The year 2020 began with ominous tidings of an impending epidemic of gigantic proportions unheard of in recent memory. The Covid-19 virus, which struck in one remote corner of China, in little time devoured the entire globe causing millions of deaths, socio-economic turmoil and political upheaval of far-reaching consequences. The contagious nature of the disease led virologists and doctors to issue advisory that people should remain indoors and avoid human contact leading to a sudden halt to all kinds of economic activities.
This lockdown schedule continued for a prolonged period of eighteen months, which deeply impacted the demand-supply cycle resulting in high rate of inflation and volatility in the financial years 2020-21 and 2021-22. Steep rise in prices of crude oil in the international market had a spiraling effect on the prices of essential commodities as well. Manufacturing, transport, tourism and construction sectors around the world almost came to a standstill leading to unemployment and underemployment. A vicious cycle of less production, less supply, rising prices, low income and high costs resulted in negative growth for many countries across the world.
With time the rage of the virus abated, however, leaving a big scar both on human memory and the global economy. Depletion in foreign exchange reserves and less investments pushed many nations to the verge of bankruptcy, especially impacting the vulnerable and marginal sections, most severely in both the global north and the south. As the World Health Organization removed the Covid restrictions, the world economy slowly started limping back to normalcy, little knowing that another dark cloud is lurking in the horizon.
In February this year, the international community was taken aback as Russia attacked its immediate neighbour Ukraine, which in no time escalated into a full-scale war, the largest in Europe since the curtain dropped upon World War II. This has not only destabilised the political balance in Europe, but has resulted in a sudden rise in prices of essential commodities, including food grains. Russia and Ukraine have traditionally been major global suppliers of edible oil, wheat and many other essential items of daily use. The human and environmental cost of this war as collateral damage has also been severe.
The Covid-19 pandemic and the Ukraine crisis have resulted in socio-economic turmoil and political instability in many countries around the world, but nowhere else has its impact been more severe than in South Asia, a region which was already on the verge of a crisis situation due to many other factors active therein.
From Afghanistan to Myanmar and from Sri Lanka to Pakistan – many South Asian countries are witnessing socio-economic and political upheaval and violent unrest to such an extent that elected governments have been overthrown in Pakistan, Sri Lanka and sometime earlier in Myanmar. Myanmar being a hyper closed society functioning under the tight wrap unleashed by the ruling military junta, it is often difficult for the outside world to estimate the actual causes of the unfolding events taking place in that country. However, imprisonment of its democratic leader Aung San Suu Kyi, crackdown and human rights abuses on civilian protesters and ongoing harassment of its Rohingya population are issues of concern for the international community.
The country was already in recession when the Covid pandemic struck in 2020, paralysing its lucrative tourism sector. The army took over governance by ousting the civilian government in February that year. Sporadic and often continued violence have disrupted banking and trade, pushing its 62 million people to economic distress, having to pay high prices for food and fuel on account of devaluation of its national currency Kyat. Political and economic reforms have come to a halt, and the pressure created due to the devaluation of the Kyat against the dollar has destabilised the socio-economic scenario in Myanmar.
The Indian Ocean island of Sri Lanka, which is the oldest democracy in Asia, was also witnessing a growing economic, food and energy crisis for quite some time. The ruling Rajapaksa Regime continued playing a balancing game between India and China, extracting financial and other benefits from both nations and using it to mitigate and avert a full blown crisis.
However, the critical situation reached its peak as thousands of citizens, especially the youth and student community hit the roads, marching towards the Presidential Palace to seek immediate redressal of their grievances, primarily the skyrocketing cost of living. The protest became violent which led to the imposition of national emergency on the 1st of April 2022. With an external debt of US $35 billion at the end of 2021, falling foreign exchange reserves due to the impact of COVID 19 on remittances, tourism industry and supply chains, Sri Lanka was thus unable to meet its repayment commitments.
It was also not able to pay for its food, fuel and other import bills. So deep became the crisis as Sri Lanka was left with a meager foreign exchange reserve of US$2.3 billion, whereas it was due to repay US$7 billion in the current financial year. On the 9th of May, the Mahinda Rajapaksha government tendered its resignation, although his elder brother President Gotabaya Rajapaksa refused to resign amidst widespread rioting, looting and arson across the nation, leaving many dead and injured.
Ranil Wickremesinghe, a five time Prime Minister, was appointed to lead an interim government to save the country from ill advised policies and misguided leadership.In an interview to the BBC, Wickremesinghe said that “the economic situation is going to get worse before it gets better”. India is playing a proactive role to help its southern neighbour tide over the difficult situation by offering a creditline and currency swaps worth US $2.4 billion. In contrast, China’s role in Sri Lanka amidst the crisis situation can best be described as passive.Although in the recent past China had given maximum loans to that country and invested most in infrastructure projects.
