Massive drops in working hours due to the COVID-19 crisis have had a devastating effect on jobs and incomes in Asia and the Pacific according to a new report by the International Labour Organization (ILO).
According to Asia–Pacific Employment and Social Outlook 2020: Navigating the crisis towards a human-centred future of work estimates, 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.
The impact of the crisis has been far-reaching, with underemployment 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 per cent in the second quarter and by 10.7 per cent in the third quarter of 2020, relative to pre-crisis levels.
Working-hour losses are also influenced by the millions of persons moving outside the labour force or into unemployment as job creation in the region collapsed. Using available quarterly data, the report provides a preliminary estimate that the regional unemployment rate could increase from 4.4 per cent in 2019 to somewhere between 5.2 per cent and 5.7 per cent in 2020.
“COVID-19 has inflicted a hammer-blow on the region’s labour markets, one that few governments in the region stood ready to handle. Low levels of social security coverage and limited institutional capacity in many countries have made it difficult to help enterprises and workers back on their feet, a situation compounded when large numbers remain in the informal economy. These pre-crisis weaknesses have left far too many exposed to the pain of economic insecurity when the pandemic hit and inflicted its toll on working hours and jobs,” said Ms Chihoko Asada Miyakawa, ILO Assistant Director General and Regional Director for Asia and the Pacific.
Women and young people are disproportionately hit
According to the report, most countries in the region saw a larger decline in working hours and employment for women than men. Also, women were more likely to move into inactivity than men. Young people have also been especially affected by working-hour and job losses. The youth share in overall employment loss was 3 to 18 times higher than their share in total employment.
“The report shows a clear picture of young people and women being pushed out of work compared to other workers,” says Ms Sara Elder, Senior Economist at the ILO Regional Office for Asia and the Pacific and lead author of the report. “With increased unemployment, young workers are likely to find it difficult to compete for new jobs. When they do find work, it may well be a job that does not match to their aspirations. Millions of women have also paid a high price and it could take years for those who have exited the labour force to return to full employment.”
Labour income as another crisis victim
With fewer paid hours of work, median incomes are falling. Overall, labour income is estimated to have fallen by as much as 10 per cent in the Asia–Pacific region in the first three quarters of 2020, equivalent to a 3 per cent loss in gross domestic product. A further consequence is the increase in working poverty levels. In absolute numbers, preliminary estimates in the report find an additional 22 million to 25 million persons could fall into working poverty, which would push the total number of working poor (living on less than $1.90 a day) in the Asia–Pacific region to between 94 and 98 million in 2020.
The report also warns that given the scope of the damage to labour markets, the overall size of the fiscal response in the region has been insufficient, especially in the region’s developing economies. As a result of fiscal expenditure gaps, the crisis is likely to exacerbate inequalities among countries in the Asia and the Pacific.
“On the more positive side,” says Ms Elder, “we are able to show in this report that government efforts to help enterprises retain workers, albeit on reduced hours, have worked to prevent what would otherwise be larger job losses. Given the mounting evidence that social protection and employment policies save jobs and incomes, the hope is that the crisis brings about a more permanent and increased investment in elements needed to boost resilience and promote a more people-centred future of work.”
New Financing to Help Indonesia Achieve a Deeper and More Resilient Financial Sector
The World Bank’s Board of Executive Directors today approved a loan of US$400 million to support reforms that will help the Government of Indonesia increase the depth, improve the efficiency, and strengthen the resilience of the financial sector.
The COVID-19 pandemic has caused recession in Indonesia, with potentially long-lasting financial, fiscal, and social implications. While the banking system is well-capitalized and profitability is high, the lack of depth in the Indonesian financial markets increases the country’s vulnerability to external shocks. The new financing is designed to help the country address financial sector vulnerabilities heightened by the pandemic. It does so through support to measures such as extending financial services to previously underserved groups, reducing the costs of such services for individuals and businesses alike, and strengthening the capacity of the financial sector to withstand financial and non-financial shocks.
“The COVID-19 outbreak has made structural reforms to address financial sector vulnerabilities urgent. The Government of Indonesia is committed to strengthening the financial sector given its critical role in sustaining Indonesia’s growth and in reducing poverty, especially during the COVID-19 recovery phase. “ said Minister of Finance of the Republic of Indonesia, Sri Mulyani Indrawati.
The new development policy loan will support Indonesia’s financial sector reforms through three key approaches. First, it aims to increase the depth of the financial sector by expanding the access to financial services – including by youth and women – broadening the range of financial products, and incentivizing long-term savings. These efforts would reduce Indonesia’s vulnerability to foreign portfolio outflows.
Second, it aims to improve the efficiency and lower the cost of the financial sector by strengthening the insolvency and creditor rights framework, protect consumers and personal data, and make payment systems more efficient and faster by utilizing digital technology. The latter will help large-scale social assistance payments to vulnerable people during the crisis.
Third, it aims to boost the capacity of the financial sector to withstand shocks by strengthening the resolution framework to avoid financial activities disruptions in the event of a bank failure, advancing the effectiveness of financial sector oversight and implementing sustainable finance practices.
“This financing complements the government’s efforts to cushion the financial sector and the overall economy from the impacts of the COVID-19 crisis. By making financial services more transparent, reliable and technology-oriented, savings can be channeled into the most productive investments in a less costly, faster and safer way, thus opening opportunities for people to invest in their future and to protect themselves from unexpected shocks,” said Satu Kahkonen, World Bank Country Director for Indonesia and Timor-Leste.
