Pandemic and difficult economic situation in developing countries – Opinion
“Developing countries have been ravaged by a combination of the health crisis caused by the pandemic, collapsed exports, rising global food prices, domestic economic contraction, declining tax revenues and debt distress. outside. The World Bank estimates that an additional 97 million people – many in Africa – will fall into extreme poverty in 2021. This may well be an underestimate, as it does not take into account rising food prices, increasing inequalities and impact on the poor in South Asia. – Excerpts from a recent article published by Project Syndicate “A Wrong Turn for World Bank Concessional Lending” by Jayati Ghosh and Farwa Sial
There are limits to the macroeconomic policies – monetary and fiscal – available with the governments of developing countries. Certainly, they can be more innovative, but given the longevity of the pandemic, the lack of necessary vaccine supply and the necessary multilateral support are the realities that have pushed countries to the limits of policy instruments. On the other hand, there is much less adjustment of approach by institutions like the International Monetary Fund (IMF) and the World Bank to support the necessary stimulus response required by these countries, including spending requirements. of the public health sector.
The recent allocation of Special Drawing Rights (SDRs) by the IMF, while welcome, is well below the balance of payments (BoP) or budget support needed, both in terms of overall allocation size, but also in terms of distribution based on quotas of member countries in times of pandemic. Moreover, instead of supporting developing countries on the path to macroeconomic stabilization through increased financial support, the IMF, in many of its programs, continues its assiduous policy of squeezing aggregate demand, mainly to bring the situation under control. debt, as well as curbing inflation, when a significant part of it is linked to the rise in international commodity prices and also depends on rather institutional issues that require medium-term reforms. The extent of financing needed by low-income countries, as estimated by the IMF itself, is highlighted in the same article by Jayati Ghosh and Farwa Sial, because “Researchers from the International Monetary Fund estimate that low-income countries income will need around $ 200 billion over the four years to 2025 just to recover from the pandemic and an additional $ 250 billion to catch up with advanced economies.
At the same time, the concessional lending arm of the World Bank’s International Development Association (IDA), rather than supporting public spending much more than usual when public spending needs are lower during the pandemic and its recessionary impact on economic growth and poverty continues to prioritize private sector financing. Jayati Ghosh and Farwa Sial pointed out in the same article: “… there is a high risk that IDA funds will be used in part to favor private sector actors, instead of allowing governments to directly support the poor. . Indeed, the World Bank Group, in line with its 2017 ‘Cascade’ approach, has introduced a ‘private finance first’ model that prioritizes private finance options over the use of resources. public in development projects. As part of this broader strategy, IDA launched its own Private Sector Window (PSW) in 2017 to leverage private investment in recipient countries.… Given the limitations inherent in PSW, subsidize the private sector to invest in public goods and services through IDA only exacerbates the adverse consequences of the pandemic. As long as IDA can be an important source of stimulus funds for the poorest economies, these resources must be used efficiently. This will require shutting down the PSW and, instead, providing resources directly to governments and developing alternative approaches to strengthen public finances and public services.
The magnitude of the economic challenge facing developing countries can be understood, for example, from last year’s September annual report of the United Nations Conference on Trade and Development (UNCTAD), such as the underlines an article published by Guardian “The UN warns of the lost decade without Covid’s economic stimulus plan ‘at the time:’ The world economy is facing a lost decade after the Covid-19 pandemic, in unless policymakers reject austerity measures in favor of a comprehensive stimulus package based on investments in sustainable growth, the United Nations said. ‘
Contrary to what the IMF continues to stick significantly in terms of the policy prescription of aggregate demand compression that it has prescribed for many program countries – unlike many rich and advanced countries that seek ‘significant stimulus injections into the economy – last year’s UNCTAD annual report also underlined as stated by the same article: “In its annual trade and development report, the economic arm of the UN said a repeat of government-led cost cutting after the 2008-09 financial crisis would stifle the recovery and risk a double-dip recession in 2022. ‘
In addition, this year’s UNCTAD annual report which came out recently sounded the alarm on the financial losses caused and expected to the poorest countries as a result of the pandemic, in which an article published by Guardian ‘The poorest countries will be worse off by $ 12 billion by 2025 due to Covid – UN’ the report pointed out as follows: ‘The poorest countries in the world will be worse off by 12 billion dollars (8.7 billion pounds) by 2025 amid a weaker economic recovery from Covid-19 as rich countries limit their access to vaccines, the UN warned. In its annual report on trade and development, the United Nations Conference on Trade and Development (UNCTAD) said low-income countries had been hit much harder by the pandemic than during the 2008 financial crisis, which made it worse their debts and increased pressure on their public finances. ‘
But rich and advanced countries, as well as multilateral institutions – including the World Trade Organization (WTO) on the front lines to push forcefully for at least the temporary removal of intellectual property rights (IPRs) on Covid vaccines – have not played the necessary role in providing financial support and meeting the vaccine supply needs of developing countries, particularly Africa, until now. To quote the recently released UNCTAD annual report, as the same article points out: “The economic arm of the UN has said that there are growing risks that low-income developing countries fall further behind due to limited progress in the deployment of coronavirus vaccines, despite Western leaders vowing to “build back better” from the crisis. “So far, the world economy appears to be rebuilding itself separately,” he said in the report. ‘
What’s more, the Covax program has also performed poorly, as a recent article published by Guardian points out “The West Has More Doses of Vaccine Than It Needs – and No Excuse Not to Share Them” by one. former Prime Minister of the United Kingdom, Gordon Brown. , as follows: “The World Health Organization’s Covax program is the global wholesale purchasing agency established last year to ensure equitable distribution of vaccines. But even though the G7 countries promised Covax in June that they would share 870 million doses with the poorest countries, only 100 million were distributed to them, and overall only 4% of all vaccines produced. worldwide have been delivered via Covax.
Furthermore, regarding the extremely poor performance of the vaccine supply, which is an important underlying factor in the lack of a similar economic recovery observed in developing countries, in addition to the comparatively weak stimulus provided by the latter group of countries, Gordon Brown pointed out in the same article that while the world next January will have enough vaccines to immunize every adult in the world, the extreme inequality of vaccines will only allow the vaccination rate to reach d ‘here there. According to him: “Soon, the ten billionth Covid vaccine will come off production lines. By January, according to a recent report by data research agency Airfinity, a tipping point will be reached when there are enough doses of the vaccine for every adult on every continent. By June, the number of doses will reach 27 billion, enough to fully immunize twice the world’s population. But despite this manufacturing triumph, we are losing heavily in the arms race to actually inject every adult in every country. Next summer, according to current trends, more than half of the world will remain unvaccinated. … Poor countries, which have only injected 2% of their adults, are denied vaccines, while rich countries which have already fully immunized over 60% of their citizens continue to monopolize access to doses. ‘
(The writer holds a doctorate in economics from the University of Barcelona; he previously worked at the International Monetary Fund)
He [email protected]
Copyright Business Recorder, 2021