The condition of the Islamic Republic of Pakistan, another important country of South Asia, is no better. The elected government of Prime Minister Imran Khan was recently voted out of office as it lost its majority on the floor of the House, the vote which thePrime Minister tried to avoid at all costs. Imran Khan had been accusing the opposition and an ‘outside power’ of conspiring to topple his legitimate elected government but the opposition parties opined that the Prime Minister was resorting to such antics to deflect public attention from the non-performance and misgovernance of the PTI administration. Rumours were rife that many PTI legislators were deserting the party and the Imran Khan government was already in a minority. An opposition sponsored no-confidence motion was finally put to test on the floor of the Pakistani Senate after repeated judicial intervention.
Imran Khan, who was facing public backlash for being unable to control inflation, rising unemployment and cost of living lost majority and had to unceremoniously demit office like many other former prime ministers of Pakistan, who had earlier been unable to complete full term for one reason or another. A new government led by Shehbaz Sharif, younger brother of former Prime Minister Nawaz Sharif who is currently in exile in London, took charge amidst a very critical economic situation.
Pakistan’s foreign exchange reserves are fast depleting and it is in urgent need of around US $35 billion at least to keep the economy afloat in the next fiscal year. The country’s international bonds have lost one third of their value and the government is in no position to raise fresh foreign debt from the global capital market as per finance minister Miftah Ismail. Rising global commodity prices and high domestic demand pressures have resulted in double-digit inflation in Pakistan. This has resulted in low productivity and a low investment growth cycle for the nation. Amid such economic crisis, the IMF has talked tough and set conditions that further loans will only be sanctioned if Pakistan withdraws subsidies from petroleum products.
IMF loan is necessary for Pakistan to repay its US $21 million loan in the 2021 fiscal year. Amidst this economic turmoil, the domestic security situation in Pakistan too has worsened affecting its territorial unity and sovereignty as insurgency in the northern tribal Pashtun areas and Balochistan is on the rise and its relationship with the Afghan Taliban soured to a great extent.
News emanating from Afghanistan, Pakistan’s immediate neighbor is no better either. The Taliban, which has taken over the reins of that country for the second time, continues to be and international pariah, and no country has given formal diplomatic recognition to the regime.
The donor nations, the international community, the NGOs and charities, and the UN agencies, which has long been working for the suffering people of Afghanistan, have adopted a wait and watch policy and is maintaining a safe distance from Kabul, taking time to understand whether there has been any qualitative change in the policies of the Taliban from the ones they followed during the period that they were in power on the earlier occasion.
In the meanwhile, able and eligible citizens have made a beeline to leave the country and prefer to live life as refugees elsewhere. Gender discrimination policies for which the Taliban had faced international condemnation continue unabated. Girls have been denied the permission to attend educational institutions. Women news anchors have been ordered to wear the hijab even while appearing live on television. Acute food shortages, skyrocketing prices of fuel and other essentials, hospitals without doctors and medicines have afflicted the life of the common man to such an extent that Afghans selling their girl child in desperation have been reported in international media.
Many terrorist groups are active still, including the Islamic State of Khorasan (ISK) which continued to use explosives freely to kill people in markets, mosques and other public places. The Taliban administration watch helplessly as minorities like Shias and Sikhs are being targeted on a regular basis, resulting in loss of life and property. UN China, India, Iran, UAE and Russia have expressed their desire to work with Taliban only if they form a non-discriminatory inclusive government and acquire a humane face to win friends and international acceptability. The Taliban ‘with their mindset tuned by Deobandi traditionalism and Wahhabi puritanism on one hand, and conservative Pashtun social code on the other’ find it difficult to move on with the times and the stalemate continues.
Like in the rest of the world, the impact of the COVID-19 pandemic and the Russia-Ukraine conflict on both Nepal and Bhutan has been considerable. In Nepal, labour market exposures to COVID-19 crisis were significant and unemployment during this period, especially in vulnerable households, resulted in rising poverty. Inflation has led to the increasing cost of basic needs. This has made an impact on poor households, especially those dependent on remittances. The current account deficit has significantly widened in Nepal as remittances declined, rising cost of imports and absence of significant FDI inflows.
Although Nepal’s direct trade with Russia and Ukraine is insignificant, rising global commodity prices resulted in inflated import bills. Nepal has a significant migrant labour force working in India and GCC countries. As the economy rebounds therein, remittances coming from those quarters will help in filling the gap. Nepal, one of the least developed countries of the world, has been projected to grow at a rate of 5.84% according to the Asian Development Bank. Of immediate concern is the depleting Foreign Exchange Reserve which stood at US$ 9.9 billion that is only going to meet six months of import requirements.
