In Southeast Asia, there are 264 million adults who are still “unbanked”; many of them save their money under the mattress and borrow from so-called “loan sharks”, paying exorbitant interest rates on a daily or weekly basis.
Globally, around 2 billion people do not use formal financial services.
Recognizing the importance of financial inclusion for economic development, the leaders of the Association of South East Asian Nations (ASEAN) have made this one of their top priorities for the next five years.
Last week, the World Bank Group presented the latest data on financial inclusion in ASEAN to senior representatives of the ministries of finance and central banks of all 10 ASEAN member countries (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam).
The session, held in Kuala Lumpur, is one of the joint activities the new World Bank Research and Knowledge Hub and Malaysia is undertaking to support financial inclusion around the world.
For ASEAN countries, levels of financial inclusion are not homogeneous. While Singapore, Malaysia, Thailand, and Brunei Darussalam have achieved almost universal financial inclusion, other countries in ASEAN still face various challenges. Here’s a snapshot of some of the major challenges according to the 2014 Global Findex:
Low levels of account ownership
Currently, only 50% of adults in ASEAN have an account at a financial institution. ASEAN is discussing a specific financial inclusion target for 2020. There is a consensus to set the target at around 70% for 2020.
Rates of financial “exclusion” are higher among the poor, those living in rural areas, and those who are less-educated. Interestingly, neither gender nor age are relevant factors that explain financial exclusion in ASEAN countries.
Adults with a bank account (%)
Wage payments made mostly in cash
In ASEAN countries, only 29% of workers reported receiving their monthly salaries through an account from a financial institution, while the remaining 71% is paid in cash by their employers.
Paying salaries in cash can be risky for employers and workers alike
In contrast, making salary payments directly into the accounts of workers at financial institutions is safer and can help workers not only save their money in a safer manner, but also build their credit histories to access new type of services, such as consumer credit, mortgages, education loans, insurance products, etc.
The group discussed the urgent need to take actions to digitize payments conducted by government institutions and private sector enterprises, while ensuring customers are not charged excessive fees or misled by financial institutions.
Low levels of debit and credit card penetration
In ASEAN countries, only 30% of adults reported having a debit card and 9% reported having a credit card. Cash is still used extensively, even by people that already have bank accounts.
Adults with a debit card (as % of all adults)
Assessing the economic impacts of COVID-19 on ASEAN countries
All ASEAN countries are dependent on tourism flows but Thailand is probably the most dependent.
Author: Jayant Menon, ISEAS–Yusof Ishak Institute
The COVID-19 pandemic is first and foremost a human tragedy. Measures introduced to deal with the pandemic could save lives but are having wide-ranging economic effects and inducing economic contagion.
There are already studies estimating the economic impact of the virus. But greater focus is needed on the transmission mechanisms of the economic contagion and in critiquing how assessments of the economic impacts are made, concentrating on the ASEAN region.
The effects of COVID-19 are hitting ASEAN economies at a time when other risk factors, such as a global growth slowdown, were already rising.
COVID-19 is disrupting tourism and travel, supply chains and labour supply
Uncertainty is driving negative sentiment. This all affects trade, investment and output, which in turn affects growth. Tourism and business travel, as well as related industries, especially airlines and hotels, were the first to be affected. And the conditions are worsening as more countries go into shutdown.
The supply disruptions emanating mostly from China will reverberate throughout the value chain and disrupt production. Since China is the regional hub and accounts for 12 per cent of global trade in parts and components, the cost of the disruption in the short run will be high.
The negative effects of quarantine arrangements on labour supply could also be high depending on duration and sector. Manufacturing has been hit harder than service industries, where telecommuting and other technological aids limit the fall in productivity.
All these disruptions will lead to sharp declines in domestic demand. And their impact on economic growth will further propagate these disruptions. This compounding effect can magnify and extend short-run effects into the long run.
The highest economic cost could come from the intangibles
The effects of negative sentiment about growth and general uncertainty — which is already affecting financial markets — will feed into reduced investment, consumption and growth in the long run.
Rolling recessions around the world now appear inevitable, despite the stimulus measures being contemplated. If so, there will be sharp increases in unemployment and poverty. Some degree of decoupling from China, or de-globalisation in general, may also be a permanent reminder of this pandemic.
Among ASEAN countries, Singapore, Malaysia and Thailand are heavily integrated in regional supply chains and will be the most affected by a reduction in demand for the goods produced within them. Indonesia and the Philippines have been increasing supply chain engagement and will also not be immune.
Vietnam is the only new ASEAN member integrated into supply chains with China and is already suffering severe supply disruptions.
Given time, supply-side adjustments will alter trade and investment patterns. The main adjustment will involve relocating certain activities along the supply chain from China to ASEAN countries. Although the pandemic will disrupt the relocation phase, ASEAN countries can benefit from the new investments, mitigating overall negative impacts.
Thailand is probably the most tourism dependent Asean country
All ASEAN countries are dependent on tourism flows but Thailand is probably the most dependent. Cambodia and Laos receive most of their investment and aid from China, and a marked growth slowdown in China will affect them the most.
The Philippines and Mekong countries have large overseas foreign worker populations and restrictions on their movement or employment prospects as COVID-19 spreads will affect sending and receiving countries. Brunei and Malaysia are net oil exporters and the price war indirectly induced by the pandemic will hit them hard. Others will benefit from lower oil prices, as will the struggling transport sector.
In measuring the impacts of COVID-19, it is important to separate its marginal impact from observed outcomes. This is important because the remedy may vary depending on the cause of the disruption. This requires an analytical framework that can measure deviations from a baseline scenario that incorporates pre-existing trends. A model-based analysis, rather than casual empiricism, is required to reduce the problem.
Even before the outbreak, risks of a global growth slowdown were rising
The restructuring of regional supply chains had started, driven initially by rising wages in China and accelerated by the US–China trade war. While COVID-19 may further hasten the pace and extent of the restructuring, it is only partly responsible for what may happen. It would be misleading to attribute all of the current disruption to COVID-19. Had the trade war not preceded it, COVID-19 may have resulted in greater disruption to supply chains.
Any assessment of impacts must recognise that the spread of COVID-19 is unpredictable, and so too the response by governments. It is difficult to estimate the impacts of a shock that is uncertain in itself. This reiterates the need for rigorous modelling and scenario analyses. The current trend points to risks rising, often accelerating, as with previous epidemics. This uncertainty underscores the need for caution in assessing, and regular recalibration in producing assessments.
Jayant Menon is a Visiting Senior Fellow in the Regional Economic Studies Programme at the ISEAS–Yusof Ishak Institute, Singapore.
A version of this article first appeared in ISEAS Commentary.
This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.
Coronavirus’ economic impact in East and Southeast Asia
The ASEAN+3 Macroeconomic Research Office (AMRO) estimates that the COVID-19 epidemic could deduct as much as half a percentage point from the economic growth of some regional economies in 2020.
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Countries such as Thailand, the Philippines, Malaysia, and Indonesia have unveiled an array of incentive packages to entice businesses affected by the US-China trade war.
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