies less dependent on one export sector to become more resilient.

Some countries with more marginal economies fared even worse. Basic Statistics 2021 noted that Vanuatu in the Pacific saw its exports collapse by 40.7% in 2020. Agricultural exports and foreign tourism are the mainstays of the economy. Trade and travel restrictions due to the pandemic, combined with a devastating cyclone in April, led to economic contraction of 9.8%, according to ADO 2021. Growth is forecast to return to Vanuatu in 2021, rising to 2.0% as tourism and agriculture slowly recover, according to ADO 2021.

In the Maldives, there was also severe contraction in tourism, which makes up three quarters of the economy. As a result, GDP plummeted by an estimated 32.0% in 2020, according to ADO 2021. Alongside this major slump, exports contracted by 28.9% in 2020, Basic Statistics 2021 notes. This significant drop in export trade was largely due to disruption to global supply chains and the grounding of air transport. The result was that the country’s leading export commodity, fish, could not reach traditional markets in Thailand, Sri Lanka, Italy and France. As in other tourism-dependent countries in developing Asia, growth is expected to resume in the Maldives as foreign visitors slowly return.

Economically vulnerable Timor-Leste also had a challenging year in 2020 as global demand for oil and gas, its key exports, rapidly collapsed. The export sector as a whole contracted by 33.0%, contrasting markedly with 2019 when exports saw healthy growth of 5.5%, according to Basic Statistics 2021. But like Vanuatu, the impact of the COVID-19 pandemic was only partially responsible for Timor-Leste’s sudden economic decline. A domestic political crisis stopped the state budget from being passed until October. As a result, ADO 2021 estimates GDP contracted by 7.9% in 2020, down from a modest 1.8% expansion in 2019.

The pandemic highlights how less robust economies like Vanuatu, Maldives, and Timor-Leste, often subject to extreme weather events, volatile commodity prices or political instability, need to be strengthened to be able to ride out the series of unexpected fiscal shocks they all experienced in 2020.

Countries where manufacturing for export is an economic mainstay were also badly impacted by the pandemic. Bangladesh’s garment industry, its largest export sector, was badly hit as buyers cancelled shipments and new orders from lucrative markets in Europe and the United States evaporated. Exports reversed a 9.1% expansion in 2019 to contract by 17.1% in 2020, the data show. The combination of stunted exports and domestic COVID-19 containment restricting economic activity meant imports were down by 8.6% in 2020.

With the decline in imports offsetting much of the reduction in exports, the trade deficit widened only moderately, according to the data. Despite the battering to exports, Bangladesh continued to experience GDP growth in 2020 of 5.2% while fiscal policy remained supportive to mitigate the adverse economic effects of COVID-19.

“There are many lessons for the region from the COVID-19 pandemic. One of the most important is how vulnerable to economic shocks many countries in developing Asia remain. Creating more mixed, high-value, economies should be a priority for member governments. This will not only reduce poverty but also make economies more robust, helping them to recover quickly. ADB is working with member governments to support this transition,” ADB’s Chief Economist, Yasuyuki Sawada said.

Most governments across developing Asia responded decisively to the economic damage and uncertainty caused by the COVID-19 pandemic. Policy makers used a large number of channels to support firms, workers and households. These included, providing liquidity via government loans to the private sector, and direct income or revenue support through government transfers, loan cancellations, and tax cuts or forbearances.

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ADB Data Show the Impact of COVID-19 on Government Finance in Developing Asia

  • Many countries in developing Asia have been left with large negative fiscal balances due to the impact of coronavirus disease (COVID-19).

Article | 13 August 2021
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Key Takeaways

  •  Budget deficits in many developing Asian countries took a hammering in 2020. This was due to a significant drop in government income, combined with soaring costs to deal with the health and economic fallout from the pandemic.
  •  The serious negative impact of the pandemic on budget deficits is likely to slow progress towards the Sustainable Development Goals.
  •  The sharp contraction in fiscal revenue due to the pandemic means many countries cannot rely solely on public money when funding economic and social recovery.

Many countries in developing Asia have been left with large negative fiscal balances due to the impact of coronavirus disease (COVID-19), Asian Development Bank (ADB) data show. A fiscal imbalance occurs when a government spends more money than it takes in through tax and other revenues. The pandemic landed a back-to-back blow on many economies in the region in 2020; a huge drop in government income as industry and commerce slowed, combined with significant hikes in official expenditure to deal with the health, economic and social fallout from the virus.