Hydroelectricity and tourism are the backbone of the Bhutanese economy, the small landlocked country situated deep in the Himalayas in between India and China. Bhutan successfully fought the COVID-19 Pandemic by closing its borders and following a stringent containment policy but the measure had high economic costs. The lockdown broke supply chains, disrupted the tourism sector and led to the mass exodus of foreign workers affecting developmental projects especially hydropower due to shortage of skilled and unskilled labour.
The government of Bhutan with Indian assistance has embarked upon an economic recovery package and a stimulus package for struggling businesses and unemployed citizens. Public sector led hydropower production related projects have again begun in right momentum and ADB sources predict that Bhutan shall be able to ensure fast recovery from economic losses it accrued during the Pandemic period.
The Covid 19 pandemic impacted Bangladesh’s economy too, but it showed resilience amidst global uncertainty. The government carefully planned monetary and fiscal policies to counter external shocks and also give a protective cover to the poor and the vulnerable. Bangladesh, fortunately, has witnessed strong rebound of the manufacturing and service sector activities, which led to strong growth in the financial year 2021 and first half of financial year 2022.
Bangladesh is performing well in the export sector. The country is getting much benefit of trade liberalisation by concentrating on low skilled, labour intensive activities with political stability that reduces the burden of rent, the benefit is now being translated in rise in wage and profit, which strengthens the internal dynamics of the Bangladesh economy.
The national budget for fiscal year 2022-23 has predicted a GDP growth of 7.5%. Some economists have, however, termed the target as unrealistic. Yet as per World Bank and Asian Development Bank estimates, it will be around 7%. Bangladesh can also take pride as it has proven its capacity to undertake mega infrastructure projects like the Padma Multipurpose Bridge by its own fund, which has been completed and inaugurated on 25th June 2022.
Expatriate workers have returned abroad for work and in March 2022 sent US$ 1.6 billion remittances, the highest in the past eight months. Foreign exchange reserve stands around a healthy US$ 43 billion, helping to finance imports and sustain growth. Timely implementation of priority projects, expansion of social safety nets and containing inflation to 5.6% are being given top priority.
Poverty is declining, but inequality of income distribution is increasing sharply, which is a matter of concern. Economists opine that the development experience of Bangladesh needs to be studied carefully on account of the sustained acceleration in GDP growth rate it has achieved in recent years and perceptible improvements in the major indicators of the quality of life.
It is almost six months that the devastating Russia Ukraine war is continuing. United Nations Secretary General António Guterres has remarked in frustration that “this war is setting in motion a crisis that is also devastating global energy markets, disrupting financial systems, and exacerbating extreme vulnerabilities for the developing world”. In such circumstances, the growth prospects of the big economies like the USA, China and the European Union have been downgraded. In sharp contrast, the UN has projected that India shall grow at a rate of 8% plus and will be the fastest growing major economy of the world.
India is currently the fifth largest economy in the world as per nominal GDP estimates, and is worth US $3.3 trillion, and is projected to be worth US $5 trillion by 2026. It may be recalled that India took only five years to move from US $2 trillion to US $3 trillion economy. Currently, India’s foreign exchange reserve is US $600 billion, a little less than same time last year.
Given the backdrop, India is playing a lead role in providing assistance to neighbouring countries to enable them sustain their growth and mitigate, to the extent possible, their economic woes. It is supplying food and medicines to Afghanistan and has opened the first channel of dialogue with the Taliban, this June.
50 thousand metric tons of wheat has been dispatched to Afghanistan via Pakistan to tide over food grain shortage in that country. It may be recalled that India had invested US$ 3 billion in several ongoing projects in the war-torn nation before the Taliban returned to power for the second time or in Sri Lanka, where India has already dispatched, since May, assistance worth US$ 3.5 billion which includes currency swap, credit line, fuel, fertiliser, medical supplies and food grains.
India in recent times extended a line of credit worth US $8 billion for different ongoing development projects in Bangladesh. Maldives, Sri Lanka, Nepal and Bhutan also continue to benefit from Indian assistance in different forms. India had sent millions of doses of COVID-19 vaccines, which it invented and manufactured, free of cost to countries around the world to contain the spread of the virus.Now the international community is looking forward to India to supply wheat as prices of this food grain is rising and is unavailable in the international market as Russia and Ukraine, its highest producers are currently at war.
As dark clouds hover in the South Asian horizon, Bangladesh along with major partner India continues to work together in order to tide off the crisis situation and usher in long term peace stability and prosperity in the region.