More Governance than Government

Background

The South Asian countries studied in this report—Bangladesh, India, Pakistan, and Sri Lanka— achieved a robust economic growth over the past two decades. Bangladesh and India achieved annual growth exceeding 7 % while Pakistan and Sri Lanka averaged around 5 % during the same period.

In addition to the GDP per capita 2018 data presented in the chart, more recent statistics on income is discussed. Sustained economic growth has been accompanied by an increase in per capita income. Bangladesh’s current GDP per capita is $2,068 (nominal, 2020 est.) and $5,453 when adjusted for cost of living (Purchasing Power Parity, (PPP)) – Figure 1. India's GDP per capita reached $2,144 in March 2020 ($7,200 PPP). GDP per capita in Pakistan was $1,357 in 2019, with PPP approximating $5,900. Sri Lanka’s GDP per capita was expected to reach $12,303 by the end of 2020, and around $14,000 in PPP, (International Monetary Fund, and World Economic Outlook).

Over the last two decades, more than 33 million Bangladeshi people have been lifted out of poverty (The World Bank, https://www.worldbank.org/en/region/sar/overview). The population living below the national poverty line dropped to 21.8 % in 2018 from 24.3 % in 2016. India has halved its poverty rate over the past three decades (Desmond Boylan, 16 October 2019, The World Bank).

In 2012, around 270 million people, or 13.4 % of India's population lived in poverty (defined as $1.90 or Rupee 123.5 income per day), an improvement from 29.8 % of India's population in 2009. According to the World Bank, poverty in Pakistan fell from 64.3 % in 2002 to 29.5 % in 2014. Sri Lanka has among the lowest extreme poverty rates in South Asia, as only 4 % live below the poverty line, and less than 1.6 % of the population are extremely poor. Although poverty levels have declined at a steady rate, large population base of India, Pakistan, and Bangladesh implies the absolute number of families that live below the poverty line is still high. Figure 2 presents absolute number of people living below the respective country’s defined poverty lines. 

COVID-19 has put a huge dent in the progress, its medium-term forecast is gloomy. It is argued that the economic gains, particularly the achievements in fighting poverty may be reversed significantly with the poor getting poorer. At its worst, thousands, if not millions, will die due to starvation in this region.

In this distressing circumstance, economic, sociological and psychological burdens are disproportionately higher for the poor, less educated and disadvantaged groups of the society. Unemployment and underemployment will become more pervasive. The large informal sector, which primarily employs the unskilled or semi-skilled, will be more vulnerable to the economic downturn. It will be due to the drop in demand for products or services as well as lack of contractual obligations of the employer thereby allowing retrenchment with little or no compensation.

Two major export earnings for Bangladesh, Pakistan and Sri Lanka are textiles and remittance from migrant workers. Earnings from these two sources have begun to drop, and the trend is likely to continue for a certain period. Uncertainties loom over the future employment status of many of the migrant workers from South Asia in the Middle East or Malaysia. Similar is the scenario of textile workers if the global demand for readymade garments remain sluggish for a given period. The decline in economic activities accompanied by a fall in job opportunities can lead to social unrest including breakdown of the law and order situation.

Developed as well as developing countries, including those in South Asia, have embarked on an aggressive expansionary monetary and fiscal policies including high levels of subsidies and tax reliefs to prevent their economies from going into a free fall. Financing of these efforts will be increasingly difficult as revenue generation measures from taxation could be compromised due to the expected dramatic decline in the growth of the economies.

In this challenging environment, economic and financial management of resources will be of considerable importance. Prudent government interventions in terms of resource allocation, application of regulatory mechanism, institutional strengthening and accountability will be required.  Effective implementation of their intervention strategies and activities will be essential both for an economic rebound and for the subsistence of the impoverished. 

Proposed Interventions

To address the issue of supporting the poor during and after the coronavirus pandemic, the following question is to be addressed: What effective interventions need to be taken in the backdrop of the economic, political and governance challenges that South Asian countries are saddled with?

Promote South Asian Regional Trade

Although South Asia is one of the fastest growing region in the world, intra-regional trade has lagged the region’s deepening engagement in global trade. A major cause of the poor volume of trade is due to geopolitics and legacy of mistrust. Non-tariff barriers like quotas, subsidies and custom delays arguably are the biggest bottlenecks to greater trade and commerce amongst the South Asian Association for Regional Cooperation (SAARC) countries. South Asian total trade is about 2.7 % of the world's total trade, and intra-regional trade contributes only 5 % of South Asia's total trade compared to 25 % in Association of Southeast Asian Nations (ASEAN) (The Asia Foundation, https://asiafoundation.org/resources/pdfs/IndiaRegionalTrade.pdf).