In Basic Statistics 2021, an ADB publication presenting relevant social and economic data, government finance figures for 2020 show that many countries in the region had double digit fiscal imbalances by the end of the year.

The countries that fared worst tended to be those where the economy is largely reliant on a single product, service or export commodity, making them particularly vulnerable to the impact of the pandemic. The Maldives had a fiscal balance of -27.5% of Gross Domestic Product (GDP) in 2020, according to the data, compared with -6.6% in 2019 and -5.3% the year before. The large increase in its fiscal imbalance was due largely to this small country’s dependence on foreign tourism, which remained limited for most of 2020 as international travel bans and national lockdowns became the norm in wealthy countries.

The economic shock to the Maldives was confirmed by a GDP contraction of -32% for 2020, according to the data. Although the country launched a concerted vaccination campaign that weighed heavily on government expenditure, COVID-19 cases began increasing again across the Maldives in the second quarter of 2021. On a more positive note, the Asian Development Outlook (ADO) 2021 forecasts growth returning to the Maldives in 2021 at 13.1%, assuming international travel resumes and the virus can be controlled through vaccination.

Many countries run fiscal imbalances, sometimes referred to as the current account deficit. The gap between income and spending is subsequently closed by government borrowing, increasing the national debt. An increase in the fiscal deficit can sometimes boost a sluggish economy by giving more money to people who can then buy and invest more. Long-term deficits, however, can be detrimental for economic growth and stability.

The data also show that the pandemic badly affected Brunei Darussalam. The country ran a high fiscal deficit in 2020 at -17.1%, a steep increase from the previous year when it stood at just -5.6%. The deficit is mainly the result of a marked decline in fossil fuel prices (a key export sector), combined with a jump in government expenditure to try and contain the effects of the virus. Mitigation measures included partially funding salaries and deferring loan payments to help keep small and medium enterprises afloat. The pandemic stunted GDP growth in Brunei Darussalam slowing it from 3.9% in 2019 to 1.2% in 2020, according to ADO 2021. A recovery is anticipate though, with growth forecast to tick back up to 2.5% in 2021 and 3.0% in 2022.

Although Sri Lanka was relatively successful in containing the pandemic with growth recovering in the second half of 2020, its annual deficit jumped -11.9% from a more moderate -8.2% the previous year. The country’s tourist industry was badly hit, but this was compensated for to a degree by the IT and business process outsourcing sectors that did not suffer so markedly. ADO 2021 noted that the Sri Lankan government’s economic response to COVID-19 in 2020 relied mainly on monetary easing and credit creation.

In some cases, the large fiscal deficit in low-income Asian economies can be explained by the cost of financing correspondingly large vaccination or social support programs. Data from Basic Statistics 2021 tell us that the Pacific nation of Palau ended 2020 with a national deficit of -11.2%, substantially higher than what it was the previous year at 0.3%, according to ADO 2021. But the government spent significant sums on COVID-19 vaccines, having administered 74.3 doses per 100 people by April 2021, the highest vaccination rate in Asia at the time.

“The data illustrate clearly that in Asia, where an economy vulnerable to the pandemic has had to increase government expenditure markedly to deal with its effects, the results have been extremely detrimental to national budget deficits. This raises issues of long-term debt sustainability which may have serious implications for achieving the Sustainable Development Goals,” said ADB’s Chief Economist, Yasuyuki Sawada.

This sharp contraction in fiscal revenue brought about by the pandemic means that governments in the region will no longer be able to rely solely on public money when funding economic and social recovery, ADO 2021 argues. They will need to use much more private capital and develop creative ways of raising finance, such as green and social bonds. Recovering from the pandemic presents an opportunity to realign economic growth, making it greener and more oriented to the needs of people. This includes clean energy and transport, along with social investment in health, education and employment.

Even as the COVID-19 crisis has reduced revenues from tax and other sources in Asian economies, some governments in the region are investing to ensure sustainable recoveries after the pandemic. Examples include the Green New Deal in the Republic of Korea, green components in Japan’s economic stimulus packages, and Thailand’s issuance of sovereign sustainable bonds.

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Significant job losses in developing Asia in 2020, ADB data show

Article | 18 June 2021
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As of early 2021, the number of global deaths due to coronavirus disease (COVID-19) has surpassed two million. In addition to the ongoing threat to health in developing Asia, the pandemic has led to an unprecedented economic crisis, with millions of jobs lost and companies closed. This devastating blow will reverse much of the region’s progress in reducing poverty, as well as adversely affect health and education prospects.

