The coronavirus disease (COVID-19) pandemic has had a significant negative impact on global trade and supply chains with many vulnerable economies in low-income countries being disproportionately affected. Although developing Asia’s trade recovered somewhat in the latter half of 2020, mainly due to the People’s Republic of China (PRC), the rebound was less pronounced in other economies in the region.
The Asian Development Bank’s (ADB) Basic Statistics 2021 is a publication presenting relevant social and economic data. It indicates the extent of trade disruption in many countries in developing Asia in 2020, at the height of the pandemic. Particularly badly hit were the oil and gas exporting countries, who had to deal with low prices and plummeting demand for hydrocarbons globally as industrial activity, trade, and international travel tanked.
Azerbaijan’s large oil and gas reserves are a major contributor to its economy. Exports from the country contracted by 36.6% in 2020, the data show. On the demand side, in 2020 imports declined by 11.1%, compared with import growth of 3.5% in 2019. Azerbaijan’s economy as a whole reversed 2.5% growth in 2019 to contract by 4.3% in 2020, according to the data. Growth is forecast to resume in 2021 and accelerate in 2022 as the pandemic eases and global demand for energy recovers, the Asian Development Outlook (ADO) 2021 forecasts. The gas rich Central and West Asian country, Turkmenistan, experienced a similarly severe economic downturn in 2020. ADO 2021 noted a dramatic decline in external demand and prices for hydrocarbons, which provide more than 80% of exports and 30% of Gross Domestic Product (GDP) meant exports were down by 24.2% in 2020, according to Basic Statistics 2021. This is in marked contrast to the previous year, when exports had been growing by 8.2%. Neighboring Kazakhstan, another major oil producer, saw its exports dive by 19.4% during 2020.
Azerbaijan and Kazakhstan saw their economies contract significantly due to COVID-19. Although both are resource-rich, upper middle-income countries, economic shocks like the COVID-19 pandemic underline the need to expand economic diversification to make their economies less dependent on one export sector to become more resilient.
Some countries with more marginal economies fared even worse. Basic Statistics 2021 noted that Vanuatu in the Pacific saw its exports collapse by 40.7% in 2020. Agricultural exports and foreign tourism are the mainstays of the economy. Trade and travel restrictions due to the pandemic, combined with a devastating cyclone in April, led to economic contraction of 9.8%, according to ADO 2021. Growth is forecast to return to Vanuatu in 2021, rising to 2.0% as tourism and agriculture slowly recover, according to ADO 2021. In the Maldives, there was also severe contraction in tourism, which makes up three quarters of the economy. As a result, GDP plummeted by an estimated 32.0% in 2020, according to ADO 2021. Alongside this major slump, exports contracted by 28.9% in 2020, Basic Statistics 2021 notes. This significant drop in export trade was largely due to disruption to global supply chains and the grounding of air transport. The result was that the country’s leading export commodity, fish, could not reach traditional markets in Thailand, Sri Lanka, Italy and France. As in other tourism-dependent countries in developing Asia, growth is expected to resume in the Maldives as foreign visitors slowly return. Economically vulnerable Timor-Leste also had a challenging year in 2020 as global demand for oil and gas, its key exports, rapidly collapsed. The export sector as a whole contracted by 33.0%, contrasting markedly with 2019 when exports saw healthy growth of 5.5%, according to Basic Statistics 2021. But like Vanuatu, the impact of the COVID-19 pandemic was only partially responsible for Timor-Leste’s sudden economic decline. A domestic political crisis stopped the state budget from being passed until October. As a result, ADO 2021 estimates GDP contracted by 7.9% in 2020, down from a modest 1.8% expansion in 2019.
The pandemic highlights how less robust economies like Vanuatu, Maldives, and Timor-Leste, often subject to extreme weather events, volatile commodity prices or political instability, need to be strengthened to be able to ride out the series of unexpected fiscal shocks they all experienced in 2020.
Countries where manufacturing for export is an economic mainstay were also badly impacted by the pandemic. Bangladesh’s garment industry, its largest export sector, was badly hit as buyers cancelled shipments and new orders from lucrative markets in Europe and the United States evaporated. Exports reversed a 9.1% expansion in 2019 to contract by 17.1% in 2020, the data show. The combination of stunted exports and domestic COVID-19 containment restricting economic activity meant imports were down by 8.6% in 2020.
With the decline in imports offsetting much of the reduction in exports, the trade deficit widened only moderately, according to the data. Despite the battering to exports, Bangladesh continued to experience GDP growth in 2020 of 5.2% while fiscal policy remained supportive to mitigate the adverse economic effects of COVID-19.
“There are many lessons for the region from the COVID-19 pandemic. One of the most important is how vulnerable to economic shocks many countries in developing Asia remain. Creating more mixed, high-value, economies should be a priority for member governments. This will not only reduce poverty but also make economies more robust, helping them to recover quickly. ADB is working with member governments to support this transition,” ADB’s Chief Economist, Yasuyuki Sawada said.
Most governments across developing Asia responded decisively to the economic damage and uncertainty caused by the COVID-19 pandemic. Policy makers used a large number of channels to support firms, workers and households. These included, providing liquidity via government loans to the private sector, and direct income or revenue support through government transfers, loan cancellations, and tax cuts or forbearances.
Source: Asian Development Bank