Emerging from the shock of the COVID-19 pandemic, the global economy has been shaken yet again, this time by geopolitical events that threaten to set back the nascent post-COVID-19 economic recovery, and pursuit of the 2030 Agenda for Sustainable Development in the Asia-Pacific region.
Beyond the macroeconomic impact, it will again be the economically vulnerable and poor people who are likely to bear the brunt of this shock in the form of higher fuel and food prices at a time when fiscal resources in developing Asia-Pacific countries are already stretched due to two years of the pandemic.
The disproportionately adverse effect of these shocks on marginalized people has exposed the deficiencies of the prevalent economic approach that prioritizes accelerating economic growth but ignores investments in people and distribution of economic gains. Despite impressive gains in reducing poverty since 1990s, with 1.2 billion fewer people now living below the $1.90 per day poverty line, the Asia-Pacific region is still home to half of the world’s poor where inequalities of opportunities and outcomes remain deep-rooted. While changes in income inequality have varied across countries in the region, they have increased for about 85 per cent of the region’s total population since 2000. Moreover, nearly half of the region’s total income goes to just the top 10 per cent, while the poorest 10 per cent receive only 0.2 per cent of that pie.
Socioeconomic disadvantages trap the poor in a vicious circle of deprivation, making them less resilient to shocks, as has been evident over the past couple of years in particular. Close to a billion informal workers and over 70 million children in poor households in the Asia-Pacific region have seen income and educational opportunities shrink drastically. This has further reduced opportunities to improve their lives, making them even more vulnerable to future shocks.
Arguably, a certain level of income inequality is inevitable and even beneficial for short-term economic growth, but its persistence at high levels can undermine the prospects for long-term economic growth. For instance, it deprives a section of the population of the opportunity to acquire the wherewithal to be economically productive – good health, quality education and work skills. Higher levels of inequality also reduce consumption, in turn reducing the multiplier effect of both fiscal and monetary policies, further depressing growth and increasing inequality. By contrast, greater equality is associated with faster medium-term economic growth, both across and within countries, greater resilience and overall prosperity.
Survey 2022 – Build Forward Better, Fairer and Together
It is clear now that the significant social and economic costs of the pandemic in the region could have been mitigated if more people-focused investments had been made, especially in health care, education and social protection. With fiscal space now dwindling in many developing countries due to the unprecedented level of public spending to help cushion the impacts of the pandemic shocks, fiscal consolidations may be expected over the medium term. These are likely to have negative long-term impacts on inequalities in the region. Therefore, an inclusive recovery from the pandemic, that puts investments in people at the center so that no one is left behind and establishes a fairer and resilient development path ahead, is a political and policy imperative for the region.
Taking forward the advocacy in the 2021 Survey for a “Building Forward Better” policy package of stepped-up social, digital and green investments, the 2022 Survey sets out a policy blueprint for the region’s inclusive recovery from the pandemic and for laying the foundations of inclusive development. Specifically, it pushes boundaries on macroeconomic policies: How can fiscal policy under stress deliver inclusive recovery? Can and should central banks put traditional monetary and financial policy tools to non-conventional use? Can a case be made for widening the scope of central banking into the area of inclusive development? Can Asia-Pacific leapfrog into the age of technological innovation-driven economic paradigm without marginalizing the socio-economically disadvantaged?
These issues will be discussed at the launch of the 2022 Survey on 12 April.
It is time that economic policymaking turned its focus to its impact on the individual rather than aggregate effects. In the words of Nobel Economics Laureate Angus Deaton: “it is impossible to think coherently about national well-being while ignoring inequality and poverty, neither of which is visible in aggregate data.”