Sustainable development is key in responding to COVID-19

Author: Aekapol Chongvilaivan, ADB

Extraordinary times call for extraordinary measures. During the COVID-19 pandemic, governments should spare no effort to strengthen public health systems and shield the livelihoods of the world’s most vulnerable. But for developing countries, fiscal and borrowing headroom were already limited before the outbreak. The UN Sustainable Development Goals (SDGs) should therefore be integrated into fiscal stimulus to bring about a swift, sustainable and resilient economic recovery. This will ensure fiscal responses achieve sufficient bang for their buck.

A healthcare worker checks the temperature of residents of a slum area using an electronic thermometer during a check-up campaign for the coronavirus disease (COVID-19), in Mumbai, India, 6 July 2020. (Photo: Reuters/Francis Mascarenhas). In light of the pandemic, fiscal policy must strike two goals at the same time — flattening the COVID-19 curve and limiting the economic fallout from the pandemic. Governments around the globe have been swift in ushering in much needed stimulus through public health spending, social assistance and financial support to shield businesses and workers from the economic shocks unleashed by the pandemic. The Asian Development Bank (ADB) estimates that these policy responses could reduce economic losses experienced by developing countries in the Asia Pacific by 30–40 per cent — the equivalent of US$4.1–5.4 trillion in economic damage avoided.

While the full extent of the health and economic impacts are yet to be seen, fiscal space and borrowing headroom are not without limits and will, sooner or later, be exhausted. As the pandemic unfolds, accommodative fiscal stances will become more difficult to sustain. This race is a marathon, rather than a sprint.

The COVID-19 pandemic could undo progress made in poverty reduction in developing countries. In Southeast Asia, it is estimated that the pandemic could see the poverty rate, which was forecast to decline to 15.2 per cent in 2020 in the absence of COVID-19, rise to 18 per cent. This will propel 18 million more people into poverty. Disruptions to supply chains, restrictions on the movement of people, goods and services and the closing of non-essential businesses are estimated to slash 11.6–18.4 million jobs, or approximately 4.2–6.7 per cent of total employment in the region.

The knock-on effects for vulnerable groups such as women, children, the elderly, people with disabilities and informal workers are more pronounced due to a lack of social protection and savings. Massive job losses among migrant workers will also impact developing economies that are heavily reliant on remittances, such as Cambodia, Myanmar and the Philippines.

Almost all developing countries in the Asia Pacific pursue countercyclical fiscal policy, posting fiscal deficits of anywhere between 2–7 per cent of GDP, depending on available fiscal space and avenues through which to source deficit financing. The first step is to gear fiscal spending towards scaling up public health systems to meet the immediate need of controlling and preventing the outbreak.

Countries should then improve quarantine facilities and ensure the adequate provision of medical supplies and equipment. The next step is to safeguard the most vulnerable groups from falling back into poverty through social sector interventions including cash and in-kind transfers, reemployment programs and enhanced social protection against COVID-19. Fiscal stimulus should finally be provided to shield local businesses and workers against economic shocks through capital injections, loan restructuring, tax deferrals, deductions and credits.

But the biggest challenge facing developing countries in the Asia Pacific is how to sustain the fiscal stimulus needed to restore pre-shock growth trajectories. Governments may have to use limited domestic resources and fiscal headroom to mount an immediate response to COVID-19, drawing resources away from the medium- to long-term priorities in infrastructure, education, gender equality and climate change, all of which are related to economic growth and poverty reduction. A shortfall of public investment in these areas may permanently entrench the social and economic impacts of COVID-19 and engender a more sluggish economic recovery.

One key lesson learned is that advancing the SDGs is instrumental in strengthening a country’s resilience against the multidimensional impacts of COVID-19. With stronger health systems, fewer people living in extreme poverty, less gender inequality, a healthier natural environment and more inclusive societies, countries are less vulnerable to sweeping economic and social shocks. The pandemic presents an unprecedented opportunity for governments to comprehend the need for stronger commitments to the SDGs and the 2030 Agenda.

Governments should embrace the SDGs and the 2030 Agenda as integral parts of fiscal policy to effectively cope with future global-scale crises. SDG targeting will enable governments to focus on the quality and policy outcomes of public spending, as opposed to the financial inputs. SDG-related indicators such as disaggregated gender data, poverty targeting, climate change targeting and SDG tagging should be made available to all stakeholders and considered in budget preparation, implementation and monitoring.

Responses to the COVID-19 pandemic necessitate sustained fiscal efforts to cope with the immediate needs of health, social assistance and economic recovery without compromising the medium- to long-term investment priorities for inclusive and sustainable development. Integrating SDGs and the 2030 Agenda into public financial management offers a pandemic panacea by enabling developing countries to bounce back quickly and become more resilient to future crises.

Aekapol Chongvilaivan is a public finance economist in the Southeast Asia Department at the Asian Development Bank (ADB), Manila.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.