Urgent need to tackle unemployment

Hakim Hayat

The COVID-19 pandemic has left more than 30 million people in the Association of Southeast Asian Nations (ASEAN) member states unemployed, 18 million of those into poverty and three million into extreme poverty.

This was said by Dr Lili Yan Ing, Lead Advisor at the Economic Institute for ASEAN and East Asia (ERIA) in Jakarta, Indonesia recently.

She sees unemployment and poverty persisting for the long term if corrections are not made to reverse the trend.

“In five years’ time, it would be very difficult to help people, who are currently unemployed, to return to their previous employment as their skills would be obsolete, and they would be crowded out by fresh graduates,” said Dr Ing. “This would create structural unemployment… lowering gross domestic product (GDP) in the long run.”

She sees COVID-19 as “an awakening for all of us to understand the real meaning of development. Other than GDP and economic growth, it is crucial to pay attention to human development, health and institutions.”

COVID-19, Dr Ing said, has hit the ASEAN economy from at least three channels – lower global demand decreasing ASEAN’s exports; dry global capital markets reducing foreign direct investment into ASEAN; and sluggish tourism hitting the services sector and small and medium enterprises (SMEs).

For now, she said, most ASEAN member states are experiencing a recession with two consecutive quarters of negative economic growth.

“In the best scenario, ASEAN will contract by 2.7 per cent this year,” she said. “Even if ASEAN could inject domestic consumption in the third and fourth quarters, it would only grow by three to four per cent next year.”

However, she believed the robustness of the ASEAN economy, as evident in the last two decades of economic performances, allows the governments enough space to provide stimulus packages.

“In the last 10 years, ASEAN member countries have recorded an average government budget balance of 2.7 per cent of its GDP,” she said. “This is relatively low compared to the average of developing countries with minus seven per cent.”

She added that most ASEAN member states have “relatively reasonable public debt, of between 22 and 53 per cent of GDP. Only Singapore has more than 100 per cent with public debt of 154 per cent of its GDP this year. But Singapore has managed its public debt very well by investing it in infrastructure, industry and education.

“On average, ASEAN has had public debt of 43 per cent of GDP over the past 10 years”.

By September, she noted that ASEAN member states have allocated a total fiscal stimulus of USD207 billion or about 6.5 per cent of GDP, which is “much higher than the average of developing countries, at three per cent”.

She said, “The fiscal stimulus has gone to healthcare, social safety nets, tax incentives and economic recovery programmes, and is accompanied by monetary stimulus that includes reducing interest rates, lowering reserve requirements for banks, increasing maximum duration of repo auctions, easing liquidity, and buying back government bonds.”

Many experts see the management of the COVID-19 crisis in the East to be superior to their Western counterparts, in terms of coronavirus case management and the mitigation of economic fallout.

However, Dr Ing believes there is room for improvement, especially in terms of policy implementation.

She said, “At the national level, there is a need to improve the implementation of stimulus. Health and economy are not a trade-off. We should prioritise health first. Society can run business and return to normal daily activities if – and only if – they are safe and healthy. When we prioritise health first, then economic recovery will be automatic.”

She added that governments must ensure COVID-19 social safety nets work effectively and efficiently. And “it is crucial to target the right beneficiaries”, she said.

When it comes to the allocation of tax incentives, Dr Ing believes governments should focus on productive activities such as agriculture, industry and services instead of consumption goods, adding that there should be an increase in disbursement rates of fiscal and monetary stimulus and efforts to ensure that the programmes are “purely social and not political”.

She emphasised on the importance of a clear post-pandemic strategy that places health and education at the top of the development agenda, as well as trade and investment strategy to ensure swift recovery of businesses.

While ASEAN has made a number of commitments, she urged for the association to focus on solid ASEAN cooperation. “At the regional level, we need to prioritise health first,” Dr Ing said.

There is also a need to ensure availability and price stability of food supply, particularly basic items, she said, calling on the streamlining of export-import and investment procedures while putting automatic licensing systems in place at zero cost.

Furthermore, the ERIA advisor urged an improved capacity in digital-based activities to ensure development in education, industry and public services.

After all, she said, “the success of a country is not merely determined by its GDP or economic growth; it is determined by the success in improving the quality of life of its people”.