The shock waves from Covid-19 will lead to a lost decade for the world’s poorest countries unless they get concerted and urgent help, the International Monetary Fund has said.
The Washington-based IMF said low-income developing countries (LIDCs) entered the pandemic in a vulnerable position and faced the prospect of their progress in poverty reduction over the past seven to 10 years being wiped out.
In a blog, IMF economists called on the international community to adopt a seven-point plan so that poor countries could cope with Covid-19 and recover quickly. Growth, which averaged 5% in 2019, was likely to come to a standstill this year, the IMF said, adding that previous pandemics had left permanent scars.
It backed a recent call from the World Bank president, David Malpass, for a more ambitious programme of debt relief that would move beyond repayment holidays to a reduction in the stock of debt.
“LIDCs entered the Covid-19 crisis in an already vulnerable position – for example, half of them suffered high public debt levels,” the IMF said. “Since March, LIDCs have been hit by an exceptional confluence of external shocks: a sharp contraction in real exports, lower export prices, especially for oil, less capital and remittances inflows, and reduced tourism receipts.
“Despite the best efforts of LIDC governments, lasting damage seems unavoidable in the absence of more international support. Long-term ‘scarring’ – the permanent loss of productive capacity – is a particularly worrisome prospect.”
Scarring from past pandemics had included high death rates, worse health and education outcomes leading to weaker future earnings; a depletion in savings and assets that result in the closure of firms; and a legacy of debt that depressed lending to the private sector. The IMF said that in the aftermath of the 2013 Ebola outreak, Sierra Leone never recovered to its pre-crisis growth path.
“Scarring would trigger severe setbacks to LIDCs’ development efforts, including undoing the gains in reducing poverty over the last seven to 10 years, and exacerbating inequality, including gender inequality,” the IMF said.
The UN has set a number of ambitious sustainable development goals to be met by 2030, and the IMF said scarring would make these more difficult to achieve.
The IMF has provided emergency financial help to 42 of the LIDCs during the coronavirus crisis but said more was needed. It said the priorities were:
- Guaranteeing essential health supplies, including cures and vaccines when they are discovered.
- Protecting critical supply chains, especially for food and medicines.
- Avoiding protectionism.
- Ensuring developing economies can finance critical spending through grants and concessional financing.
- Ensuring LIDCs’ international liquidity needs are met, which requires institutions such as the IMF and the World Bank to be resourced adequately.
- Reprofiling and restructuring debt to restore sustainability where needed, which, in many cases, could require more generous relief than offered by the G20 in the spring.
- Keeping sight of the UN’s 2030 sustainable development goals, including by reassessing needs when the crisis subsides.
“The Covid-19 pandemic will be defeated only when it and its socioeconomic consequences are overcome everywhere. Urgent action by the international community can save lives and livelihoods in LIDCs,” the IMF said.