Which Asian countries have bad economies?
The EIB's Covid-19 Economic Vulnerability Index
What makes countries vulnerable?
The advantage of a diversified economy
Strong dependency on certain income makes one vulnerable.
Less diversified economies threaten major risks in crises such as Covid-19. The most vulnerable group includes several countries that are heavily dependent on oil exports or tourism.
The prices of most non-agricultural commodities, except for gold in particular, have plummeted, which has hit oil-exporting countries particularly hard.
The share of countries that are particularly vulnerable due to their dependency on raw materials is highest in the EU's eastern neighborhood and in Central Asia. This is shown in the figure below. However, there are also numerous raw material-dependent countries in all other regions. It should be noted here that the importance of the risk factor dependence on raw materials may be underestimated for poorer countries. For some of these countries there are no or only incomplete data, despite attempts to compensate for this. In addition, the effect of falling export revenues in poorer countries can have a greater impact on economic stability due to the lower average capacity of their economic systems. An example: Since the raw material exports in Nigeria account for an estimated 14 percent of the gross domestic product (GDP), the country appears to be significantly less at risk than many rich oil-exporting countries such as the United Arab Emirates. However, Nigeria has an extremely poorly functioning tax system - tax revenue only accounts for three to four percent of GDP. And apart from oil, the country has little opportunity to generate income. Thus, oil is responsible for at least half of Nigeria's government revenue. The slump in oil prices therefore forced the country to make substantial budget cuts for 2020 and, for the first time since 2000, to ask the International Monetary Fund (IMF) for help.
High risks for countries that are heavily dependent on tourism.
The pandemic and the associated travel restrictions have brought tourism to a complete standstill in many countries. In addition, the global recession is likely to reduce revenue from this business long after the restrictions are lifted. Some of the affected countries are very much at risk - they generate up to 60 percent of their GDP from tourism. The dependence on this income is a sore point, especially in the Caribbean and Pacific countries. More than two thirds of them are highly vulnerable to a collapse in tourist numbers, only Trinidad and Tobago and Papua New Guinea are only marginally endangered. At least five countries in the region generate over a third of their GDP from tourism. In the Western Balkans, Albania, Bosnia and Herzegovina and Montenegro are very vulnerable to falling income from tourism, remittances or both.
In the eastern neighborhood and in Central Asia, a decline in tourism is particularly affecting Jordan and Lebanon. They belong to the highest risk group. Morocco, Tunisia and Egypt show a medium risk. In Asia, Latin America and Sub-Saharan Africa, several countries are highly or moderately dependent on tourism. Analogous to raw material income, the following also applies here: The inherent weakness of the economic system of poorer countries could intensify the effect of a decline in foreign exchange income as a result of the slump in tourism.
Countries where manufacturing relies on intermediate inputs from abroad could be more vulnerablewhen lockdowns or curfews are imposed at the production sites there. In the Western Balkans, only North Macedonia belongs to the group of countries that are at high risk from being integrated into global value chains (Figure 3). Turkey falls in the lowest category based on the data available. In Latin America there are only 20 percent and in Sub-Saharan Africa 15 percent of the countries in the group that are highly or moderately vulnerable to global value chains.
Remittances back home were a mainstay in previous economic crises. In 2020, however, these funds are likely to fall by more than 100 billion US dollars, the estimatesWorld bank - with corresponding consequences for the countries that are dependent on this source of income. Several Caribbean and Pacific countries will feel this decline - in addition to the shock of declining tourism revenues. Most at risk is Tonga, where remittances totaled 41 percent of GDP in 2019. Several countries in the eastern neighborhood and in Central Asia are also at high risk in this regard (especially in connection with transfers from Russia). This includes Kyrgyzstan, where remittances account for at least a third of GDP.
In the southern neighborhood, almost 40 percent of the countries belong to the group with the highest vulnerability. In Asia, Latin America and Sub-Saharan Africa, reliance on remittances appears to be lower. But in these regions too, remittances are an important source of income for many countries. It should be noted here that informal transfers are generally not registered. According to various studies, these are more common in Latin America and sub-Saharan Africa than in other regions, so that the vulnerability due to a decline in remittances is probably underestimated here.
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