Economic cost of Covid-19 and way forward

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Economic cost of Covid-19 and way forward
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Covid-19 pandemic is costing the lives around the world and having an unprecedented economic impact. Almost all countries are fighting Covid-19 facing health as well as the economic crisis that could be most terrific after the 1930s great depression.

Countries in the world — be it developed or developing — are not spared by this virus. Coronavirus is a very deadly virus that can even cause disease in birds or mammal (Wikipedia).

It is transmitted to the human beings, and causes respiratory infection ranging from the common cold to severe respiratory problems. For the first time on December 31, 2019, China confirmed the first case of the virus in Wuhan city.

Covid-19 is now a global pandemic, it has inflicted 213 countries, by May 17th with total infected cases confirmed reaching more than 4,801,532 and deaths tolls recorded is 316,660.

So far, Nepal has been spared the worst of global health crisis only with very few cases confirmed with only one death recorded. In India, our immediate neighbor infection rate is increasing rapidly.

The USA is the most hit hard with a higher proportion of confirmed cases and deaths. All most all advanced countries are engulfed by pandemic like Spain, Italy, France, Germany, the UK and Turkey.

Advanced and developing countries are hit hard than Asian and African countries. This shows that Covid-19 is associated with the lifestyle of people. China has been able to contain Covid-19 on time, relaxed the lockdown, but now the second wave of Covid-19 has emerged again.

So far, Nepal has been spared the worst of global health crisis only with very few cases confirmed with two deaths recorded. In India, our immediate neighbor infection rate is increasing rapidly.

With the open border now Nepal is also at high risk. Despite the closing of border mobility from both side could not be controlled.

Within the last few days, the government increased the RDT and PCR tests with that higher number of cases confirmed. Thus the number of tests must be increased for early detection and controlling the rapid outbreak.

The Nepalese citizens working in different countries particularly in the USA and UK along with in the Gulf countries are high risk.

Covid-19 pandemic has derailed the growth path of Nepal. The crisis has disrupted Nepal’s goal to upgrade the economy from a least developed country to a developing country by 2022.

WHO Director-General Tedros Abhanom Grebreyesus has been alerting the member countries that the worst condition is yet to come and pleaded to focus on preparedness to cope with the still worst situation.

Economic cost of Covid-19
The IMF projected the global economy to shrink by 3 percent in 2020, which would be much worse than during the 2008-09 financial crises.

Assuming that the pandemic is controlled in the second half of 2020, the global economy is assumed to rebound by 2021 by 5.8 percent (base 2019) as the economic activities come back to normal backed by policy support.

But IMF assumption of rebounding of global GDP growth by 5.8 percent in 2021 from -3 percent in 2020 has become a topic of debates among the economists.

Similarly, Covid-19 will bring a great set back in advanced economies (-6.1 percent compared in 2020). Advanced countries of the world like Italy, Germany, the USA, Spain, and the UK will witness a huge set-back.

Further, it is predicted the Covid-19 pandemic will probably going to bring Asia’s economic growth down to zero for the first time after 60 years. India and China the two big economies of Asia also will witness a significant fall in growth rates in 2020, the IMF predicts these economies will grow at a faster rate in 2021.

In the case of Nepal, the growth rate is predicted to fall significantly down from 7.5 percent in 2019 to 2.5 percent in 2020, and rebound in 2021 and will able to grow by 5.0 percent according to IMF. Recent CBS estimated growth rate of Nepal (2.3 percent) is lower to IMF estimate by only a slight margin by 0.2 percent.

This will be the lowest growth since 2016. But if the lockdown continues for a longer time, and following inactivity growth rate could be even negative.

A fall in remittance affects families spending on basic needs like health, education, nutrition, and many others. The immediate effect of this loss will result in a massive increase in poor households.

Covid-19 pandemic has derailed the growth path of Nepal. The crisis has disrupted Nepal’s goal to upgrade the economy from a least developed country to a developing country by 2022.