The effects on employment have been uneven, with significant job losses in hard-hit sectors such as tourism, retail, and construction and some job growth in higher skilled services sectors such as IT, insurance, finance, health, and pharmaceuticals. Data drawn from ADB’s Basic Statistics 2021, an ADB publication presenting relevant social and economic data, clearly show the jump in levels of unemployment in the region in 2020, as well as considerable variation across countries with regard to the severity of COVID-19’s impact on jobs.

The International Labor Organization (ILO) defines the unemployment rate as the number of people without paid work as a percentage of the labor force (i.e., the employed and the unemployed). The unemployed are defined as people of working age without paid work (not in paid employment or self-employment), people available for work, as well as people seeking work during the reference period.

South Asia has been particularly badly hit, India’s GDP growth fell by 8% in 2020, according to the data. Using data from the ILO, Basic Statistics 2021 shows that the unemployment rate in India rose from 5.2% for women and 5.3% for men in 2019 to 7.7% for both sexes in 2020. The government of India has been working to revive the economy by spending more than $412 billion on recovery, including fiscal stimulus, support to businesses and social protection to workers, according to ADB’s COVID-19 Policy Database.

The unemployment rate in India is likely to rise further in 2021 as the country tries to contain a serious new surge in the pandemic. Neighboring Nepal also experienced a substantial rise in unemployment in 2020, rising to a total of 4.4% from 2.7% for women and 3.0% for men the previous year, according to the data.

The severe limitations of data collection during the pandemic mean that ILO unemployment figures disaggregated by sex for 2020 are not available. But given historically higher unemployment rates among women in much of developing Asia, it appears highly likely that working women have been disproportionately impacted by the pandemic.

“Basic Statistics 2021 reveals the devastating impact of the COVID-19 pandemic on employment and livelihoods in Asia and the Pacific, with the poor and vulnerable, including women, migrant workers, and daily wage laborers hit the hardest. The region was already making faltering progress towards the Sustainable Development Goals and the pandemic has been a huge setback, so we must redouble efforts to return to green, sustainable growth,” said ADB’s Chief Economist Yasuyuki Sawada.

COVID-19 had a marked impact on GDP growth in Southeast Asia in 2020 also. This was led by a contraction of 9.6% in the Philippines, one of the biggest falls ever in the country, Basic Statistics 2021 shows. The pandemic and resulting lockdown in the first half of 2020 led to widespread unemployment. The data record a rise in unemployment in the Philippines in 2020 from 2.5% of the female labor force and 2.1% of male workers to 3.4% for both women and men.

This substantial increase in unemployment in the Philippines in 2020 is clearly related to the pandemic and resulting lockdown; unemployment levels have hovered at around 2.5% in the Philippines over the past five years, according to earlier editions of Basic Statistics. Government plans to strengthen labor market programs and help sectors badly affected by the pandemic, including agriculture and tourism, will support a pickup in the economy in 2021, assuming a successful national vaccination campaign can be rolled out.

Tourism-dependent Thailand’s was also hit hard, with GDP growth contracting by 6.1% in 2020 after growing by 2.3% in 2019, according to ADB figures. There was a commensurate rise in unemployment from 0.7% to 1.0% in 2020, Basic Statistics 2021 shows. Most of the job losses were in tourism, manufacturing and agriculture. The economy is expected to rebound in 2022, with the growth rate forecast to rise to 4.5%, according to ADB’s Asian Development Outlook (ADO) 2021, as vaccination rates, global trade. and tourism pick up.

The data show similar rises in unemployment in Central and West Asia and the Pacific. It’s important to point out that the available data tell only part of the story. Unemployment rates do not include workers who experienced a reduction in hours, or who were forced into temporary, inappropriate or dangerous jobs by the pandemic. Clearly the impact on lives and livelihoods in developing Asia has been substantial.

Although unemployment rates are likely to reduce as Asian economies emerge from the worst of the pandemic in 2021 and 2022, many governments are prioritizing the need to reduce unemployment in their COVID-19 recovery programs through support to businesses and retraining workers.

