Policy Recommendations

C- 10 : Informal Sector during the COVID-19 Pandemic: Challenges and Opportunities
  • There is likely to be Global Value Chain transformation that is likely to occur post- COVID, more regionalization, and the growing importance of services relative to manufactures, will provide a major opportunity for South Asia which the region should tap into.
  • Digitalisation and changes in working patterns in a post-COVID world will increase opportunities for countries with a comparative advantage in services provision. This bodes well for South Asian economies, as they have some of the highest rates of domestic value added of services embodied in total exports, in some countries, services like tourism and IT are directly and indirectly exported.
  • South Asian governments should do everything they can to ensure that external financing is forthcoming while following sound debt management practices. This is also a shared responsibility with the international community.
  • The medium-term planning should focus on encouraging new endeavors and enabling the process of creative destruction that is inevitable while not losing sight of long-term opportunities to build back better.
  • A sound strategy would be if policymakers avoid the temptation of temporarily propping up large enterprises and instead indirectly support a transition towards activities that may be more viable in a post-COVID world.
  • Governments should avoid subsidizing large firms directly or keeping large enterprises afloat that will not be viable in a post-COVID world, but instead devote scarce funds to work programs or business facilitation which also supports the private sector.
  • A key challenge will be transforming the tourism sector. A relatively innovative strategy is to create ‘tourism bubbles’ or ‘free travel zones’ in Asia - agreements with neighbouring regions that allow for travel across borders for non-essential trips without quarantining upon arrival.
  • Ignoring climate change threats is no longer a viable option. A first step to a more sustainable future is a smartly designed recovery program. Economic stimulus packages can include renewable-energy investments, climate-smart buildings, and resilient public transportation systems.
  • There is need for a revaluation of urban development policies for inclusive and sustainable economic development.
  • There should be a conductive and transparent regulatory environment for business and an infrastructure that helps generate varied forms of economies of scale.
  • Quickly expanding the reach of social assistance programs is important.
  • Governments should design systems flexible enough to be effective for the current crisis, and also future crises.
  • Tailored policies to increase productivity are needed.
  • Policy instruments for supporting the informal sector in COVID times should differ according to the target group and time frame.
  • Countries need to have their own guiding principles as cookie cutter and one size fits all policies will not work.
  • While the poor have suffered severely during the crisis, many informal workers in the middle of the income distribution have experienced the greatest drop in earnings. Most of them are not covered by social insurance. The crisis lays bare complicated structural problems in the informal sector that need to be addressed.
  • The government needs to internalize that informality challenges traditional fiscal monetary policies and reaching out to the informal sector becomes more difficult. Hence, despite good measures taken by the State Bank, the informal sector remains without liquidity support to survive the crisis and ensure job survival which is worrying as 90% employment comes from the informal sector. In the short run, South Asian governments should provide liquidity support (grants, credit) to firms and expansion of social assistance (food subsidies, cash transfers, and public works) for workers and households. In the medium-term period, focus should be on building their resilience. In the long run, social protection systems need to be redesigned to be more inclusive, including by leveraging technology big and data.
  • Day-to-day informal sector rights, especially rights of women in this sector, are hardly provided any coverage and protection. Access to finance for home-based workers has weakened after COVID-19. Digital skills and access are the biggest areas where the government needs to focus on in terms of digital skills enhancement programs for women.