Along with the uncertainties of the coronavirus pandemic, higher freight costs, lower global demand, and stricter restrictions or regulations will prevail. Instead of relying on sources outside the region, by removing trade barriers amongst the neighbors, South Asian economies can benefit from enhanced trade and commerce amongst themselves by removing regional trade barriers.

Open Trade Favors Consumers over Costly Local Producers

As with most countries, South Asian government regulations and policies generally favor producers over consumers. Since the COVID-19 crisis erupted, there is an increasing cry for buying ‘local’ products over foreign goods and services. Should any of the South Asian countries regress to a more protectionist trade regime, it will hurt consumers with higher prices for products or services that were imported earlier. Also, restrictions on import of raw materials and other intermediate goods used by local manufacturers will lead to higher costs of production, and thus ultimately to a higher price of the final product. For example, in Bangladesh, in the poultry sector, a huge quantity of maize is imported along with medicine from neighboring India and several other countries. Higher prices or restrictions imposed on the supply of these inputs will lead to a higher cost of producing chickens. Consequently, poultry will become more expensive for Bangladeshi households. Imposing higher prices on consumers that already face collapsing incomes is unjustifiable both on economic and ethical grounds.

Assess and Reform Public Expenditure Planning

The often-cited causes of poverty include food insecurity, lack of access to health care, unemployment, absence of social services, physical disabilities, and gender discrimination. With the extra burden on government financing due to the pandemic, a closer look at budgetary allocation and spending pattern is warranted. As an example, public expenditure in the health sector is quite low as compared to the recommended international norms.

Many international public health experts recommend that countries should spend at least 5 % of Gross Domestic Product (GDP) on health to achieve desirable health outcomes. None of the four South Asian countries meet the recommended minimum. In 2017, Sri Lanka spent a higher proportion of their GDP on health (3.8 %) than others like Bangladesh (2.3 %) and Pakistan (2.9 %) – Figure 3.

Further budget cuts in the health sector by these countries would be disastrous. Rather an increased budget in the health sector is recommended. During an economic downturn, the poor people are more susceptible to illnesses and diseases. It is mostly due to their inability to purchase food and enough nutritional intake coupled with lack of access to Water Sanitation and Hygiene (WASH) services.

At macro level, public sector allocation for health, poverty alleviation and disaster management deserve more funds. Concurrently, military spending and capital-intensive infrastructure outlays may be reduced for a time. At micro level, each ministry and government departments should be required to prioritize programs and activities that need to continue and reduce involvement that are deemed less essential until the economic and health crisis have diminished considerably. All countries have far too many ministries. This might be a good time to abolish a few.

Avoid Discriminatory Government Support to Selected Sectors

Massive levels of monetary and fiscal support to businesses have been pledged by governments across the globe including the South Asian countries. Such support may be argued to be essential for businesses due to the external shock of the coronavirus. Nevertheless, such interventions are huge financial burdens on the public exchequer and can/will have adverse effects on future generations due to excessive government borrowing. Also, the need for higher spending adds pressure to generate more revenue from the private sector through higher taxes. In short, governments do not have unlimited funds, and cannot afford to support businesses indefinitely.

Governments will have to prioritize allocating funds across business, social, health and other sectors. With limited funds, there will be an inclination to discriminate across types of businesses that need help. Typically, business associations and special interest groups lobby for more assistance, arguing, and often inflating, the importance of their respective contributions to the economy. An equitable and modest level of support across different categories of businesses is proposed. The state should not try to pick winners. The disbursement of aid to companies needs to be transparent and with proper supervision to avoid the ever-present danger of favoritism to political supporters.

Good Governance and Accountability

The global ranking of all South Asian countries on indices of good governance, corruption and ease of doing business is in the lowest quintile (80 % to 100 %). The Corruption Perceptions Index (CPI) is an index published annually by Transparency International. It ranks 180 countries and territories by their perceived levels of public sector corruption, according to experts and business individuals and entities. In 2019, Bangladesh fared the worst amongst the four South Asian Countries. It is ranked 146, followed by Pakistan (120), Sri Lanka (93) and India (80) – Figure 4.

