Insights and Analysis

Back-to-Back Spikes of Covid Wrack India, Nepal

April 28, 2021

By Sagar Prasai

A January report from the World Bank estimated that up to 124 million people around the world will be pushed below the poverty line—income of less than $1.90 per day—because of the pandemic, 60 percent of them in South Asia. That was three months ago, when new infections were hitting their lowest marks in months and growth in South Asia looked ready to bounce back.

Today there is a raging second wave sweeping across the region, with one out of every three new cases globally coming out of just one country, India. Lockdowns, flight restrictions, and school closures are back in South Asia, and with them all hopes of an early recovery have been dashed. At this point, none of the major South Asian economies is expected to get back on track before the third quarter of 2021. It now appears that for a second year in a row growth will be weak, revenues will be lower, consumption will remain depressed, and unemployment will rise. As key components of the broader economy contract, household poverty is expected to increase further.

To get a sense of where things stand, The Asia Foundation in Nepal recently completed a rapid assessment of the state of employment in Nepal. The study is based on data collected from two twin-city corridors, Itahari–Biratnagar in eastern Nepal and Tuslipur–Ghorahi in western Nepal. The cities selected for the study are middle-order cities, with populations of 100,000 to 200,000. Analytically, middle-order cities have economies diverse enough to provide a picture of the pandemic’s impact on multiple sectors of the economy. Because their economic linkages to both rural market towns and higher-order cities are more developed than those of smaller towns, the state of the economy in middle-order towns also tends to reflect the economic performance of the surrounding region. These factors make middle-order cities representationally ideal, and they are operationally much more manageable for researchers than larger cities.

The data comes from a time roughly six weeks after the lifting of first-wave lockdowns in Nepal, and it offers a useful picture of the early post-pandemic recovery process in urban areas. We know that urban areas have suffered the most during the pandemic: rates of infection have been higher there than in rural areas, and lockdowns there were more strictly enforced. Employment opportunities are concentrated in urban areas and, consequently, job losses there have been greater. In addition, most nonagricultural jobs in rural areas are linked to urban businesses through supply chains, investments, and services, and unemployment spreads from urban to rural areas rather than the other way around. The locus of recovery, therefore, must also be urban rather than rural.

Lockdowns, flight restrictions, and school closures are back in South Asia, and with them all hopes of an early recovery have been dashed.

The new Asia Foundation study offers some observations that may be useful to recovery planning once the second wave of infections subsides. First, perhaps because of pent-up demand in the economy, or even a desperate entrepreneurial spirit, there was a surge in economic transactions immediately after the lockdowns. This spurt of activity appears to have restored business confidence as soon as the restrictions were lifted. A July 2020 survey conducted during lockdown by the Nepal Rashtra Bank, the reserve bank of Nepal, found that just 16.6 percent of businesses expected to survive six more months if the situation remained unchanged. In our survey, just six weeks after lockdowns were lifted, 53.3 percent of businesses were confident they would survive another six months if the situation remained unchanged. In a depressed economy, the fighting spirit of individual entrepreneurs is perhaps the best hope. With a second wave of infections surging, though, spirits appear broken, and South Asian economies may have lost this durable source of hope.

Second, six weeks after the reopening of the economy, hiring was still lagging. Even as business confidence was growing, about 37 percent of workers were still furloughed or were not getting full pay. This gives us some sense of the time it will take for rehiring to begin in earnest. Furloughed workers may have to wait three to four months after normalcy returns before they find a new foothold in the economy. This will perhaps be the factor most responsible for deepening poverty in South Asia, as the gap between the end of the first wave and the start of the second wave was scarcely one quarter. Workers dislodged by the first wave were barely returning to the workforce when the second wave hit, and the consequences of these back-to-back shocks promise to be significant.

Third, lifting restrictions by itself has helped only about half of businesses (47 percent). For the other half, the restrictions distorted market conditions, internal finances, production-readiness, demand, and inventories in a manner that is difficult to spring back from. Here, the government’s role in the early stages of recovery becomes crucial; without some direct assistance to businesses or demand-augmenting measures such as cash transfers to the most affected households, it will be difficult to stimulate a rapid recovery. South Asian governments across the board have hesitated to commit to either of these strategies for fear of incurring large debts. Now that a second wave has hit and businesses have sunk deeper into the mess, South Asian governments seem likely to abandon their fiscal discipline and begin racking up long-term debt like governments elsewhere.

Fourth, governments in the region desperately need live monitoring of the economy to devise smart policy responses. In the course of our study, we found that useful policy data is not readily available in Nepal. The Central Bureau of Statistics produces the occasional National Labor Force Survey, but the last one was in 2018. Without quarterly or semiannual surveys, employment data is difficult to track. This is notoriously the case in Nepal, where one International Labour Organization report found that 80.8 percent of all employment generated in Nepal is informal. Moreover, without a disaggregated picture of which sectors, what businesses, which socioeconomic strata, and which households need the most assistance, it will be difficult to devise relief packages that work and that don’t cost the earth. Unfortunately, it is not policy ideas that governments in South Asia lack, it is data.

The back-to-back spikes of Covid infections have left South Asia in a mood of defeated despair.

Politically, the back-to-back spikes of Covid infections have left South Asia in a mood of defeated despair. This region registered the world’s highest rates of economic growth for three years in a row prior to the pandemic. Poverty rates were declining, and a growing middle class was attracting notice from global corporations as the next big market after China. Human development indicators were improving across the board, and dependence on development assistance was on the decline. All of that now appears undone, and it will be another two to three years before the region regains its footing and resumes its slow but hopeful path out of poverty.

Read The Asia Foundation’s new report, Impact of Covid-19 on Employment in Middle-Order Cities of Nepal.

Sagar Prasai is a senior advisor to The Asia Foundation and formerly the Foundation’s country representative in India and deputy country representative in Nepal. He can be reached at [email protected]. The views and opinions expressed here are those of the author, not those of The Asia Foundation.

Related locations: Nepal
Related programs: Good Governance

1 Comment

  1. We were partners of The Asia Foundation helping the earthquake affected communities in April 2015, and got funding for helping the communities recover from the earthquake loss. We need more funding for Covid-19 pandemic and helping the communities to recover from it and beyond to live an acceptable lives.

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