Headwinds against economic recovery

The COVID-19 pandemic continues on its second year with a vengeance, and with a more virulent version the Delta variant. With the onset of mass vaccination against it, however, the road toward economic recovery is returning in many countries.

In our country’s case, there are difficulties that stand in the way of a strong recovery.

Headwinds against economic recovery. The factors that work against a quick economic recovery in our situation include the following: (1) Virulence of the dominant virus – the Delta variant – itself. (2) Lockdown response and low vaccination. (3) Administrative capacity constraints in the public health and other sectors. (4) The forthcoming presidential election. (5) External developments that can affect our efforts. And, (6) the high population density in our midst.

(1) COVID-19 and its mutations. The virus was not conquered totally when it spread during the first year of the pandemic. It mutated into different forms, to survive, adjusting to the characteristics of its hosts.

The UK variant, for a while, spread across Europe and elsewhere. In India the virus mutated into a more virulent form that eventually dominated the process of infections across the world. This virus – the Delta variant –must have had strong features that enabled it to swamp the other COVID-19 viruses to become the dominant strain over them.

As long as active cases are spreading across countries, there is the danger that the virus will mutate into other virulent forms. Judging from the continued rise in cases in the country, we are still seeing an epidemic not yet in full control.

(2) The lockdown response and low vaccination. Last year, the government lockdowns to reduce infections and create quarantines of the infected caused the economy to spin downwards.

The severity of lockdowns depends on the nature of the measures taken, whether they are widely applied or are localized to communities where the cases are observed to occur.

Every new lockdown has a cost on the economy. Those too widely taken over larger communities and regions have their highest costs in economic terms.

Over time, the learning from experience has taught us that lockdowns could have the effect of being too severe as to close vital economic activities taking place. Also, localized lockdowns (or the granular approach) appear more effective when they succeed to quarantine the infected while permitting more productive activities to take place.

Low vaccination rate, explained later below, is another factor.

(3) Limitations in public capacity. The war against the virus is a total national effort involving all the nation’s institutional and administrative capacities.

We were not well-prepared. The national health agencies and their responses deserved the criticisms they received, especially in the beginning.

Actions such as contact tracing capacity, the implementation of measures of proper social distancing, the availability and proper application of testing facilities and, very important – the access to the right amount of vaccine supply, are delivered by other institutions and agencies in the government, and in the private sector. In a sense, it is a shared responsibility.

For instance, the vaccine supply we get is not sufficient and can only be made available over time. We were late in securing the vaccine supplies. We began to act when all the other countries were already craving for the same.

The bright side to this sorry story is that the price of vaccines will eventually fall as the vaccination needs of the countries with a corner on vaccine supply are met. This can happen only some months still away, by which time some of the vaccines we have ordered and those allocated to us from COVAX, the WHO-run facility, will have also arrived.

The price of being late means that there will be more cases and more deaths from these cases. How badly this would be is, of course, still yet to be known.

(4) The presidential elections in 2022. This will happen by the third year of the pandemic. But the political campaign for the presidency has already begun and will run for present duration until election time. The presidential election will become a distraction to the pandemic war.

The election period can also lead to inaction on economic reforms which will be tragic for the economic recovery. For instance, three major legislation related to the encouragement of foreign direct investments are still held up in the Senate for passage.

Most politicians are hiding from speaking on their views on the amendments to the restrictive economic provisions in the constitution when they know it in their heart that that measure could help speed up the economic recovery.

There is also a six-month period when the government’s drive to continue the building of public infrastructure could be postponed because of the election ban during elections.

(4) External developments that could affect the domestic recovery program. Many developments, good and bad, that might affect the world economy are likely to affect what we do.

One example is sufficient to make the point. The US economy, of late, is in the midst of economic recovery and along with it, there is being felt inflationary experience.

To combat inflation, the US Fed could raise interest rates. This triggers the rise of world interest rates. Of course, interest rates have been near zero for some years now.

Even then, higher interest rates would certainly move our own central bank to raise domestic rates above US rates. This is a defensive move, otherwise we would suffer a run on our dollar assets that keeps the economy afloat.

This also leads to higher investment costs essential to the recovery. Also, the position of highly indebted enterprises are put in potential jeopardy.

(6) High population density in our midst. We are a country that has had an explosive population growth compared to our neighbors over the last five decades. As a result, the density of population in our cities make for crowded living conditions, a condition that breeds incessant high potential for infection.

This is a large topic that needs a separate discussion!

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