Programs therefore aimed at economic recovery, government support interventions targeting the poor or any other assistance are seriously compromised if the bureaucracy is saddled with corruption and lack of transparency and accountability. Supports aimed at the needy are siphoned off to special interest groups with local hoodlums under the protection of resident politicians playing an active role – such phenomena are not uncommon in South Asia. Bringing reforms to the prevailing poor governance scenario is of great importance to make government support programs for the poor effective and equitable and societies more resilient in the face of future crises. Each of the four countries should strive to reduce corruption and reduce bureaucratic red tape during this ongoing crisis. An old saying of reformers is: Never let a crisis go to waste!

Whilst improvement in governance is a long-term challenge, in the interim of the COVID-19 crisis, short interventions are worth exploring. The four South Asian countries discussed all have a Right to Information (RTI) Act. A more aggressive and transparent use of the RTI can be used to track public sector assistance flow aimed at the poor.

Use Digital Technology to Support the Poor

All South Asian countries have embraced digitalization enthusiastically. National level electronic databases of its citizens were created by the governments to produce individual national identification cards and/or voter registration information. The digitization revolution however is constrained due to its limited availability, access and utilization by the poor and the disadvantaged. Low literacy, weak connectivity grids, and cultural restrictions—in Pakistan many women are not allowed to have a telephone by their families—inhibit access to the technology. Notwithstanding the limited access to technology, for example, most of South Asian do not have a smart phone—innovative and country-specific approaches should be undertaken by using the database and the government can disburse cash subsidies directly to the target groups.

For example, individuals having bank accounts may have their due support directly remitted. In Bangladesh, mobile financial service providers such as Bkash and NAGAD have become hugely popular. Users of Bkash or NAGAD can deposit money into their mobile accounts and then access a range of services including transferring and receiving money domestically. Companies like PayTM and MobiQuick in India; Easy Paisa and Mobi Cash in Pakistan; and Dialog and Mobitel in Sri Lanka are providing similar services. s. Through public-private partnerships a targeted programme of support to the poor including those living in remote areas can be accomplished through application of such digital technology.

Government Alone Cannot Take Care of the Poor

Aiding the poor through government programs is not enough. Involvement of NGOs and the private sector too are needed. In South Asia, NGOs are active at the grassroot level helping the poor through their programs on microcredit, Income Generating Activities (IGA), health and nutrition, education programs, and other areas. NGOs must take a closer look at their ongoing activities and consider shifting resources to address the impact of COVID-19 on their clients as well as on others in the community. Local community leaders and the civil society can take a more active role in mobilizing resources for the poor. Also, they can serve as a watchdog to public fund disbursement targeted for the poor.

Private trusts, corporate houses and successful businessmen need to make financial contributions either individually, through NGOs, or the government to help the poor and the needy. The governments should involve NGOs and the private sector in providing support to the poor, for example, by matching donations raised by them. Restrictions on foreign aid to NGOs should also be temporarily lifted, at least for NGOs with a track record of at least five years of work.

Relax Restrictions on Press Freedom

In general, the absence of press freedom hurts the welfare of common citizens. The Press Freedom Index is an annual ranking of countries compiled and published by Reporters Without Borders based on the organization’s own assessment of the countries' press freedom records in the previous year. The 2020 World Press Freedom Index (https://rsf.org/en/ranking) ranked 180 countries with Norway ranking the best and North Korea the worst (180). Amongst the South Asian countries, Sri Lanka has relatively more freedom of press (127) while Bangladesh is deemed to have a lower ranking (151) than its South Asian neighbors. All four countries are categorized as having a ‘difficult situation’, while countries with the least free freedom—North Korea, China, Libya, Iran—are viewed as in ‘profoundly serious situation’ by the report.

Under the prevailing environment of an active and expansionary government intervention to assist targeted beneficiaries, press as well as social media can play a constructive role. The successes and failures of government programs, and lessons learned can be regularly monitored and objectively reported. However, misinformation and fake news, have become a major challenge for governments, leading to stricter reporting censorship. Paradoxically, restrictions on professional media companies tend to fuel disinformation and rumormongering and lack of trust in official information. Promotion of responsible digital citizenship accompanied by adherence to the rule of law is needed to present credible data and information. Concurrently, government regulations and laws need amendments to allow greater space for information sharing, views and analysis.