Billions of people in developing countries are teetering on the brink of economic ruin as the coronavirus pandemic hammers economies and overburdens healthcare systems already crippled by overwhelming debt obligations, the United Nations has warned.
A new report from the UN-led Inter-Agency Task Force on Financing for Development – based on joint analysis from the UN, the International Monetary Fund (IMF), World Bank Group, and more than 60 international institutions – outlines a game plan to help governments prevent a global economic calamity.
The blueprint includes strengthening programmes that are aimed at providing people with basic needs such as food and medicine, boosting resources so developing countries can be better prepared for disasters, and investing in infrastructure either through public investment or incentives for the private sector.
“We are far from having a global package to help the developing world to create the conditions both to suppress the disease and to address the dramatic consequences,” UN Secretary-General Antonio Guterres told reporters recently. “What is needed is a large-scale, coordinated and comprehensive multilateral response amounting to at least 10 percent of global GDP [gross domestic product].”
The new report urges banks to allow small and medium-sized businesses and individuals strapped for cash to rollover their debt payments. It also calls for the elimination of trade barriers and restrictions that affect supply chains to those whose lives depend on them.
These policy recommendations come at an unprecedented time as COVID-19 batters global financial markets. Investors have already moved $90bn out of emerging markets – the largest outflow ever recorded, and coming at the most inopportune moment when these countries need the resources most, the UN says.
“In the last 75 years, the United Nations has not seen such a catastrophe. Immediate measures are critical to minimise the suffering of millions of people,” Navid Hanif, director of the Financing for Sustainable Development Office at the UN Department of Economic and Social Affairs (UN DESA), told Al Jazeera.
The report shines a spotlight on the disparities in access to digital technologies that have helped sustain interactions and a wide range of business and educational activity during COVID-19 lockdowns.
Almost half of the world’s 7.8 billion people do not have access to the internet. This means that billions of people simply do not have the option to work from home.
Workers in the gig and informal economy are extremely vulnerable to life-altering income losses during recessions. And governments in developing countries, where a great majority of informal jobs exist, lack the resources to address basic needs.
“We clearly have a human crisis that is turning into an economic crisis that could lead to a debt crisis. We are urging the global community to come together to address this immediately,” Shari Spiegel, chief of Policy, Analysis and Development at UN DESA, told Al Jazeera.
A new debt crisis would be compounded by crashing prices for oil and other key commodities.
“Even prior to the crisis, 44 least developed countries [LDCs] were at a high risk of debt distress, with over 25 percent of their state funds being used for debt payments,” Spiegel added. “Developing countries increased borrowing during the periods of low interest rates but now have a collapse in global demand for oil. Supply chains have been disrupted, and there is a collapse in commodity prices.”
Pre-pandemic, one in five countries – home to billions of people living in poverty – were likely to see per capita incomes stagnate or decline in 2020.
The report urges the immediate suspension of debt payments from LDCs and other low-income countries that request forbearance. Countries must reestablish financial stability by providing adequate liquidity, and strengthen the global financial safety net, especially for emerging markets.
To fight the virus, governments must expand public health spending while also keeping small businesses afloat.
Developed economies must heed the call to reverse the decline in official development assistance (ODA), particularly to those nations hit the hardest by coronavirus. In 2018, ODA declined by 4.3 percent, and ODA to LDCs fell by 2.2 percent in real terms.