The COVID-19 Pandemic

The COVID-19 pandemic is an unprecedented global crisis, affecting human health and economic welfare across the globe. MSMEs are disproportionately affected by the COVID-19 pandemic because of their prevalence in the economic sectors most affected by demand shocks caused by the pandemic. These sectors include accommodation and food services, cultural and creative sectors, and wholesale and retail services. Data for OECD and some non-OECD economies show that MSMEs export more than large firms in these sectors.³¹³ Partial or full quarantine measures, as well as disruptions to international means of transport, will clearly lead to a dramatic loss of demand and revenue in these areas for both domestic and trade activities. In addition to these quarantine measures, an increasing number of governments are introducing export or import restrictions, notably on agricultural products, which provide an important source of income for many MSMEs.³¹⁴ Regarding COVID-19, though the pandemic has affected every corner of the world, the economic earthquake unleashed by COVID-19 does not affect everyone in the same way. With fewer resources to ride out the storm, MSMEs have been particularly vulnerable to the repercussions of the crisis. These firms in developing countries will be disproportionately affected, especially in LDCs and SIDS. Small businesses active in trade tend to be more competitive and resilient. Yet many of them have been shaken by serious disruptions in international supply chains.

The unprecedented socio-economic crisis resulting from the COVID-19 pandemic calls for unparalleled multi-sectoral responses. ESCAP has developed a framework to support the socio-economic response of Asia and the Pacific to the COVID-19 pandemic. The framework's overarching principle supports building back better through integrated policies aligned with the SDGs. ESCAP’s offer to member States builds on its mandates and involves three main streams of work: protecting people and enhancing resilience; supporting economic recovery; and restoring supply chains and supporting MSMEs. To ensure a concerted regional approach for sustainable recovery from the crisis, ESCAP calls for regional cooperation among member States and across stakeholders.

The Asia-Pacific region has had diverse experiences of the COVID-19 pandemic. The responses of states, too, has varied, with many states in the region completely closing off their borders to travelers, and implementing stay-at-home orders, lockdowns, and restrictions on internal movements of varying degree.

The experience of SIDS
The collapse of tourism resulting from the COVID-19 pandemic will have a profound impact on the Asia-Pacific small island developing States because of their high reliance on tourism rents. The pandemic will disproportionally influence the lives and well-being of the poorest and the most vulnerable, including workers in the informal sector. Addressing this challenge requires both broad mitigation measures to counteract the consequences of the outbreak as well as specific policies to support local tourism-related businesses and affected communities. For Governments that do not have the fiscal space, adequate concessional assistance from the international community will be critical. At the same time, however, long-term efforts for the sustainable development of the tourism sector should not be undermined, particularly by taking full advantage of their blue economy potential – a concept depicting sustainable use of vast oceanic resources – to foster their development.

As is often the case with severe economic downturns and natural disasters, by affecting the tourism sector, the COVID- 19 pandemic will disproportionally influence the lives and wellbeing of the poorest and the most vulnerable, including workers in the informal sector. MSMEs, which make up about 80 per cent of the tourism sector globally, are expected to be particularly affected. In Fiji and Vanuatu, many MSMEs depend on the cruise industry as they provide various services, including selling handicrafts and souvenirs, to cruise ships passengers. In Maldives, migrant workers from neighboring countries that make up 15-25 per cent of the country’s population are especially vulnerable to the COVID-19 pandemic as they live in congested areas and work under conditions in which practicing strict social distancing is difficult.

To address the impact of the COVID-19 pandemic on the tourism sector of the Asia-Pacific SIDS, both broad mitigation measures to address the consequences of the outbreak and specific policies to support tourism-related activities will be essential. Most of the policy responses by Asia-Pacific SIDS so far have fallen within the former set of measures that intends to slow the pace of the transmission of the virus. However, specific actions, such as targeted fiscal and monetary measures to support affected local businesses, especially tourism-related MSMEs, and local populations employed therein, are also critical in addressing the consequences of the collapse of inflows of inbound visitors.

These events had an economic impact on the tourism and broader services sector. Looking forward, targeted fiscal and monetary measures will be necessary in the short term to support affected local businesses, such as in tourism-related services, particularly local MSMEs providing employment to local populations. Tourism-dependent Asia-Pacific SIDS are likely to need a fiscal stimulus of significantly more than 10 per cent of GDP.³¹⁵ While typical stimulus programmes include direct cash transfers, wage subsidy to businesses and cheap financing to MSMEs, a compensation package for employees in large informal sectors, such as farmers and fishers who provide supplies to the tourism sector, should also be considered.³¹⁶ With the stimulus spend, Governments can ensure the wellbeing of local populations and the survival of local MSMEs and prevent the former from falling into poverty and the latter into disarray.

Specific policy experience for COVID-19
Many organisations, including ESCAP but also the World Bank, the IMF, the OECD and others have catalogued the policy responses of states to COVID-19, and it is unnecessary to reproduce an exhaustive list here. ESCAP’s “Asia-Pacific countries COVID-19 policy responses” provides a breakdown of country policy responses, that includes MSME policy responses. A limited sample of specific policy experiences is included in this section, but more examples can be found online.³¹⁷

Immediate measures to ease the shock to jobs and guarantee minimum living standards. Fiscal measures to support jobs and living standards are needed on two fronts: (i) fiscal support for employers to retain jobs, and (ii) direct support for the employees and households to guarantee minimum living standards. The former includes targeted tax exemptions and fiscal subsidies to MSMEs, the informal sector and the most affected businesses for business and employment continuity. The latter includes emergency measures to extend medical and employment insurance to those not sufficiently covered or to provide direct cash transfers for consumption smoothening. There are various examples of such policies already being implemented in the region.

• China has focused on supporting MSMEs by waiving or delaying their social security contributions and deferring land-use rents and property tax. 
• Japan is supporting MSMEs by providing wage support and consultative services.
• Hong Kong, China and Singapore have rolled out specific funds to subsidize sectors, including retail, food, transport and tourism and support low-income households. 

Targeted monetary easing to support financial health. Monetary policy should be directed at supporting the health and stability of the financial sector. This can be done by supplying sufficient liquidity to the banking system. Implementing this measure would require reduction in interest rates by central banks. Targeted financial support through subsidized loans can also be directed to MSMEs in affected sectors, that are most vulnerable to financial stress. Other financial measures can include targeted credit support for companies that directly participate in pandemic control, and emergency loans and credit guarantees to address supply chain disruptions.

There are various examples of such policies in the region:

• China has implemented targeted cuts in the reserve requirement ratio and the re-lending program to guide funds into small companies, the private sector and manufacturing.
• China’s central bank provides targeted credit support for companies that directly participate in pandemic control, such as those in the healthcare sector.
• Japan has introduced emergency loans and credit guarantees for MSMEs to address supply chain disruptions and particularly those in the tourism sector.