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COVID-19 entrenching poverty in the developing world

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Migrant workers and their families wait to get on a bus to begin their journey home amid an extended lockdown to slow the spread of COVID-19 in New Delhi, India, 26 May 2020 (Photo: Reuters/Adnan Abidi).

In Brief

Through disruption of the forces of supply and demand and the forcing of lockdown measures across the global economy, the COVID-19 pandemic is posing an existential threat to least developed and developing countries.

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Gains made in poverty alleviation through decades of economic growth are being shattered. It is a sober reminder of humanity’s fragility and it will be a tragedy if we do not emerge wiser and more united from this savage crisis.

The number of COVID-19 fatalities in developing and emerging Asian countries is relatively small so far, but their economies are still set to be hit by post-pandemic economic disaster. More than 90 per cent of the labour force in Asia work in the informal sector without any job security and little by way of healthcare or institutional protection.

Before the pandemic, millions of South and Southeast Asian citizens worked abroad in the Persian Gulf and other countries due to a lack of job prospects at home. Remittances are an important source of foreign exchange earnings for these countries. In 2018 remittances amounted to US$72.5 billion for ASEAN countries and US$132 billion for South Asian countries.

The pandemic has suggested that over-reliance on foreign employment as an answer to domestic unemployment is an imprudent strategy. As COVID-19 spread, millions of migrant workers were sent home while millions more were stranded in their host countries. Those who returned found their home economies struggling for survival. Increasing fiscal deficits have also disabled many countries’ ability to address the consequences of the pandemic.

Still, many developing countries are launching stimulus packages to revive their economies. Such packages range from 0.1 per cent of GDP, in Sri Lanka to 8.9 per cent in Thailand. This is in contrast to stimulus packages in developed countries — 11 per cent of GDP in the United States, 19.7 per cent in Singapore and 21 per cent in Japan. Nepal, Cambodia and Laos were unable to devise any financial stimulus package.

Common measures in these packages include daily food rations for the most vulnerable, short-term income support for the poor, subsidies for small- and medium-sized enterprises, insurance protection for healthcare workers and public works construction. But these measures remain grossly inadequate given the scale of job losses and hunger.

Countries traditionally playing a global leadership role are demonstrating fatigue or retreat, as 92 per cent of the globe is facing negative GDP growth this year. Multilateral resources committed by the World Bank (US$150–160 billion over the next 15 months), the Asian Development Bank (US$20 billion) and the IMF (around US$1 trillion) are insufficient. The IMF’s own estimates show the world’s current financing needs are around US$2.5 trillion. But the capacity of these institutions to process claims is overwhelmed as requests for assistance surge. Meanwhile, around US$100 billion in foreign capital has left Asia since the pandemic began.

The need to assist least developed and developing countries has never been more compelling. The suffering of millions of jobless youths — if prolonged and not prudently addressed — could result in massive cross-border movements in due course and social upheaval across multiple countries. Yet the global appetite for migration is waning and donor countries are themselves under fiscal constraint and negative growth prospects.

This pandemic displays the huge income and social inequality between rich and poor countries. COVID-19 is not a health crisis — it is a human crisis. Millions of workers and hungry families face food shortages, though others remain indifferent to food wastage and poverty.

Some reassuring baby steps are emerging from different platforms. These include Japan’s contribution of US$100 million to the IMF’s Catastrophe Containment Relief Trust and SDR1.8 billion (US$2.5 billion) to the Poverty Reduction Grant Trust. The South Asian Association for Regional Cooperation’s COVID-19 Emergency Fund of US$21.8 million and the ASEAN COVID-19 Fund symbolise admittedly modest but important regional efforts.

COVID-19 confirms some built-in anomalies of the current global financial system. All countries face fiscal and foreign exchange stress as they roll out expensive measures to stimulate their economies. But the United States and 14 other nations with swap arrangements are relatively spared from these stresses.

Swap arrangements are those agreements between the US Federal Reserve and other central banks guaranteeing countries a pre-arranged amount of US dollars whenever needed. Hundreds of countries are denied this privilege. It seems only fair that the United States and its swap partners set up a common global pool of financial resources to aid poorer countries through this period, as many emerging countries lack the institutional infrastructure and financial firepower to combat the crisis.

Bilateral and multilateral agreements should be better leveraged to coordinate a global support program for the poorest countries on an experimental basis. The deployment of some form of wide financial provision — funded by donor governments, big corporations and philanthropic organisations — could help prevent the development divide deteriorating further. Unusual times call for unusual measures.

To recover to pre-pandemic levels of growth, countries must at minimum collectively commit to keeping markets open for free trade and investment. Regional and global supply chains need to be maintained to ensure the flow of food, medical equipment and other basic necessities. ASEAN’s continued commitment to deliver the Regional Comprehensive Economic Partnership (RCEP) by the end of 2020 is a powerful message towards this goal.

Humanity must take this crisis as an opportunity to proactively address fundamental challenges to the global economy, tackling social inequalities and degradation.

Omkar Shrestha is a former senior official of the Asian Development Bank.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

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