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Key Responses to COVID-19 by the Asia-Pacific Economies: An Update from the ADB COVID-19 Policy Database

  • Workers at an assembly line for medical masks

Article | 15 June 2020
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ADB’s Economic Research and Regional Cooperation Department launched the ADB COVID-19 Policy Database on 20 April 2020. It provides information on the key economic measures that authorities are taking to combat the COVID-19 pandemic. Measures are classified according to how they work their way through the financial system, and how they affect the financial positions of different sectors of society. Some of the key findings from the database in the past two months are discussed here.*

World’s total package to combat COVID-19 is at $21 trillion as of June 2020

The world's total package to combat COVID-19 in June sums to $21 trillion, up from $15 trillion in April. Of this, ADB’s developing members total package is $3.1 trillion while ADB’s other members’ total package is $13.7 trillion. The European Central Bank and the European Union’s total package is $4.9 trillion.

Increase in ADB’s developing members’ packages mainly driven by the People’s Republic of China and India

From $2 trillion in April, the total package of ADB’s developing members has increased to $3.1 trillion. This is mainly driven by the increases of the People’s Republic of China (PRC) accounting for 58% of the total, and India accounting for 28% of the total. The package of the PRC has increased from $1.3 trillion to $1.9 trillion in the last two months, while India's package has increased from $64 billion to $351 billion.

By measure, 64% of the increase in ADB’s developing members’ total package is accounted for by direct income support (measure 5). This is followed by support to the normal functioning of money markets (measure 1), which accounts for 16% of the total increase. The PRC almost doubled its efforts in terms of direct income support. India’s direct income support increased fivefold and its support to the normal functioning of money markets increased more than sevenfold.

48.5% of ADB’s developing members’ $3.1 trillion package is intended for direct income support

The priorities of ADB’s developing members have not changed since April. Direct income support still accounts for the highest share, followed by support to the normal functioning of money markets (See Table 1). Direct income support remains the largest measure in all five ADB regions with Central and West Asia having the largest share (See Figure 1).

Table 1. Share (%) of each measure as of April 20 and June 1

  As of April 20 As of June 1
Measure 1: Functioning money markets 20.65% 19.12%
Measure 2: Credit creation 4.12% 5.68%
Measure 3: Lending to non-financial sector 9.22% 7.14%
Measure 4: Equity Claims on the Private Sector 0.43% 0.29%
Measure 5: Direct support to income 40.73% 48.54%
Measure 9: International assistance (lender/donor) 1.02% 0.75%
No breakdown* 23.83% 18.48%

* This measure captures those actions that governments have not been explicit about regarding their allocation into one or more of the other measures.
Source: https://covid19policy.adb.org/

Figure 1. Share (%) of each measure in region’s total package

Central bank financing in ADB’s developing members increased by 75%

ADB’s developing members’ central banks have funded a significant portion of governments’ operations in response to the pandemic. This includes direct lending, reserve drawdowns, and purchases of government bonds. These, in turn, fund governments’ fiscal, liquidity, and lending measures. Since April, significant increases in central bank financing have been seen in India, Indonesia, Singapore, Republic of Korea, and the Philippines. Direct lending by central banks are important policy actions to monitor. For instance, the Philippine central bank purchased PHP300 billion of government securities from the Bureau of Treasury under a repurchase agreement. As of 28 May 2020, the Indonesian central bank had directly purchased IDR23.98 trillion of sharia sovereign bonds through a government auction in the primary market. Central bank financing in ADB’s other members increased by 35% mainly due to increased government security purchases by the United States, United Kingdom, and Australia. Central banks also continued to promote liquidity and credit creation by conducting open market operations, secondary market purchase of long-term assets, and implementing interest and other regulatory changes.

International loans and grants received by ADB’s developing members increased twelvefold

International assistance to ADB’s developing members in the form of grants and loans increased twelvefold since April. Out of the recorded $16 billion international assistance, 41% came from ADB, while 59% came from other institutions like the International Monetary Fund, World Bank, United Nations, Asian Infrastructure Investment Bank, and the United States Agency for International Development.

Measures, packages, and caveats

The database classifies the measures into five types: (1) actions to support the normal functioning of money markets; (2) encouraging private credit creation; (3) direct long-term lending to households, businesses, and local governments and forbearance; (4) increasing equity claims on the private sector; and (5) direct support to income or revenue of households, businesses, and local governments. The database also tracks four additional funding measures that effectively “double count” measures 1 to 5 from an accounting perspective. Measure (6) is reallocation of previously budgeted spending; measure (7) is central bank purchases of national government bonds or direct lending to government; measure (8) is international assistance received by borrower/recipient countries; and measure (9) is international assistance given by lender/donor countries.

