After the First Wave: Southeast Asia and Rise of the ‘New COVID Poor’

Against this backdrop, new and more pervasive “shocks” are arising from multiple factors which collectively threaten to further derail the region and particularly, some of Asia’s so-called “COVID-19 stars.” Among these factors is the rise of what the World Bank’s chief Asia economist called the “new COVID poor,” the middle managers, small entrepreneurs and white-collar professionals who are well above the poverty line but now find themselves struggling – and in many Asian countries, ineligible for most forms of social protection and emergency relief.[1]

More disturbing are signs of social and political unrest, seen in the wave of protests in Thailand, Indonesia and the Philippines, among other countries. Not all are directly related to the pandemic, and few involve mass-street action such as seen in Thailand. But beneath new signs of public dissatisfaction is a growing sense of insecurity, which is deepening as economic hardships bite harder.[2] 

Underpinning that are vast numbers of people across the Asia-Pacific region who fell back below the poverty line in 2020 – and millions more who would otherwise have escaped poverty. Estimates vary but range from the World Bank’s warning in September 2020 that 38 million people in the Asian region could fall below the poverty line of $1.90 per day within the year – bringing the total number to 517 million people below the poverty line, an increase of nearly 8% from 2019 and a reversal of the steady improvement in recent decades. In many parts of Asia, particularly within emerging ASEAN, the impact of lockdowns in 2020 have effectively wiped out the gains of the last two decades, since the Asian Financial Crisis of 1997.

The World Bank’s poverty projections covered 33 million people in Asia who would have escaped poverty in 2020 had it not been for COVID-19, and another 5 million who fell back below the line. But with second-wave outbreaks and weaker-than-expected economic recovery, many independent economists believe this estimate could reach nearly double the number during 2021. Adding to the misery is a less visible but rapidly growing class of "new COVID poor" who have not been captured by these statistics. They are, according to Aaditya Mattoo, the World Bank’s chief economist for East Asia and the Pacific, “people who were not classified as ‘poor’ now jumping to 'poor’.” They are people who might have to sell second cars, or move children from private schools to state schools, sell second homes and close small businesses. They also include the lower middle classes, people in informal jobs in sectors like tourism, people outside the “usual poverty registry."

Compounding these trends are far wider job losses than earlier predicted – and the equally disturbing phenomenon of underemployment, which has seen incomes slashed across the region. On a global scale, the International Labour Organization reported in December 2020 the economic backlash of the COVID-19 pandemic wiped out some 81 million jobs in 2020. In nearly all economies with available quarterly data for 2020, employment levels contracted compared to 2019.[3]

The picture is particularly bleak in Asia, where job creation has collapsed and underemployment is surging as millions of workers are asked to work reduced hours or no hours at all. Overall, working hours in Asia and the Pacific decreased by an estimated 15.2% in the second quarter and by 10.7% in the third quarter of 2020, relative to pre-crisis levels, according to the ILO.[4]  Work hours are a more accurate measure in many countries, where even an hour or two of work in a month classifies a person as “employed.”

Labor income meanwhile is estimated to have declined by as much as 9.9% in the Asia-Pacific region in the first three quarters of 2020, equivalent to a 3.4% loss in gross domestic product. The estimated loss is highest in South Asia, at 17.6%, followed by Southeast Asia and the Pacific, with a 9.5% decline and East Asia, at 7.2%.

Again, independent economists warn that overall figures are likely much higher, given the difficulties of tracking the informal economy, where many workers are not registered and remain outside any system. In many cases, jobs such as sex work, deliveries and day labor simply fall between the cracks of official statistics.

The relatively large role of the informal economy in Asia – with as much as two-thirds of all workers throughout Southeast Asia employed in such jobs, makes the region particularly vulnerable to the economic fallout from lockdowns, plunging external demand for exports and curbs on tourism and leisure activities.  

The starkest illustration of how such factors converge is Thailand, a “COVID-19 winner” that is now emerging as among Asia’s biggest economic losers.[5] The country was widely praised for its prompt and effective action – featuring one of the harshest lockdowns in the ASEAN region -- which helped maintain record low levels of COVID-19 throughout most of 2020. But such action came at a high price: Thailand sacrificed its lucrative tourism economy – which drew 40 million international visitors in 2019 – to implement lockdown and basically sealed its borders to tourism throughout the year. Just as Thailand was moving to reopen its borders, a second wave hit the country in early December.

Once seen as a conducive environment for foreign investment, tourism and agricultural exports, key features of Thailand’s economy have made it a “perfect victim” of pandemic fallout, particularly its mix of dependence on tourism – some estimate at nearly 20% of GDP – manufacturing and agriculture.

