Australia as an Enabler to Sustainable Indian Ocean Island Economies

Introduction

The world economy came to a standstill since early 2020 with the unprecedented COVID-19 pandemic. While various economies are trying to reach community immunization to reduce the number of COVID-19 cases, various studies already tapped into assessing the impact of the coronavirus on a global scale. For instance, Estrada et al. (2020) analysed several markets and warned that the actual health crisis can led to damages analogous to the 1929 Great Depression. Eichenbaum, Rebelo and Trabandt (2020) estimated that U.S. total consumption and gross domestic product (GDP) will drop by nearly 20 per cent.

This impact is also observed in various developed and developing countries with governments ordering businesses to close, except for essential activities. Shehzad et al. (2020) reported that uncertainty in European stocks was bigger during the COVID-19 relative to the financial crisis of 2008. While Bakas and Triantafyllou (2020) studied the effect of the pandemic uncertainty on commodities, Gurrib (2021) and Gurrib et al. (2021) found that shocks like the number of COVID-19 cases affected stock prices in healthcare and energy sectors but were short-lasting events. Comparatively, Prabheesh, Padhan and Garg (2020) argued that COVID-19 reinforced the relationship between oil prices and Asian stock markets. The relationship between oil prices and economic activity is well established with, on one hand, proponents like Anolick et al. (2021) supporting oil affects economic policy, and others like Gurrib (2018a, 2018b, 2019) and Lescaroux and Mignon (2009) supporting those commodities like crude oil prices are not strong forecasters of financial market activity, as captured by movements of market indices.

The health care sector of Mauritius, Sri Lanka and the Maldives have been affected by COVID-19 differently, where Mauritius and the Maldives prioritized health care over economic activity. This involved partial and complete lockdown episodes and closure of borders during the period March 2020 to October 2021 (PWC, 2021). On October 1^st of 2021, Mauritius began welcoming fully vaccinated tourists, including some quarantine provisions to cater those who are not vaccinated (BBC, 2021). While all the three nations imposed some lockdown, the period of lockdown affected the number of cases. For example, as of 14^th October 2021, Mauritius had 16,472 cases with 123 deaths. Comparatively, Sri Lanka had 528,000 cases with over 13,000 deaths, and Maldives witnessing 85,838 cases with 237 deaths. Mauritius adopted a more rigorous lockdown over a lengthier period. Sri Lanka had the highest death tolls, which increased from under 1,000 in April 2021 to 13,000 by September 2021 (Worldometers, 2021). This was mainly attributed to the unrestricted reopening of Sri Lanka borders as warned by the Sri Lanka Medical Association (SLMA) (Times of India, 2021). The Maldives reopened its borders on the 15^th of July 2020, and despite a surge in COVID-19 cases since then, benefited from the archipelago’s islands being scattered. This allowed local authorities to naturally contain COVID-19 cases on affected islands. The reopening of borders for the islands was warranted to recover from loss of economic activity, where the tourist sector is a vital contributor.

For the purpose of this study, COVID-19 brought the world to adopt globally aligned economic policies to recover from the health crisis financially. The Reserve Bank of Australia (RBA), consistent with the European Securities and Market Authority (ESMA) policy actions to contain COVID-19 effects on global economies, dropped its cash rate by 50 basis points in March 2020 (ESMA, 2020). Australia further dropped the cash rate in November 2020 to 0.1%, a rate never seen in the last thirty years (RBA, 2021a). While Australia’s GDP increased by nearly 10 per cent in 2021 and unemployment rate dropped below 5 per cent, the country has been negatively impacted by the Delta variant, resulting in restrictions on various economic activities (RBA, 2021b). Similar to various currencies, the Australian dollar (AUD) dropped significantly in value vis-à-vis the U.S. dollar (USD) during the early COVID-19 impact in March 2020, with 1 AUD = 0.58 USD. As of September 2021, the local currency has recovered and worth around 0.7 USD (XE, 2021). While this is a good sign of economic recovery, to attract further attention to the Australian economy, international partnerships are key.