Figure 2 provides a summary of the 9 measures and how they are financed. There is a use and funding relationship between Measures 1 to 5 and Measures 6 to 8, respectively, which is the accounting corollary of the “double counting” for these measures.

From the point of view of the uses, Measures 1 to 4 are mostly self-funded by the central bank and also partly by the government. Measure 5 is funded by the government’s bond sales to the non-government sector, which may be purchased in the secondary market by the central bank (Measure 7B), central bank loans or primary market purchases of government bonds (Measure 7A), drawdown of existing reserves (Measure 7A), and also partly by international assistance (Measure 8B).

From the point of view of the funding sources, Measure 6 is also a source of government spending, lending, or investment, but is mutually exclusive from Measures 1 to 5 in this taxonomy since “where” the spending has been reallocated to is already in Measure 6. As noted, in Measure 7, the central bank directly or indirectly funds the government, which then appears in the latter’s actions across Measures 1 to 5. Central Bank swaps directly go to the central bank, providing funding for activities in Measure 1. Finally, as noted, international assistance is a source of funds for the government and likely ends up in Measure 5.

Figure 2. The COVID-19 Measures and Funding

The COVID-19 Measures and Funding

Source: Felipe, Jesus, and Fullwiler, Scott. 2020. “The ADB COVID-19 Policy Database: A Guide”. Forthcoming (September 2020 issue), Asian Development Review.

The total package, as used in the database, is the sum of Measures 1 to 5. International assistance given and measures with no definite breakdown are also included in the total package for individual economies and regions. The world’s total package, however, excludes Measure 9 to prevent “double counting.”

Caution should be exercised in using and interpreting the data. Measures and packages included in the database are mostly intentions and announcements of authorities. Information on actual amounts spent or transacted are not always available. Some measures only have estimated amounts such as liquidity injected to the economy due to lower reserve requirements. Moreover, measures are not always announced with a defined period of implementation or effectivity and intended amounts have changed in some cases. Lastly, the database does not make any judgement on the appropriateness of the type and amount of measures.

Conclusion: Key policy responses to COVID-19

The updates on the ADB COVID-19 Policy Database have shown that economies have remained active in pursuing income support, liquidity support, and credit creation measures. Central banks continue to play a significant role, not just in promoting liquidity and credit creation, but also in financing government fiscal measures. International assistance, both from ADB and other institutions, has increased significantly since April, and may continue to rise in the near future.

* The database is updated every two weeks. This article is based on the data as of 1 June 2020.
This article was written by Jesus Felipe, Asian Development Bank and Al-Habbyel Yusoph, University of the Philippines.

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Boosting Public Private Partnerships for Development

Article | 13 February 2020
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A new ADB publication looks at the major challenges that Asia must overcome to get more Public-Private Partnerships (PPPs) off the ground and to use them far more effectively than currently. It examines the best way of sharing risk and proposes optimal ways of financing PPPs.

Governments in developing Asia are aware of the need to expand and modernize their infrastructure. But tight fiscal conditions are preventing them from developing infrastructure at anything like the level needed to effectively reduce poverty and confront climate change. At least 400 million Asians live without electricity and 300 million have no access to clean water. For developing Asia to maintain its growth momentum and eradicate poverty, it needs to spend an estimated $1.5 trillion annually.

With most of developing Asia’s countries grappling with fiscal deficits, governments working with the private sector can offer a viable means of closing yawning infrastructure gaps. PPPs are contracts providing a public asset or service, in which the private party carries the risk and management responsibility, with remuneration linked to performance. While PPPs are being increasingly used in Asia, the level is still quite low compared with developed countries.

Despite appearing to be an easy way of getting roads, bridges power stations etc. built, successful PPPs are not easy to broker and fund. Sovereign risk regionally remains high: only 15% of developing countries in Asia lie at or above investment grade. In addition, many governments do not have the institutions and capacity to handle PPP projects. Often PPP projects in the region stall. The World Bank’s Private Participation in Infrastructure Database shows that from 1991 to 2015 more than half the cancelled projects globally were in developing Asia.

Weak governance in many developing Asian countries also discourages private sector investment in infrastructure PPPs. According to businesses in the region, investor confidence is shaken by lapses in law and order, government inefficiency, corruption, and political instability.

