UN: $2.5 Trillion support COVID-19 package needed [1]
Wednesday, April 1, 2020 - 18:31
The United Nations is calling for a $2.5 Trillion support package for developing countries to deal with the coronavirus shock.
The call comes as two-thirds of the world’s population living in developing countries (excluding China) faces unprecedented economic damage from the crisis.
In a press release dated 30 March, the UN stated that $1 trillion should be made available through the expanded use of special drawing rights.
In addition, $1 trillion of debts owed by developing countries should be cancelled this year, and $500 billion is needed to fund a Marshall Plan for health recovery and dispersed as grants.
UN trade and development body, UNCTAD, reports [2] the speed at which the economic shockwaves from the pandemic has hit developing countries is dramatic, even in comparison to the 2008 global financial crisis.
UNCTAD Secretary-General Mukhisa Kituyi said the economic fallout from the shock is ongoing and increasingly difficult to predict but there are clear indications that things will get much worse for developing economies before they get better.
Rising economic damage
Developing countries have taken a huge hit in terms of capital outflows, growing bond spreads, currency depreciations and lost export earnings, including from falling commodity prices and declining tourist revenues, since the virus began spreading outside of China, according to the UNCTAD report.
The impact on most of these measures is worse than in 2008. And with domestic economic activity feeling the effects of the crisis, the UNCTAD is not optimistic that a rapid rebound will occur for many developing countries like it did between 2009 and 2010.
Portfolio outflows have surged from main emerging economies to $59 billion in a month between February and March, more than double the outflows compared to the immediate aftermath of the global financial crisis of $26.7 billion.
Their currencies values have also fallen between 5% and 25% since the beginning of this year, and faster than the early months of the global financial crisis (see chart below).
Since the crisis began, the prices of commodities, which many developing countries heavily depend on for their foreign exchange, have also dropped quickly.
According to the report, overall price decline has been 37% this year.
Government packages
Advanced economies and China have put together massive government packages recently to extend a $5 trillion lifeline to their economies, according to the Group of 20 leading economies (G20).
UNCTAD's initial assessment estimates the packages will see a $1 trillion to $2 trillion boost of demand into the major G20 economies and a two-percentage point turnaround in global output.
No magic money tree for developing countries
However, the world economy will go into recession this year with a predicted loss of global income in the trillions of dollars, a serious concern for developing countries, with the likely exception of China and, possibly, India.
During the year, fiscal and foreign exchange constraints are certain to tighten and UNCTAD estimates there will be a financing gap of $2 trillion to $3 trillion facing developing countries over the next two years.
UNCTAD’s Director of Globalization and Development Strategies, Richard Kozul-Wright said advanced economies have promised to do ‘whatever it takes’ to stop their firms and households from taking a heavy loss of income.
“But if G20 leaders are to stick to their commitment of ‘a global response in the spirit of solidarity,’ there must be commensurate action for the six billion people living outside the core G20 economies.”
If many developing countries don’t have monetary, fiscal and administrative capacity to respond to the CoViD-19 crisis, the consequences of a combined health pandemic and a global recession will be catastrophic for them. It will halt their progress towards the Sustainable Development Goals.