WB: Big virus victims are economies hinged on trade, remittances

COUNTRIES that rely on remittances, global trade, tourism and commodity imports will be the largest casualties of the pandemic, according to the World Bank.

In the analytical chapters of the Global Economic Prospects (GEP), the World Bank said these will include a number of emerging market and developing economies (EMDES).

The World Bank said the lockdowns and other restrictions which needed to be implemented due to the coronavirus 2019 (Covid-19) pandemic have led to “adverse shocks” that are causing deep recessions.

“Beyond its short-term impact, deep recessions triggered by the pandemic are likely to leave lasting scars through multiple channels, including lower investment and innovation; erosion of the human capital of the unemployed; and a retreat from global trade and supply linkages. These effects may well lower potential growth and labor productivity in the longer term,” the report stated.

The World Bank said due to the lockdowns, there was an “unprecedented collapse in oil demand,” causing a surge in oil supply and a steep decline in oil prices. The report said this will cause a strain in energy-exporting EMDES.

These conditions will worsen the inequality and the poor will be significantly affected by the pandemic and the economic slowdown. They will also be affected by possible infection, school closures, and the decline in remittance flows.

The World Bank said the crisis will highlight preexisting vulnerabilities, fading demographic dividends, and structural bottlenecks that could extend the impact of the deep recession to the long term.

World Bank Group Vice President for Equitable Growth, Finance and Institutions Ceyla Pazarbasioglu said countries should undertake measures that would not only limit the damage but make growth robust and sustainable.

These policies include efforts to maintain the private sector and get money directly to people so that a quicker return to business creation can happen after this pandemic has passed.

Reforms

THE World Bank said countries must also undertake reforms that allow capital and labor to adjust relatively fast. This can be done by abolishing monopolies and protected state-owned enterprises.

Efforts that speed up dispute resolutions, the reduction of regulatory barriers, and reforming the costly subsidies should also be undertaken.

“In addition to the unprecedented public health crisis, these economies are now experiencing sharp economic downturns as their export revenues nosedive,” said Ayhan Kose, director of the World Bank’s Prospects Group. “Even if oil prices rise as global oil demand recovers, the recent plunge in prices is another reminder for oil-exporting countries of the urgency to continue with reforms to diversify their economies.”

OFW layoff

EARLIER, in an Ateneo de Manila University (ADMU) Policy Brief, Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang and Institute for Migration and Development Issues (IMDI) Executive Director Jeremaiah M. Opiniano estimated around 300,000 to 400,000 OFWS will be laid off or suffer pay cuts due to the pandemic.

Ang and Opiniano said this will likely cut the remittances from OFWS by 10 to 20 percent or as much as $3 billion to $6 billion, “the steepest decline in remittances in Philippine migration history.” This means remittances could only reach $24 billion to $27 billion this year from $30 billion in 2019.

The Covid-19-induced lockdowns and work stoppage has put global economies in limbo. Multilateral institutions as well as international and local think tanks have painted a grim picture for global GDP growth this year.

The Philippines is not spared as the enhanced community quarantine (ECQ) was imposed on the entire island of Luzon where the National Capital Region, Calabarzon, and Central Luzon regions are located. The three regions account for 60 percent of the country’s GDP.

The government also expects the return of thousands of OFWS due to the work stoppage, particularly among cruise ships and ocean liners impacted by Covid-19.

Ang and Opiniano said another concern when it comes to the plight of OFWS is the decline in oil prices. They estimate that if the current trend continues, more Filipinos in the oil-rich Middle East will be out of jobs or suffer pay cuts.