The key to scaling up PPPs is finding a way of mitigating the sizable risks associated with infrastructure investments in the region. This could go a long way toward attracting private capital to help get the infrastructure built. One proven way of doing this is project finance. This involves creating a distinct legal and economic entity to act as the counterparty to various contracts involved in a PPP and to secure the financial resources required to develop and manage a project.

Because of the many risks present in large PPPs, project finance is structured to match risks and returns to the parties best able to manage them. Balanced risk creates an environment in which investors can work together easily. Project finance also allows the leveraging of long-term debt, which is necessary to finance high-capital expenses.

Debt finance is the largest part of financing for PPP projects. While commercial banks are the largest source of debt finance for infrastructure projects, both in Asia and globally, but their ability to provide debt financing for developing Asia’s infrastructure needs is limited, partly because bank capital requirements under Basel III have tightened requirements for project finance lending by banks. The underdeveloped capital markets of Asia’s emerging economies are also making it harder for PPP projects to tap debt finance (BIS 2016).

An alternative are project bonds. Bond financing is normally more attractive than bank financing because bond investors can lend at fixed rates and for longer maturities. Bond financing can also be drawn from investors with natural long-term liabilities, compared with the relatively short-term funding sources of banks. Bonds have several advantages over bank lending, but they are not widely used in developing Asia due to a reluctance in corporate bond markets to diversity in credit quality. Also, developing countries in Asia are at the lower end of investment grade or below. Credit enhancement to mitigate sovereign risk has a vital role to play here if project bond financing is to become more widely used in the region.

Multilateral Development Banks (MDBs) can play a vital role as catalysts to attract private sector investment into infrastructure assets and bring the expertise and creativity to these projects that is often lacking in the public sector. One important role for MDBs has been provision of transaction advisory services; early-stage capacity building to improve the regulatory and institutional environment, and to support project preparation.

Having a dedicated national PPP unit can promote better-performing projects. PPP activity increased significantly in the Republic of Korea after it set up such a unit in 1998. And the Philippines’ readiness to handle PPP projects improved noticeably after its Public–Private Partnership Center was reorganized and strengthened.

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Trade Conflict and Developing Asia

Article | 06 February 2019
Read time: 3 mins

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The growing trade battle that broke out in early 2018 between the United States and the People’s Republic of China (PRC) means GDP could fall by as much as 1% in PRC and 0.2% in the United States over a period of 2-3 years, according to a new ADB working paper The Impact of Trade Conflict on Developing Asia. The study looks at three scenarios: current; a bilateral escalation; and the worst case. The larger impact on the PRC is because tariffs imposed by Washington on Beijing are an order of magnitude larger than PRC’s retaliatory measures. In addition, the PRC is more dependent on US demand for its goods than the other way round.

What started as a bilateral trade clash rapidly became global: these two giant economies generate two-fifths of world GDP and around a quarter of international trade. The report warns that other advanced economies such as the EU and Japan will suffer if the conflict escalates. Evidence of collateral damage to other Asian economies is emerging, even as exports from the region remain strong. Investors and stock markets are increasingly concerned and the IMF has said the conflict will make the world poorer.

The study not only examines the direct impact of the conflict on all tariff-affected goods, but also estimates the indirect effect of tariffs on GDP, exports and employment. Data show the impact globally, regionally and on individual countries. The negative impact of the trade war on the PRC cuts across many sectors. In the worst case scenario the PRC electronics industry would be hardest hit by 0.15% of GDP. Other affected sectors in the PRC include wholesale trade, mining, agriculture, textiles, financial services and chemicals.

One positive outcome from the clash is that trade redirection could benefit some Southeast Asian industries that compete directly with the PRC, such as electronics and textiles. The ASEAN-5 countries are set to gain in both these sectors.

The effect on global employment under the current scenario is negative, given weaker global GDP and lower trade. The initial wave of trade measures could result in a loss of 3.5 million jobs in the PRC and around 180,000 in the US. Escalation could result in job losses of 8.5 million in the PRC and significant job losses in developed economies such as the EU and Japan. Trade redirection means there could be slight employment gains in developing Asia outside the PRC.

The US-PRC trade conflict is focusing Asian policy makers on developing ways of cushioning their economies from its effects. The report gives the example of expansionary fiscal policies and the lowering of the reserve requirement by the central bank the PRC to boost credit to counteract some of the negative impacts outlined above.

