SARS and the role of government

By Ifzal Ali  / 

Fri, May 23, 2003 - Page 8

The SARS outbreak is causing serious disruptions to near-term economic growth in Asia, but its policy implications for governments stretch far into the future.

Recent positive developments and improved public health measures have added weight to arguments that SARS, although serious, will cause only a temporary shock to economic growth.

This new disease, however, should remind policy makers that changes in health care and information management are needed if similar future challenges are to be transformed into medium- and long-term opportunities.

Clearly, SARS poses significant medical risks. But the psychological impact on people in affected areas has, at times, been disproportionate to the disease's relatively low mortality rates.

Among reported SARS cases at present, the average mortality rate over all affected regions is 7 percent and the recovery rate is 43 percent, while the outcome of the remaining cases is not yet known.

The pronounced psychological impact of the outbreak can be attributed to both the wide gap between the rapid and detailed transmission of information about the numbers of people struck down by SARS and to the lack of sufficient medical information about the disease.

Uncertainty and fear are at the root of the outbreak's deep economic impact.

There are a number of ways the disease hurts business. In locations with a high incidence of SARS, the movement of people is restricted, either voluntarily or involuntarily, thus reducing consumer spending.

Tourism-related service sec-tors, including airlines, hotels, entertainment, retail and restaurant businesses, are particularly affected as travelers cancel trips and consumers shun shops, restaurants and entertainment venues.

The stress on the tourism industry, which accounts for over 9 percent of GDP in East Asia and about 11 percent in Southeast Asia, will spread to other areas of the economy.

If the outbreak persists, exports will also be affected as trade fairs and business travel are canceled and demand for goods from affected areas falls. A persistent outbreak could also dampen investor confidence resulting in weaker investment and inflows of foreign capital.

There may be supply-side shocks, too. If the outbreak can't be effectively contained, the workforce will be reduced through illness or precautionary measures to prevent the spread of SARS, thereby disrupting business oper-ations and production. This could affect both the services sectors and manufacturing.

If cross-border trade is hampered, delays in international shipments of inputs and final goods are likely. This would almost certainly intensify the regional impact of SARS, given the growing interdependence of Asian economies.

All told, income lost in East and Southeast Asia due to SARS could range from about US$12 billion if the disease is quickly controlled to about US$28 billion if the impact extends into the third quarter of this year.

But SARS is changing more than economic forecasts. The outbreak is challenging many governments' administrative capacity and, more importantly, their ability to maintain the confidence of their people.

In Chinese, the character for "crisis" means both danger and opportunity. The SARS outbreak provides a significant opportunity to learn important lessons about the crucial role of government in times of crisis. The SARS outbreak highlights this role in four areas:

First, the accurate, timely and transparent provision of information on the nature and extent of SARS is critical for containing the epidemic and reducing the public's fears and resulting uncertainty.

Governments need to work closely with medical professionals to generate and disseminate accurate information about the risks and extent of a disease, and preventative measures. Any apparent lack of transparency is likely to cause second-guessing and panic among the public.

Second, as Vietnam's success in dealing with SARS demonstrates, rapid and decisive policy res-ponses and actions are imperative in dealing with epidemics.

People infected with a virus may not seek medical care quickly enough to avoid spreading the disease. With the increased mobility of people and the significant flow of goods and services, disease can be transmitted quickly on a large scale. Any delay in preventative action will lead to greater costs later.

Third, fiscal preparedness is key to rapid response. Addressing the outbreak and its aftermath will call for increased public spending, while the likely slowdown of economic activities could reduce government revenue. Together these realities will worsen government fiscal positions.

The possibility of similar shocks in the future underlines the need for governments to implement prudent fiscal policies, to accumulate primary surpluses and to set aside appropriate amounts in annual budgets for unexpected contingencies.

Fourth, governments must form long-term strategies and develop institutional capacities to deal with contagious diseases.

SARS is not the first outbreak of disease in the modern era. It will not be the last. The rise of drug-resistant microbes and the resurgence of previously controlled diseases such as tuberculosis make the effective provision of public health services more important than ever.

These are serious tests for developing nations. But for the past two decades developing Asia has been characterized by pragmatic policy responses to emerging challenges.

The lessons learned already from the SARS epidemic will help contain the disease in the short-term, initiate improvements in public health systems that will benefit people in the medium-term and systematically improve the quality of health research and health care that will have major positive impacts over the long-term. Actions taken now, both individually and collectively, will determine whether Asia will once again transform the challenge of today into the opportunities of tomorrow.

Ifzal Ali is chief economist at the Asian Development Bank. This article is based on a speech he delivered at a recent Boao Forum meeting in Beijing on SARS.