Key Responses to COVID-19 by the Asia-Pacific Economies: An Update from the ADB COVID-19 Policy Database
ADB’s Economic Research and Regional Cooperation Department launched the ADB COVID-19 Policy Database on 20 April 2020. It provides information on the key economic measures that authorities are taking to combat the COVID-19 pandemic. Measures are classified according to how they work their way through the financial system, and how they affect the financial positions of different sectors of society. Some of the key findings from the database in the past two months are discussed here.*
World’s total package to combat COVID-19 is at $21 trillion as of June 2020
The world's total package to combat COVID-19 in June sums to $21 trillion, up from $15 trillion in April. Of this, ADB’s developing members total package is $3.1 trillion while ADB’s other members’ total package is $13.7 trillion. The European Central Bank and the European Union’s total package is $4.9 trillion.
Increase in ADB’s developing members’ packages mainly driven by the People’s Republic of China and India
From $2 trillion in April, the total package of ADB’s developing members has increased to $3.1 trillion. This is mainly driven by the increases of the People’s Republic of China (PRC) accounting for 58% of the total, and India accounting for 28% of the total. The package of the PRC has increased from $1.3 trillion to $1.9 trillion in the last two months, while India's package has increased from $64 billion to $351 billion.
By measure, 64% of the increase in ADB’s developing members’ total package is accounted for by direct income support (measure 5). This is followed by support to the normal functioning of money markets (measure 1), which accounts for 16% of the total increase. The PRC almost doubled its efforts in terms of direct income support. India’s direct income support increased fivefold and its support to the normal functioning of money markets increased more than sevenfold.
48.5% of ADB’s developing members’ $3.1 trillion package is intended for direct income support
The priorities of ADB’s developing members have not changed since April. Direct income support still accounts for the highest share, followed by support to the normal functioning of money markets (See Table 1). Direct income support remains the largest measure in all five ADB regions with Central and West Asia having the largest share (See Figure 1).
Table 1. Share (%) of each measure as of April 20 and June 1
|As of April 20||As of June 1|
|Measure 1: Functioning money markets||20.65%||19.12%|
|Measure 2: Credit creation||4.12%||5.68%|
|Measure 3: Lending to non-financial sector||9.22%||7.14%|
|Measure 4: Equity Claims on the Private Sector||0.43%||0.29%|
|Measure 5: Direct support to income||40.73%||48.54%|
|Measure 9: International assistance (lender/donor)||1.02%||0.75%|
* This measure captures those actions that governments have not been explicit about regarding their allocation into one or more of the other measures.
Figure 1. Share (%) of each measure in region’s total package
Central bank financing in ADB’s developing members increased by 75%
ADB’s developing members’ central banks have funded a significant portion of governments’ operations in response to the pandemic. This includes direct lending, reserve drawdowns, and purchases of government bonds. These, in turn, fund governments’ fiscal, liquidity, and lending measures. Since April, significant increases in central bank financing have been seen in India, Indonesia, Singapore, Republic of Korea, and the Philippines. Direct lending by central banks are important policy actions to monitor. For instance, the Philippine central bank purchased PHP300 billion of government securities from the Bureau of Treasury under a repurchase agreement. As of 28 May 2020, the Indonesian central bank had directly purchased IDR23.98 trillion of sharia sovereign bonds through a government auction in the primary market. Central bank financing in ADB’s other members increased by 35% mainly due to increased government security purchases by the United States, United Kingdom, and Australia. Central banks also continued to promote liquidity and credit creation by conducting open market operations, secondary market purchase of long-term assets, and implementing interest and other regulatory changes.
International loans and grants received by ADB’s developing members increased twelvefold
International assistance to ADB’s developing members in the form of grants and loans increased twelvefold since April. Out of the recorded $16 billion international assistance, 41% came from ADB, while 59% came from other institutions like the International Monetary Fund, World Bank, United Nations, Asian Infrastructure Investment Bank, and the United States Agency for International Development.
Measures, packages, and caveats
The database classifies the measures into five types: (1) actions to support the normal functioning of money markets; (2) encouraging private credit creation; (3) direct long-term lending to households, businesses, and local governments and forbearance; (4) increasing equity claims on the private sector; and (5) direct support to income or revenue of households, businesses, and local governments. The database also tracks four additional funding measures that effectively “double count” measures 1 to 5 from an accounting perspective. Measure (6) is reallocation of previously budgeted spending; measure (7) is central bank purchases of national government bonds or direct lending to government; measure (8) is international assistance received by borrower/recipient countries; and measure (9) is international assistance given by lender/donor countries.
Figure 2 provides a summary of the 9 measures and how they are financed. There is a use and funding relationship between Measures 1 to 5 and Measures 6 to 8, respectively, which is the accounting corollary of the “double counting” for these measures.
From the point of view of the uses, Measures 1 to 4 are mostly self-funded by the central bank and also partly by the government. Measure 5 is funded by the government’s bond sales to the non-government sector, which may be purchased in the secondary market by the central bank (Measure 7B), central bank loans or primary market purchases of government bonds (Measure 7A), drawdown of existing reserves (Measure 7A), and also partly by international assistance (Measure 8B).
From the point of view of the funding sources, Measure 6 is also a source of government spending, lending, or investment, but is mutually exclusive from Measures 1 to 5 in this taxonomy since “where” the spending has been reallocated to is already in Measure 6. As noted, in Measure 7, the central bank directly or indirectly funds the government, which then appears in the latter’s actions across Measures 1 to 5. Central Bank swaps directly go to the central bank, providing funding for activities in Measure 1. Finally, as noted, international assistance is a source of funds for the government and likely ends up in Measure 5.
Figure 2. The COVID-19 Measures and Funding
Source: Felipe, Jesus, and Fullwiler, Scott. 2020. “The ADB COVID-19 Policy Database: A Guide”. Forthcoming (September 2020 issue), Asian Development Review.
The total package, as used in the database, is the sum of Measures 1 to 5. International assistance given and measures with no definite breakdown are also included in the total package for individual economies and regions. The world’s total package, however, excludes Measure 9 to prevent “double counting.”
Caution should be exercised in using and interpreting the data. Measures and packages included in the database are mostly intentions and announcements of authorities. Information on actual amounts spent or transacted are not always available. Some measures only have estimated amounts such as liquidity injected to the economy due to lower reserve requirements. Moreover, measures are not always announced with a defined period of implementation or effectivity and intended amounts have changed in some cases. Lastly, the database does not make any judgement on the appropriateness of the type and amount of measures.
Conclusion: Key policy responses to COVID-19
The updates on the ADB COVID-19 Policy Database have shown that economies have remained active in pursuing income support, liquidity support, and credit creation measures. Central banks continue to play a significant role, not just in promoting liquidity and credit creation, but also in financing government fiscal measures. International assistance, both from ADB and other institutions, has increased significantly since April, and may continue to rise in the near future.
* The database is updated every two weeks. This article is based on the data as of 1 June 2020.
This article was written by Jesus Felipe, Asian Development Bank and Al-Habbyel Yusoph, University of the Philippines.