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Business News of Wednesday, 2 September 2020

Source: 3 News

Coronavirus: Low-income countries risk loss for decades – IMF

In the wake of the Coronavirus pandemic, the International Monetary Fund (IMF) has noted that most low-income developing countries (LIDCs) cannot sustain strict containment measures for long as large segments of the population live at near subsistence levels.

The IMF said large informal sectors, weak institutional capacity, and incomplete registries of the poor make it difficult to reach the needy. Further, governments have only limited fiscal resources to support them.

Recent surveys conducted across 20 African countries reveal that more than 70 percent of respondents risk running out of food during a lockdown that lasts more than two weeks. Faced with such constraints, the short but sharp front-loading of containment fulfilled a critical purpose – it flattened the infection curve, while granting time to build up capacity in the health sector.

The IMF in a study done by three of its staff, Daniel Gurara, Stefania Fabrizio, and Johannes Wiegand, said “Many LIDCs have followed this path: while they expended less fiscal support to their economies than advanced or emerging market economies, the share of additional spending dedicated to health has been higher.

“As broad-based containment becomes difficult to sustain, LIDCs should transition to more targeted measures, including social distancing and contact tracing—Vietnam and Cambodia are good examples. Policy support should focus on supporting the most vulnerable, including the elderly, and on limiting the health crisis’s long-term fallout.

“For example, protecting education is critical to ensure that the pandemic does not—as highlighted in a recent Letter to the International Community by a group of eminent persons—“create a COVID generation who loses out on schooling and whose opportunities are permanently damaged.”

“Where the necessary infrastructure exists, technology can sometimes be leveraged in innovative ways. For example, to limit the spread of the virus, Rwanda is leveraging its digital finance infrastructure to discourage the use of cash. Togo employs the voter registration database to channel assistance to vulnerable groups.”

The study added “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 has been the legacy of past pandemics: mortality; worse health and education outcomes that depress future earnings; the depletion of savings and assets that force firm closures—especially of small enterprises that lack access to credit—and cause irrecoverable production disruptions; and debt overhangs that depress lending to the private sector. For example, in the aftermath of the 2013 Ebola pandemic, Sierra Leone’s economy 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 7 to 10 years, and exacerbating inequality, including gender inequality. The Sustainable Development Goals (SDGs) will thus be even more difficult to achieve.”

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