Poverty rates in Southeast Asia will rise for the first time in nearly two decades as pandemic-induced economic crisis causes most regional countries to contract, not grow, in 2020.
If Southeast Asia’s economy suffers a 5% contraction this year, an optimistic scenario by some projections, the collapse could push some 15 million people in the region into poverty, says Kaveh Zahedi, deputy executive secretary of the UN’s Economic and Social Commission for Asia and the Pacific.
The pandemic has caused an unprecedented number of job losses in the region’s recent history, while many of those who have retained gainful employment have had their earnings dwindle. Landlessness and malnutrition, meanwhile, are once again in the region’s headlines.
“Sickness, food insecurity, job losses and school closures could lead to health and learning losses that could last a lifetime. The poor will be disproportionately disempowered because of worse access to hospitals, schools, jobs, and finance,” states a recent World Bank report on pandemic-induced poverty rates.
A World Bank economic update this month estimates that more than 80% of households in Myanmar have lost earnings this year. Just under 80% of Cambodians and Indonesians have taken an earnings hit, the same report said.
Vietnam, which is expected to weather the crisis better than most Southeast Asian states, has seen less than 40% of household earnings affected so far.
The Asian Development Bank (ADB) reckons Indonesia’s poverty rate – defined as earning less than US$1.35 a day – could climb to 12.8% compared with 9.2% last year. That near 4 percentage point rise accounts for almost 11 million people in the world’s fourth most populous nation.
Thailand’s National Economic and Social Development Council last month estimated that poverty numbers could exceed 6.7 million this year, representing nearly a tenth of the population.
The number of Cambodians in poverty could nearly double to 17.6%, thrusting some 1.3 million people back below the poverty line, a UNDP report projects. The report estimates the unemployment rate could rise almost seven-fold this year.
“ASEAN is indeed in a crisis like no other,” Lim Jock Hoi, secretary-general of the Association of Southeast Asian Nations (ASEAN) bloc, said last week during an online event arranged by the ASEAN-Japan Center, a Tokyo-based organization.
With such dire warnings, attention has turned to relief efforts and how to reduce the escalating poverty numbers as quickly as possible once the pandemic has passed, whenever that may be.
One major question is whether the economic drivers that caused poverty levels to fall dramatically between the early 1990s until 2019 will still be available to reduce poverty in post-pandemic Southeast Asia.
In East Asia, poverty rates defined by the $1.25 international poverty line fell from 57% in 1990 to 16% in 2008. For those earning less than $2 per day, it dropped from 81% to 28% over the same period.
Peace was one reason. After decades of wars and internal conflict during the Cold War, the region has been comparatively short of violence since the 1990s, an era some analysts term Southeast Asia’s “short peace.”
Another reason is the growth of low-cost manufacturing in the region’s poorest nations, such as Cambodia and Myanmar, which had fostered poverty reductions in Malaysia, Singapore and the Philippines decades earlier.
For the most part, however, poverty alleviation has been a by-product of Southeast Asia’s rising participation in global supply chains. The region attracted 11% of global foreign direct investment (FDI) in 2018.
But will these same poverty-alleviating drivers still be in place after the plague?
This short peace is unlikely to be affected by the pandemic, although threats of conflict have grown in recent years chiefly over territorial disputes between Southeast Asian states and China in the South China Sea.
Moreover, Southeast Asia’s place in global trade is almost certain to grow more vital.
The coming years will see even greater connectivity and more free-trade zones. The Regional Comprehensive Economic Partnership, a proposed free trade pact that would encompass the 10 ASEAN countries, China, Japan, South Korea, India, Australia and New Zealand, should be implemented beginning next year.
However, this past model of economic growth is also partly the reason why so many people will once again be thrown back in poverty during the Covid-19 crisis, says Zahedi.
“The singular focus on economic growth has failed to keep the region safe from the impacts of the pandemic,” he said. “The pandemic has simply exposed the many development fault lines in our region.
“High levels of inequality, vulnerability and pollution that have made the countries and people of our region vulnerable not just to the pandemic, but to any kind of disaster or shock,” the UN official said.
In some ways, Southeast Asia’s poverty reduction triumphs over the past three decades have been exaggerated by semantics. Millions can be classified as out of poverty if they earn $0.01 more than the metric that defines it.
Cambodia’s poverty rate, defined as living on less than $1.90 a day, fell from 53% in 2004 to 20.5% in 2011 and 13.5% in 2014. Yet a World Bank report warned that a loss of just $0.30 per day could cause poverty rates to double.
For many analysts, pandemic recovery efforts must adapt the past poverty-alleviation playbook, putting greater focus on social services and economic sustainability to prepare for the inevitable next crisis.
Nearly all Southeast Asian governments have already spent heavily on stimulus and rescue packages designed to avoid an economic collapse amid the pandemic and global trade slowdown.
Singapore has spent the most, with its stimulus packages worth 26.2% of GDP. Malaysia, in second place, has spent 22.1% of GDP. Thailand follows with nearly 16%.
It’s highly likely that additional tranches of state investment and assistance will need to be disbursed later this year or in 2021 to spur regional recovery once global markets begin to pick up.
Development sector specialists stress that much of this future spending should be dedicated to social welfare and poverty relief.
Between 2013 and 2018, for instance, most Southeast Asian states spent lower than the world average on education (4.8%) as a percentage of GDP, according to UNDP data.
Cambodia spent as little as 1.9% of GDP on education over the period; Myanmar allocated a similarly paltry 2.2%. Only Vietnam spent more than the global average at 5.7% of GDP.
World Bank estimates for Asia and the Pacific contend that school closures this year will lead to 0.7 less learning-adjusted years of schooling.
As a result, “the average student in the region could face a reduction of 4% in expected earnings every year of their working lives,” it stated in a report this month.
As for the question of when poverty levels will begin to fall again, some warn it might not be for many years.
Low case projections by the World Bank don’t foresee economic growth recovery to pre-pandemic levels in 2021 and there is still no certainty the worst of the health crisis is behind Asia or the wider world.