Added to that, the country has an inordinately high proportion of migrant workers, mainly from Myanmar, Cambodia and Malaysia, as well as China. Some economists suggest the proportion of migrant workers is nearly double the official figures of 3 million or so, which would suggest they account for nearly 15% of the workforce of about 38 million.

Thailand also has one of the highest levels of household debt in Asia at nearly 84% of GDP (or Baht 13.6 trillion) in the 2020 second quarter -- by official measures. Informal household debt, due to the vast “black economy” including private “loan shark” lenders, is thought to be far higher.

More worrying, according to economist Dr Kirida Bhaopichitr, Thailand’s household debt is expected to rise further by the end of 2020 amid the continuing slide in household incomes – posing a big constraint on future consumption.[6]

Another striking illustration of the pervasive effects of pandemic-related measures in Thailand came in research by The Asia Foundation and partner organizations. In wide-ranging surveys conducted throughout the country in 2020, researchers highlighted how the economic impact of COVID-19 extended far beyond the tourism sector to small and medium enterprises and industry in the provinces as well as major cities. [7]

A survey of more than 3,000 people in mid-2020 found that small manufacturers were struggling to stay afloat, even though most were unconnected to tourism. As of June 2020, 70% of small and micro manufacturing businesses were making  half, or even less,  of their pre-pandemic earnings.  Only 68% of the businesses  interviewed were operating normally, despite the full relaxation of  lockdown measures.  Businesses surveyed in Buriram and Nakhorn Ratchasima provinces in the northeast said that customer demand was not recovering, especially for nonessential products.

In findings that by December 2020 proved prescient, the report found that the dramatic decline in individual incomes afflicting 70% of the Thai workforce also pointed to a broad-based contraction in demand affecting all sectors of the economy into 2021.

The researchers warned in September 2020 that a second extended lockdown – which was fast approaching by late December -- would be “catastrophic.” Many business owners, still struggling to recover from  the  first  lockdown, said they would  be  not  able  to  survive  a  second  pandemic-induced lockdown of similar length. For this reason, businesses were generally supportive of the government’s public health response and the closure of international borders but were anxiously watching  responses of other regional countries, including Vietnam, which have experienced second-wave outbreaks, despite early success in containing the virus.

Interestingly, in its most recent survey, in November 2020, the Asia Foundation found that 52% of respondents felt they would be unable to survive for more than a year in their current situation. The figure was lower than August, (56%) but showed that more than half of ordinary Thais had insufficient resources to support themselves over the next year.[8]

Thailand was widely praised for its relatively large and rapid emergency response, which entailed monthly payments of 5,000 baht for three months to more than 14  million of the most vulnerable people, and a more modest extension program of another three months – one of the most generous programs in emerging Asia.

But the precarious situation for small and medium enterprises in Thailand suggested urgent need for SME credit in response to lockdown measures and the collapse of tourism. Yet, as the government and independent economists noted, Thai banks had abundant liquidity throughout 2020, boosted by generous funding from the Bank of Thailand.[9] Even so, many banks remained reluctant to lend – particularly to those deemed as a credit risk – due to fears of ending up with masses of non-performing loans. More significant, many small and micro businesses which urgently needed injections of short-term capital to help them through the crisis did not apply for loans, even at discounted interest rates and with extended repayment terms.

According to Asia Foundation research, more than 80% of small business respondents to surveys in 2020 indicated they were not applying for loans due to lack of confidence in the future of their business and fear of incurring greater personal debt amid economic uncertainty. Yet, when  asked  about  key  gaps  that  the  government  should  address,  nearly  80%  of  MSMEs  said  they needed more access to credit.   

For Thailand as it moved into 2021, warnings of the harsh impact of a second lockdown prompted dire economic forecasts of the high costs of a second outbreak. [10]

Lessons from pandemic responses

From a region-wide perspective, countries of Southeast Asia saw widely mixed rates of COVID-19 infection, although mortality rates were way below the levels seen in Europe and America. And nearly all  countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, ) suffered disruptions due to lockdowns and social distancing measures as well as drastic slowdowns in exports and a near-paralysis of travel and tourism.

In some of these countries, factors beyond the pandemic -- including, in Thailand, drought and growing public opposition to emergency rule, and, in Cambodia, the imposition of EU sanctions over human rights issues -- contributed to the malaise.

Throughout the region, pandemic-related fallout exposed yawning holes in social safety nets, healthcare systems, fiscal management, and state capacities to respond. It also highlighted the region’s inherent vulnerability – more than governments foresaw – to external economic factors including disruptions in raw material supply, international trade, transport, and tourism.

