Growth in East Asia and Pacific at lowest rate since 1967 amid COVID-19: World Bank

In a new Economic Update for East Asia and the Pacific report, the World Bank indicated that the development in East Asia and the Pacific nations, including China, will witness a slump in growth and development at the lowest rate since 1967. Further, the World Bank Group’s 2020 Human Capital Index released this month that analyzed progress data across 174 countries and depicted sluggish progress in building human capital units. Warning about the long-term threats to growth and rise in poverty, the World banks’ report recommended the East Asia and Pacific (EAP) governments to initiate fiscal and trade reforms and work on the capacity for “smart containment” rather than economic shutdowns. 

“COVID-19 pandemic has delivered a triple shock to the developing EAP,” the report read, adding, while the EAP region used a combination of stringent mobility restrictions, extensive testing-based strategies, and information programs to curb infections, efforts “curtailed the economic activity”. 

World Bank warned that the “COVID-19 shock” would not only trigger a spike in poverty but will create a class of "new poor”. The growth in the region in 2020, it warned, will only be 0.9 percent in 2020, the lowest rate since 1967. “Prospects for the region are brighter in 2021,” World Bank said. Further, in the report, the bank warned the countries, saying, if left unremedied, the coronavirus pandemic will have a “lasting impact on inclusive longer-term growth by hurting investment, human capital, and productivity.”

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World Bank’s key recommendations

According to World Bank’s October 2020  From Containment to Recovery report, while the EAP region is projected to contract by 3.5 percent, growth expected can be 7.9 percent in China and 5.1 percent in the rest of the region with World banks’ suggested recovery actions. In the midst of a pandemic, poverty is expected to impact 38 million people in the region for the first time in 20 years (upper-middle-income poverty line of $5.50 a day). World Bank suggested the EAP region soften trade-offs by using 'less economically disruptive' measures. It further adds in the report to enhance greater spending on relief without compromising public investments.

“Widening the tax base with more progressive taxation of income and profits and less wasteful spending on regressive energy subsidies, in some cases over 2 percent of GDP, could make recovery more inclusive,” World Bank said in Economic Update for East Asia and the Pacific report. 

Further, the World Bank warned that the EAP governments will need to focus on the hard-won reputations for financial prudence and resort to credible commitments to transparency and financial discipline that could help “mitigate the risk of instability” in the COVID-19 pandemic. World Bank suggested that the region must also deepen trade reforms in protected services sectors such as finance, transport, and communications to relieve the burden on other sectors and focus largely on the advantage of the digital opportunities instead. 

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