But if the situation normalizes and economy reactivated with full policy support and launching of appropriate stimulus packages, it may be possible for Nepal to attain higher growth in 2021 than the IMF predicted.

Increased unemployment

The pandemic has pushed the economy to the brink of collapse. It has created mass unemployment in almost all the country. The most vulnerable are the labors particularly informal sector workers.

About 1.6 billion workers in the world, particularly from the informal sector, will be in danger of having their livelihood destroyed due to cuts in work hours and losing the job, according to ILO estimate.

And worldwide, more than 436 million enterprises will be disrupted ILO quotes, cessation of economic activities due to corona led lockdown and longtime inactivity. At least half a billion of the global population could slip in a poverty trap.

Of 20.7 million working-age people 7.1 million was employed and 908 thousand was unemployed. The unemployment rate is 11.4 percent, according to Nepal Labor force Survey III, 2017-2018.

The number of unemployed people increased quite considerably compared to previous Labor Force Survey 2008.

And the under-employment rate is alarming (37 percent). Informal sector employment has a bigger share (84.6 percent) and 15.4 percent of the labor force is in the formal sector (NLLFS 2017).

Workers engaged in the informal sector and wage-workers are most vulnerable, as they are not covered by social security net. Sudden loss of low paid jobs has driven a mass exodus of migrant workers from cities to rural areas.

The unemployment rate is already and is expected to increase rapidly due to the pandemic. And in India, our immediate neighbor is reported to reach 24.7 percent.

Foreign Employment in Nepal

A large number of labor force particularly from middle and low-income countries has been seeking work abroad in order to provide better lives to their families.

Foreign employment has become the lifeline for low-income households in most of the least developing countries like Nepal. About 500,000 new workforce enter the labor market every year, 50 percent of them leave the country for foreign employment because of lack of employment opportunities in the country.

Since 2009 Department of Foreign Employment has issued about 4 million labor permits. More than one million migrated unofficially in different countries.

Seasonal migration to India is also very common mostly from western Nepal. But because of the open border, they are not recorded. This sector has been severally disrupted by the pandemic.

Top five destinations countries Qatar, the UAE, Saudi Arabia, Kuwait and Malaysia where more than 60 percent Nepalese migrants are working, have gone to complete lockdown.

Many of them have lost jobs and those who are on jobs are working without any protection exposing them to a high risk of protection. An official estimate shows about 20 to 30 percent of Nepalese migrant workers may lose their employment about 300,000 may come back immediately after lockdown is relaxed.

To quote the NRN association, nearly one million migrant workers may return in the near future. And the condition of those migrated unofficially and including illegal workers is very pathetic. Some countries have sent a notification to the government of Nepal requesting to return Nepalese during the pandemic.

And the condition of those migrated unofficially and also illegal workers is very pathetic. Some countries have sent a notification to the government of Nepal requesting to return Nepalese during the pandemic. It will be a great injustice and violation of fundamental rights if their safe return is not arranged by the nation.

Thus pandemic has created big upheaval in foreign employment leading to massive downsizing of remittance. World Bank predicts a very sharp decline in global remittance by about 20 percent in 2020.

Similarly, remittance to low and middle-income countries is estimated to fall by 19.7 percent. For South Asia, the rate of fall is predicted to be still higher (22.1 percent). The Nepal Rastra Bank estimates remittance in 2020 will fall by 14 percent and its contribution to GDP will come down to 19.0 from 25.4 in 2019.

A fall in remittance affects families spending on basic needs like health, education, nutrition, and many others. The immediate effect of this loss will result in a massive increase in poor households.

Findings of two rounds of Nepal Living Standard Surveys in Nepal highlight incoming remittance particularly from foreign countries has played a major role in decreasing the poverty level. But now with drastically fall in remittance, it is sure that a large proportion of households will be pushed into the poverty trap.

During the time of the big earthquake 2015, it has proved to be a resilience when remittance increased by 20.9 percent. But now in times of pandemic, the reality is reversed.

(To be continued…)

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