The World Bank’s support to financial sector reforms in Indonesia is an important component of the World Bank Group’s Country Partnership Framework for Indonesia, whose engagement area on strengthening economic resilience and competitiveness contains a specific objective focused on increasing the depth, improving the efficiency and strengthening the resilience of the financial sector. The new financing is also based on the World Bank Group’s GRID (green, resilient, inclusive development) principles.
The BRICS Foreign Ministers Meet To Review Progress
Due to the current global situation of coronavirus pandemic, a meeting of Brazil, Russia, India, China and South Africa (BRICS) Ministers of Foreign Affairs/International Relations via videoconference was held early June under the Chair of Indian Ministry of Foreign Affairs. As stipulated by the guidelines, India took over in January 2021.
The five foreign ministers held a frank exchange of views on topical issues of the international agenda, including efforts to strengthen international institutions, regional conflicts, joint efforts to combat new challenges and threats, including the COVID-19 pandemic, and cooperation between the five states at multilateral fora.
They also discussed the current situation, and future prospects of cooperation between the five countries. In the context of the current epidemiological situation, all BRICS countries expressed their solidarity with India and its people. The burden has increased on the healthcare systems. Russia expresses willingness to continue helping India counter this dangerous virus.
Amid the coronavirus-caused crisis, the ministers give priority to invigorating business, trade, economic and investment ties inside BRICS. In this context, they consider it important to implement the BRICS economic partnership strategy endorsed by the leaders during the last summit in 2020.
During the discussions, they acknowledged that the number and complexity of the challenges to the international community and sustainable global development are growing. These are the threats of terrorism, transnational crime, including in the digital sphere, climate change and an expanding rift between the rich and the poor. These problems can be addressed collectively.
Following the meeting, the ministers approved a Joint Communiqué and a Joint Statement on Strengthening and Reforming the Multilateral System. At the 12th BRICS gathering last year, the Foreign Ministers of Brazil, Russia, China and South Africa extended full support to India for its BRICS Chairmanship in 2021 and the holding of the 13th BRICS Summit. The five BRICS countries together represent over 3.1 billion people, or about 40 percent of the world population.
World Bank Supports the Modernization of Tajikistan’s Tax Regime
The World Bank’s Board of Executive Directors approved today $50 million in grant financing from the International Development Association for the Tajikistan Tax Reform Operation. This project will support the implementation of the revised tax code and the modernization of the tax system to balance the objectives of domestic revenue mobilization and private sector development.
“When incentives are such that enterprises and investors actually benefit from being successful in their businesses and honest vis-à-vis the State, the private sector will start to play an increasingly larger role in fostering innovation, creating employment, and broadening the tax base,” said Jan-Peter Olters, World Bank Country Manager for Tajikistan. “A consistent tax code with predictable tax obligations, as currently prepared by the Government, is expected to promote a more dynamic, innovative, and export-oriented private sector—once decisions on tax audits will be based on risk assessments and consistency checks done within the Tax Committee.”
The Government of Tajikistan has made tax reform a priority, reflecting the increasing importance of improving the business and investment climate and enhancing the competitiveness of the national economy. With the new tax code, currently under review by the Government, Tajikistan seeks to modernize tax administration and base tax policy and revenue collection processes on international practice.
This reform represents a critical building block in efforts to meet the key objectives of the National Development Strategy to 2030, which is to increase people’s incomes by up to 3.5 times and halve poverty by 2030. To meet this goal, Tajikistan would need the contribution of a dynamic private sector, which can finance investments, foster innovation, create jobs, and increase exports.
Currently, the private sector in Tajikistan provides only about one-quarter of total investments and produces less than one-third of industrial output, while providing only limited formal employment opportunities in a young and growing economy. The COVID-19 pandemic has negatively impacted government revenues and tax collection efforts, while increasing the demand for social spending and levels of public debt. This context has made the tax reform even more urgent.
The Tajikistan Tax Reform Operation will contribute to the ongoing tax reform by: 1) simplifying the tax system; 2) enhancing the quality of taxpayer services, and 3) improving voluntary compliance.
The activities, which will support these three broad outcomes, include the development of secondary legislation necessary for implementation of the new Tax Code, the creation of a modern risk assessment methodology based on international experience to guide audits, the introduction of mechanisms for improved effectiveness and transparency of tax expenditures; the introduction of cost-benefit analyses for tax incentives; the simplification of tax reporting requirements and harmonization of tax and financial accounting reporting for selected taxes; the introduction of an automated VAT refund system; the automation of selected taxpayer services; the upgrade of taxpayer service standards based on taxpayer feedback; the implementation of digital signature and upgrade of ICT infrastructure in the Tax Committee; capacity development on modern approaches in tax policy and tax administration; and taxpayer outreach and education.
To maximize the impact of the project, the World Bank is using a financing instrument called Program-for-Results (PforR), which links disbursement of funds directly to the achievement of specific outcomes. The project will be implemented by the Ministry of Finance of the Republic of Tajikistan and the Tax Committee under the Government of Tajikistan over the next six years.
The World Bank is financing 21 projects in Tajikistan totaling $1.1 billion. Since 1996, the World Bank has provided over $2 billion in IDA grants, highly concessional credits, and trust funds for Tajikistan. The World Bank Group is committed to continuing its support for Tajikistan as it strives to improve the lives and meet the aspirations of its young and growing population.
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