Heartened by prospects of a vaccine within the first half of 2021, most regional countries from late 2020 were struggling to reopen their economies and jumpstart business activity. But signs of second and even third-wave pandemics underscored the fragility of the situation, highlighted by fresh outbreaks in Myanmar and Thailand towards the end of 2020.[11]

On the surface, life in some of the Southeast Asia’s urban centers has acquired a semblance of normalcy -- minus the familiar crowds of tourists that mark the region’s more popular destinations. However, the fragile nature of the reopening and the lag effect of lockdown measures have underscored growing hardship for the most vulnerable communities, particularly the large proportion of informal workers. Within Asia, the Mekong region (Cambodia, Laos, Myanmar, Thailand and Vietnam) has a disproportionately high dependence on these hard-hit sectors, and hosts relatively large communities of vulnerable people including informal workers and rural poor.[12] 

What can Southeast Asia learn from nearly a year of responses to COVID-19? A key question, not yet answered, is how to find the elusive balance between public health concerns and economic curbs, and achieve the right balance between stringent safety measures and open borders. On the fiscal management front the challenge is finding the balance between taking on additional debt to fund economic stimulus and social relief measures, and being able to service those heightened debt loads. 

An even thornier question concerns the link between pandemic-induced hardships and political unrest. Highlighting the urgency of the situation, the IMF warned in unusually strong terms in April that the resulting economic shock from the pandemic fallout could deepen existing inequalities and, in some countries, “fuel already smoldering political tensions” -- particularly if policy actions to mitigate the COVID-19 crisis were “perceived as insufficient or as unfairly favoring large companies rather than people, or when those policies are withdrawn.” Such unrest, it warned, could exhaust reform momentum in other areas such as pension or energy subsidies and place public finances at risk.[13]

On a more practical level, a few examples of official missteps include moves by Thailand in late 2020 to empower provincial governments in efforts to contain the second-wave COVID-19 outbreak evoke missteps by Spain, among other countries, to empower the country’s regional governments. In both cases, the resulting array of differing rules and contrasting degrees of lockdown between different provinces or regions diluted central control and increased confusion.

In Singapore, the government’s move to confine its large population of migrant workers to cramped quarters fueled the state’s second wave of COVID-19 infections.[14] Yet, Thailand’s immediate response to an outbreak of the virus in a provincial fish market in December, by confining about 2,000 mainly Burmese migrant workers to their cramped quarters, echoed Singapore’s move. More disturbing, the episode fueled a backlash against migrant workers, despite their large role in the labor markets of both economies and fueled criticism of a “subconscious blaming of migrant workers” for the pandemic.[15]  

In Indonesia, the government’s effort to reform labor and environmental rules to encourage more foreign investment by watering down some standards such as worker protection safeguards triggered fierce protests among workers and civil society in the second half of 2020. [16]

Despite the focus on local action, regional responses will prove to be the key to recovery as countries attempt to reopen their borders to the movement of people and reinvigorate global supply chains, according to authors of a new report on potential ASEAN responses.[17]

Through ASEAN, member states have a valuable platform to work together, drawing on the region’s collective resources and contributions from dialogue partners, “to shape a new normal by investing in people,” the report found.[18]

Noting the lack of adequate social protection and income support measures during the pandemic, the authors noted that COVID-19 has galvanized collective action and community support across countries and regions. To capitalize on that momentum for change, ASEAN member states have an opportunity to address outdated labor laws to be more forward-looking and inclusive, they said. In the post-pandemic world, increasing investment in social-protection systems can contribute to economic growth. Shock-responsive, adaptive social protection systems should be an essential element of social policy, to ensure much greater resilience to future crises. Better income support measures can not only reduce the depth of a recession but also the risk of escalating social tensions

Given the scale of intra-regional labor migration among some ASEAN economies, migration policies should do more to protect migrant workers, both those who remain in the destination countries and those who return home. Promoting the economic inclusion of the poor and vulnerable, including informal and migrant workers, will be critical for income generation and livelihood recovery. Institutionally, this will require greater coordination across social welfare, labor, health, and immigration ministries.

Beyond the member states themselves, regional recovery requires a “collective regional effort,” the report noted. “Cross-sectoral and cross-border measures are needed to accelerate the recovery of ASEAN tourism, for instance. Further research is needed on the impact on particular populations and their needs, and coordination of data collection is essential.”

Joint communications strategies meanwhile would facilitate better engagement with residents and citizens on key issues such as social distancing, school closures and safety regulations. And greater information sharing across the region, particularly among key government agencies, on impactful policies, lessons learnt, and joint research would empower those agencies to replicate good practices faster and more effectively.

Above all, to respond to the broader, political impact of “COVID shocks” and the threat of growing unrest, the region’s governments should act, both collectively and individually, to address critical issues arising from lockdowns and pandemic-related hardships, particularly the impacts of economic crises on groups ranging from students and factory workers to middle managers, migrant workers and the most vulnerable.