Policy support needed post-pandemic, says ADB

MANILA, Philippines — Continued policy support combined with active policies on employment will continue to be needed in Asia’s economies even after outbreaks have been brought under control and containment measures have been relaxed, according to the Asian Development Bank (ADB).

In an entry on the Asian Development BlogCOVID-19: How quickly can Asia bounce back?,” economists Matteo Lanzafame, Arief Ramayandi and Irfan Qureshi said a combination of such policies would be needed in the second phase of the crisis to reduce its long-term damage to economies and to aid in recovery.

Policy support in Asian economies focused largely on income support and provision of liquidity to businesses. These included income transfers, credit guarantees and interest rate cuts.

“This was necessary and appropriate in the first phase of the crisis, when most economies imposed stringent containment regulations and the priority was to cushion COVID-19’s blow on households’ and businesses’ finances,” said the authors.

“Even after outbreaks are brought under control and containment measures start being relaxed, policy support will still be necessary for some time – but it will not be sufficient. Active policies will be needed in the second phase of the crisis, to reduce its long-term damage and to aid the recovery.”

Active policies particularly those for the labor market will be crucial for the reintegration of displaced workers and new entrants into the workforce.

These can be in the form of training programs, assistance in the job search process, and incentives for independent workers or micro-entrepreneurs will be needed to match workers to new jobs.

Such policies should also be able to address the depreciation of human capital as some workers lose skill because of persistent high unemployment.

ADB economists noted that to bolster job creation and growth, liquidity provision to businesses will need to be selective and aimed at favoring innovative companies and viable production activities, to help the economy shed “zombie” firms.

“The COVID-19 pandemic poses significant challenges to policymakers in Asia. While the shape of recovery may be uncertain, what is clear is that pro-active government and central bank policy can help shape the recovery,” said the authors.

The pandemic has caused major contractions in economic activity throughout Asia and the Pacific with many workers displaced in hard-hit industries and small businesses still in a slump half a year into the crisis.