One Year of Living with COVID-19: An Assessment of How ADB Members Fought the Pandemic in 2020

By Tom Kirchmaier and Carsten Gerner-Beuerle

Using ADB COVID-19 Policy Database, this report provides information of the amounts announced by all members of the Asian Development Bank during 2020 to combat the effects of the coronavirus disease (COVID-19). It also analyzes the specific measures taken, classified into liquidity support, credit creation, long-term lending, equity support, and health and income support. The analysis focuses on the financial statement effects of a given measure, in particular: (i) who, if anyone, bears the financial burden of the measure and in what form?; and (ii) does the measure create more debt or more income (e.g., net worth or equity, other things being equal) for the recipients?

• Language: English
• Publisher: Asian Development Bank
• Release date: May 1, 2021
• ISBN: 9789292628147

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Chapter I

Introduction: COVID-19 and Its Impact

As a result of the coronavirus disease (COVID-19) outbreak that began in early 2020, global growth in 2020 fell by more than 5% (about 5% in Germany, 4.8% in Japan, and 3.5% in the United States [US]), the sharpest decline since World War II. The only major world economy that registered positive growth in 2020 was the People’s Republic of China (PRC), which grew at slightly more than 2%. Moreover, goods export growth in dollar terms was positive in only three Asian economies: the PRC; Taipei,China; and Viet Nam (Table 1).

Table 1. Gross Domestic Product and Export Growth Rates, 2020

GDP = gross domestic product, Q = quarter.

a Real GDP growth for Germany was taken from Haver Analytics (accessed 22 February 2021).

b As of 22 February 2021, data on the United Kingdom’s annual GDP growth had not been released. This figure is the average growth from Q1 to Q3 2020.

Source: CEIC (accessed 19 February 2021).

The combined supply and demand shocks have had unprecedented health and economic consequences. Even before the pandemic, there were fears that another economic crisis was looming. Yet COVID-19 is so different from what anybody could have expected—an economic crisis triggered by a health crisis—that the world did not know how to react to it. Questionable coordination among major economies made the problem worse.

The human toll has been significant. As of early 2021, the number of world deaths due to COVID-19 has surpassed 2 million, and it is increasing at a pace that does not appear to decline: while it took about 7 months for COVID-19 to cause 1 million deaths, it has taken just an additional 3 months for the death toll to reach 2 million. Moreover, while the daily death rate was about 5,000 during the summer of 2020, it has increased to about 13,000. Deaths due to COVID-19 are also affecting more countries. Most of the deaths (as of mid-January 2021) are in Europe and North America at 638,000 and 590,000, respectively, followed by 379,000 in South America; 359,000 in Asia; 81,000 in Africa; and 1,000 in the Pacific islands. The four countries with the largest number of deaths are the US (about 406,000 deaths); Brazil (212,000); India (152,000); and Mexico (144,000) (Table 2). These are large countries with large populations. Midsize countries such as the United Kingdom (UK) (about 94,000 deaths); Italy (83,000); France (69,000); and Spain (58,000) are also among the most affected, and these countries are ranked among the top 10 in per capita terms.¹ Belgium, with almost 1,800 deaths per million tops the world ranking. It is followed by the UK, Italy, the Czech Republic, the US, Spain, and Peru.

Table 2. Number of Deaths and Deaths per Million Population, as of 21 January 2021

Notes: The table refers to countries with populations over 10 million. Ranking is based on deaths per million population.

Source: Asian Development Bank. ADB COVID-19 Policy Database. https://covid19policy.adb.org.

In Asia (Table 3), the Central and West Asian republics have been most affected when measured by the number of deaths per million population.

Table 3. Number of Deaths and Deaths per Million Population in Asia, as of 21 January 2021

Note: Ranking is based on deaths per million population.

Source: Asian Development Bank. ADB COVID-19 Policy Database. https://covid19policy.adb.org.

The speed with which the second million deaths has been reached reminds humanity that this is a race. 2021 arrived with the hope that a vaccine would be available very soon. Although the vaccine brings optimism, the immediate reality is that immunity is still far away. According to the World Health Organization, COVID-19 is today the sixth most important cause of death in the world, at a similar level as lung cancer and ahead of Alzheimer’s, diarrhea, diabetes, and kidney diseases. The difference is that COVID-19 did not exist 1 year ago.

The economic crisis that has followed the health crisis has affected millions of jobs and companies. Most countries around the world quickly put in place relief packages. In the case of governments, the pandemic has increased pressure on the state to provide adequate health care and tackle deeper-seated problems such as income inequality. In the case of central banks, the huge rise in the public debt over the past year means a period of ultra-low interest rates will be required to keep the public debt service burdens from rising relative to gross domestic product (GDP).

The Asian Development Bank (ADB) has been tracking the value of the relief packages announced by its members since the start of the pandemic. As of early 2021, this amounted to about $28 trillion. Most of it is accounted for by developed countries (the packages of the PRC and India, both developing countries, are the only ones in the top 10 of largest packages), in the form of both fiscal and monetary measures.

This report’s assessment of the situation as of early 2021 is that most governments and central banks across the world seem to have reached a state of intellectual fatigue in that the usefulness of the measures implemented so far has been exhausted. Both the governments and central banks are finding it very difficult to come up with new and different measures, amid fears that yet larger fiscal packages would imply larger fiscal deficits. The fate of the recovery at this stage is in the hands of the vaccination process. While the fight against the global financial crisis (GFC) of 2008 was led by central banks (quantitative easing [QE]), this time the role of fiscal policy has been very important, with governments (especially those of the advanced economies) running extremely large deficits (Table 4). Without massive government intervention, this crisis would have been much worse.

Table 4. Fiscal Deficits, 2020

GDP = gross domestic product, Q = quarter.

a Annualized data as of Q3 2020.

Source: CEIC (accessed 2 March 2021).

The study estimates that health and income support measures by governments in the wake of the pandemic have reached 10.4% of global GDP as of 18 December 2020. This compares to a fiscal support of 2% of world GDP during the GFC, which is already a substantial amount. Across Asia, the range of commitments for health and income support measures in response to the downturn has been varied. Japan and Singapore committed around 44% and 14% of their respective GDPs to support measures in 2020 (although at least half of Japan’s commitment could be classified as quasi-monetary). In poorer countries, health and income support injections ranged between 0.04% and 5% of GDP. Thailand was an exception, where the government committed 8.2% of 2019 GDP to spending programs, most of which remain stalled. Just how much of these commitments will be disbursed is open to question.

The important point is that the idea of austerity has sharply reversed from the policy response to the previous crisis only 12 years ago. Fiscal demand management was already gaining popularity, but the pandemic has thrown remaining budgetary caution to the wind—governments have spent vast sums to manage the current crisis and promote recovery. They have learned over the past decade that interest payment on debt can be kept down by central bank asset purchases, while central banks have learned how to conduct monetary policy in an environment with large amounts of excess reserves that, contrary to long-held views, has not proven to be inflationary. There are now fewer perceived limits to state borrowing than there were 10 years ago.

Concurrently, central banks have engineered an unprecedented loosening of their policy stances. Financing of government deficits by the US Federal Reserve, Bank of Canada, Bank of Japan, and Bank of England has amounted to $3.5 trillion over the past year—equivalent to 3.87% of global GDP. Across Asia, the largest rate cuts have been those in the Philippines and Viet Nam. The combination of monetary expansion alongside fiscal expansion has meant that, unlike in previous rounds of QE, the stimulus packages have found their way into the real economy instead of getting stuck in the financial