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Remittances and Poverty Reduction in Asia

Article | 26 October 2018
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International remittances, or monies and goods sent by migrant workers to their home countries, now represent the second most important source of external funds after foreign direct investment for all developing economies, including those in Asia.

But what impact, if any, are they having on reducing poverty?

A recent Asian Development Bank Institute working paper takes an in-depth look at the affect international remittance flows are having on poverty in the region.

The paper first notes the upward trend in both international migrants and global remittance flows, with East Asia and Pacific and South Asia accounting for the first and second largest share of remittances on a subregional basis.

* Data from 2015 and 2016 are predicted.

India and the People’s Republic of China are the two economies with the highest emigrant populations in the world and they have also received the largest amount of remittances, with India alone accounting for more than a quarter of the Asian total.

Remittances are especially critical to South Asia, where they make up the largest source of external resource inflows, and in the case of Nepal were equivalent to 25% of the country’s GDP in 2013.

At the same time as flows of remittances have grown, the number of people in Asia living below the World Bank poverty line of less than $1.90 a day at 2011 international prices (the poverty headcount number) has dropped sharply in recent decades.

Determining whether remittances have a direct bearing on poverty reduction, however, requires going beyond the headcount to consider other indicators which measure the depth and severity of poverty more effectively – the poverty gap ratio which measures how far on average the poor are from the poverty line, and the poverty severity index, a measuring tool that allows users to vary the weight put on the income or expenditure levels of the poorest members of society.

These two ratios more accurately capture reductions in poverty and the effect from remittance inflows.

The paper, using data from 10 Asian countries between 1981 to 2014, concludes that a 1% increase in international remittance flows as a percentage of GDP can lead to a 22.6% decline in the poverty gap ratio and a 18.3% decrease in the poverty severity ratio.

It also examines the impact of several variables on poverty, noting that increases in per capita GDP and greater trade openness can decrease poverty, while conversely, higher inflation can expand it.

The finding that remittance levels actually do help reduce poverty has clear implications for policymakers, one of which is how to reduce transaction costs for migrant workers sending money to their home countries.

These fees vary significantly depending on where money is being sent from and what payment method is used. The data shows that costs are typically higher when funds are sent from wealthy to developing economies while Internet payment systems typically incur higher charges than other payment methods.

Note: The total average cost is calculated as the fee charged to senders plus the exchange rate margin.

In response, the paper says policymakers should support cooperation and partnerships between international banking services and remittance transfer operators, and the creation of a dedicated Internet-based remittance transfer network.

These measures would reduce costs, boost incomes and ultimately help speed up poverty reduction in countries with substantial migrant worker populations.

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  • China, People's Republic of
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  • Thailand
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  • Poverty

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Finance for All - Breaking the Barriers to Inclusion

  • An effective strategy for financial inclusion considers the provision of services, the regulatory environment, financial literacy levels, and the availability of financial education.

Article | 25 October 2018
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Widespread access to financial services can help cut income inequality, stimulate small business activity, and promote growth. But just making services available doesn’t guarantee that all groups will benefit from them fully and equally.

A recent Asian Development Bank Institute publication explores the experiences of advanced and developing economies in Europe and Asia in providing financial services to low-income households and small and medium-sized enterprises. It finds that sound regulations, financial literacy and the provision of financial education are key ingredients for effective financial inclusion.

Asia has made big strides in extending financial services to low income groups in recent decades, but despite broad progress, East Asia, the Pacific and South Asia still account for over half the world’s unbanked adults, the bulk of them in India and the People's Republic of China.

Access to services tends to rise with increases in per capita GDP but the study data shows variations amongst countries, including those with similar levels of income, such as Bangladesh and Nepal. This implies that other factors also count, such as regulations, institutions and overall financial development.

Germany has a long history of developing financial institutions tailored at the low income sector, while in Asia, India, Indonesia, Thailand and the Philippines have all been active, particularly in the microfinance sector, although the level of access and coverage of microfinance businesses varies significantly across the region.

Indonesia has introduced Grameen Bank-style credit and Islamic microfinance products, while in the Philippines, insurance companies and mutual benefit associations have begun to provide microinsurance products tailored at the low income sector.

The degree of innovation in products, services and access to financially inclusive technologies, such as e-money and Internet banking, also varies.

In India for example only about 2% of the population use mobile phones to pay bills. In the Philippines, meanwhile, the use of e-money to make payments has expanded sharply in recent years, with over 26 million accounts operable as of 2013.

