Coronavirus: Developing nations face choice between infection and starvation

The novel coronavirus (COVID-19) blights societies across the globe, paying no attention to economic disparities or geographical borders. The virus also gives little regard to differences across individuals. Developing countries—like individuals with pre-existing health conditions—are disproportionately impacted. Flattening the COVID-19 curve demands strict mitigation measures such as national lockdowns and social distancing, and stricter measures almost invariably yield flatter curves.

Implementing these measures requires substantial fiscal space to cope with the economic ramifications and offer social protection measures. An economy’s ability to endure a lockdown is inextricably tied to its fiscal space. It is therefore no surprise that nations like the United States and the UK announced large fiscal packages to shore up their financial system, protect payrolls, support large and small businesses through billions of dollars in aid, and expand unemployment insurance.

With limited fiscal space, developing countries simply don’t have the luxury to implement these measures. Beyond economic limitations, most developing countries were thrown into the epidemic with their own vulnerabilities: weak healthcare systems, pervasive misinformation, social unrest, under-resourced institutions, and high urban population densities.

Looking at the data, 40 percent of the world’s poorest countries were at high risk of debt distress even before COVID-19 ravaged the global economy. In recent weeks, over 85 countries with limited fiscal space have approached the IMF for short-term urgent assistance—that’s over double the number of countries that called for IMF support in the wake of the 2008 financial crisis. Analysis by the Organization for Economic Cooperation and Development (OECD) relays the magnitude of the economic disruption of lockdowns: for each month that these measures continue, annual GDP growth is projected to fall 2 percentage points.

The pandemic’s economic impact extends far beyond a demand shock offset by expansionary fiscal and monetary policy interventions—it’s also a supply shock given the nature of contagion containment. Without the fiscal space to cope with these shocks, developing countries and their citizens face harder tradeoffs: not between economic disruption and effective mitigation, but between starvation and widespread infection; not between hand-washing frequency and duration, but between access to clean water and basic sanitation.

“We don’t know if we will get this virus…but what I do know is that we get hungry three times a day,” Shakila Asghar, a Pakistani citizen working at a towel-manufacturing factory in Karachi, was reported as saying in the Wall Street Journal. Prime Minister Imran Khan hasn’t imposed a national lockdown yet, but cases have spiked in recent weeks. Pakistan has over 4,600 confirmed cases and 68 deaths—70 percent of those cases are traced back to neighboring Iran, the epicenter of the virus’s outbreak in the Middle East.

Islamabad has taken some steps to prevent rampant infection: 10 million poor households would be provided with $20 a month, while military assistance would be used to enforce mitigation measures—many fear that these steps do little to contain the virus. The difficulty is encapsulated in the fact that Pakistan is a country of 210 million people with a fragile health-care system and ubiquitous urban slums where millions live without access to basic sanitation.

Torn between starvation or infection, working through the pandemic seems like the obvious—yet potentially lethal—answer. The tradeoff Shakila Ashgar faces is one that many citizens across the developing world struggle to navigate during this pandemic.

Beyond internal vulnerabilities, why are emerging and developing countries disproportionately impacted by the pandemic?

Their economies are heavily reliant on informal economic activity, remittances, commodity exports, and tourism—this means that unprecedented capital outflows, plummeting demand, and declining commodity prices are especially devastating conditions.

In the pre-COVID era, Africa called itself home to some of the world’s most promising emerging economies—Egypt is a case in hand. Dubbed an emerging-market darling, the Egyptian economy—despite suffering from structural fiscal imbalances—was considered region’s the fastest growing thanks to bold IMF-led reforms best described as a combination of monetary tightness and fiscal discipline.

Cairo made substantial economic strides driven by revitalized tourism, an increase in foreign exchange reserves, a reduction of the country’s twin deficits, and increased currency stabilization after its flotation in 2016. The World Bank thus expected Egypt’s GDP to grow by 6 percent in 2021. COVID-19 threatens to relegate that growth to mere unmet potential.

The public health crisis has forced policy-makers in Cairo to halt incoming flights—crippling vital tourism—while implementing record-breaking interest rate cuts in an attempt to mitigate the virus’s economic ramifications. COVID-19’s challenge is magnified by the sheer size of the Egyptian population and its fragile public health infrastructure.

More broadly, African equity markets have already been hit harder than they’ve been during the global financial crisis. However, glimmers of hope can be found in the continent’s youth-centric demographic trend, warmer climate, and lower rates of regional travel .

For emerging and developing countries, the pandemic poses an existential threat. Their economies can’t weather the COVID-19 storm alone: global problems need a swift and concerted global response.

First, the International Monetary Fund (IMF) and World Bank should bolster their lending capacity by borrowing on international markets and making full use of the IMF’s Special Drawing Rights (SDR) issuance. Second, it is imperative that the IMF organizes a wide-ranging debt moratorium to prevent a cascade of sovereign defaults. Third, advanced economies should not engage in unilateral hoarding by restricting exports of protective medical equipment and testing kits.

Economic interventions must be coupled with a free-flow of reliable, science-based information between nations. This pertains to novel methods to contain and mitigate the virus’s impact, drug-testing efficacy and efficiency, as well as means to increase public awareness. Internally, developing countries must ramp-up efforts to protect address the needs of those most vulnerable while ensuring citizens have access to basic practices that prevent the virus’s spread such as hand-washing and basic sanitation.

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Last Update: Wednesday, 20 May 2020 KSA 12:05 - GMT 09:05
Disclaimer: Views expressed by writers in this section are their own and do not reflect Al Arabiya English's point-of-view.
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