The study also notes broad differences in regulations promoting access to financial services targeted at low-income groups, as well as levels of consumer protection and financial literacy.

The study concludes that while access has significantly improved, barriers to both the supply of and demand for financial services continue to weigh on inclusion rates for low income groups.

Overcoming these hurdles requires further government efforts to create the right regulations and conditions for financially inclusive businesses to flourish, and for innovative products, services and technologies to be rolled out.

Scaling up financial education both for households and SMEs, and taking steps to encourage more private involvement in the sector are other key elements of a successful financial inclusion strategy.

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How Technology Affects Jobs in Asia

Article | 26 September 2018
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Developing countries in Asia have created 30 million jobs annually in industry and services over the past 25 years, according to the Asian Development Outlook (ADO) 2018: How Technology Affects Jobs. Job creation has been accompanied by improved productivity, rising earnings for workers, and large reductions in poverty. Contributing to this process are shifts in employment from sectors with low productivity and pay, such as agriculture, to sectors with higher productivity and pay.

Most increases in productivity come from technological advances such as high-yielding crop varieties in farming, modern machine tools in manufacturing, and information and communication technology in services. The jobs challenge is far from over. From 2015 to 2030, the labor force in developing countries in Asia is projected to increase by about 11 million per year. As a result, Asia needs more jobs but also better jobs. The broad contours of action and policy needed to meet the jobs challenge are well known: timely and appropriate investments in education, infrastructure, and research and development, as well as a policy framework emphasizing macroeconomic stability, openness to trade and foreign direct investment, and an investment climate conducive to business.

Note: Data are for 2015 except working age population in India 2012, Nepal 2008, Bangladesh 2013, Fiji 2010, Vanuatu 2009, and Samoa, 2014; youth unemployment and adult unemployment rate in Fiji, Kazakhstan, the People’s Republic of China, and Singapore 2013; informal employment share of nonfarm employment in ThailandŸ 2016, Mongolia 2014, India 2012, Pakistan 2010, Sri Lanka 2009, Indonesia 2009, Viet Nam 2009, and the Philippines 2008. Source: International Labour Organization. ILOSTAT. http://www.ilo.org/ilostat (accessed 1 September 2017).

Concern is growing that some elements of the region’s job growth framework will no longer improve labor market outcomes for many workers. Paradoxically, the concern stems from the fundamental driver of human progress throughout history: technological change.

While future prosperity is sure to derive from advances in robotics, three-dimensional printing, artificial intelligence (AI), and the internet of things—technologies that enable the often-cited Fourth Industrial Revolution—some of them also pose new challenges for workers.

In particular, the growing sophistication of robotics and AI raise the possibility of unprecedented automation and displacement of labor. In apparel and footwear manufacturing, for example, “workerless factories” are being tested using completely automated production. In services, it is becoming technically feasible to automate more complex tasks in occupations such as customer support. How will new technologies affect developing Asia’s ability to generate more and better jobs?

Impact of automation on jobs

Policymakers will have to be proactive if the benefits of new technologies are to be shared widely across workers and society. Governments will need to respond to the risk of workers being left behind by ensuring that they are protected from the downside of new technologies and able to take advantage of new opportunities. This will require coordinated action on skills development, labor regulation, social protection, and income redistribution.

Significantly, new technologies can help deliver solutions in many of these areas. Adaptive learning technology, an educational method that uses computer algorithms designed to adjust to individual students, has enhanced learning outcomes in schools; governments should use and promote their adoption. Similarly, technological advances in biometric identification can improve how social protection programs function by reducing costs, overcoming implementation challenges in sophisticated unemployment benefit systems, and enabling the tracking of job-placement services. At the same time, governments also need to ensure that the development of new technologies take place in ways that benefit people and protect their rights and privacy, by, for example, protecting personal data.

Skills in a technology-driven economy

Governments are tasked with responding to technology and its effects on the labor market. At the same time, they stand to benefit by embracing new technology. From tax compliance and enforcement to smart cities, health care, and education, there is tremendous potential for more efficient and effective delivery of public services. However, governments need to create an environment that enables technology adoption through a two-pronged strategy. As they complete the necessary support infrastructure, they should support research and development and also innovation. Developing Asia has historically relied on abundant labor to support export-led growth. Now it is poised to leverage its expanding middle class to usher in a new era of consumption-driven growth. With the right policies, new technologies can play a key role in this transition.

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