Nayha Mansoor offers some reflections on a webinar organised by The Royal Economic Society (RES) and the International Economic Association (IEA) on COVID-19 and low- and middle-income countries.
The COVID-19 pandemic has affected the entire world but the impact so far has been uneven across low– and middle–income countries, with some at the beginning of the “curve” and others feeling the impact much stronger. Because high-income countries are battling their own problems generated by the pandemic, the need for international support in low-income countries has been overshadowed. Therefore, there is a possibility that gains made in recent years may be undone because of the pandemic and it will be difficult for countries to achieve the Sustainable Development Goals (SDGs).
In April 2020, The Royal Economic Society (RES) and the International Economic Association (IEA) organised a webinar on COVID-19 and low– and middle–income countries. The RES and IEA brought together Kaushik Basu from Cornell University; Dani Rodrik from Harvard University; Haroon Bhorat from the University of Cape Town; Ashwini Deshpande from Ashoka University; Luis-Felipe Lopez-Calva the ASG and UNDP Regional Director for Latin America and the Caribbean and Albert Zeufack the Chief Economist for Africa Region, World Bank to discuss the interface between the epidemiological and economic challenges that different nations are facing.
This news story provides observations on where the current policy responses of different nations stand, and how these responses can be improved to help battle the adverse economic consequences of COVID-19.
1. The Three Stages of COVID-19 Crisis
Lopez-Calva discussed how the COVID-19 pandemic is affecting countries in Latin America and the Caribbean. He highlighted what the crisis will look like in the next few months and presented the three stages of the crisis based on the current evidence. The first stage is called “controlling the pandemic” and this phase may last for three months depending on the effectiveness of the lockdown measures. The second stage of the crisis is called the “recovery from recession”, which is going to last six to nine months. Much of it depends on the health and economic measures taken during the first stage of the crisis. The third stage is called “discovering the new normal”. What happens in the next few months will redefine normality. In this new normality, the world will be different in many dimensions, including tourism flows, production chains, and conditions in financial markets.
2. The COVID-19 Crisis will lead Sub-Saharan Africa to its First Recession in 25 years
Zeufack showed statistics from Africa which highlighted that despite its late arrival to the continent, COVID-19 has already taken a huge toll on African economies. The GDP growth in sub-Saharan Africa is projected to decline from 2.4 per cent in 2019 to between -2.1 per cent and -5.1 per cent in 2020, and economies may lose between $37 billion and $79 billion in output in 2020. Furthermore, household welfare is projected to decrease between 7 and 14 per cent and there could be severe food crises, as agricultural production is projected to decline between 2.6 and 7 per cent.
3. A Customised Policy Response to Reflect the Structure of African Economies
Zeufack highlighted the need for a differentiated African policy response, while taking into account the structure of African economies. Most African countries have adopted the same aggressive response policies that have been implemented in the United States, European countries and China. However, as many of these African countries do not have social protection programmes that have been designed to adequately reach low-income citizens in the informal sector, the approach is unlikely to be sustainable. Therefore, the policy response needs to take into account Africa’s structural features and policy constraints, especially the decreasing fiscal positions and heightened public debt vulnerabilities, and the overall low operational capacity to respond. Basu also discussed how countries are influenced by the lockdown measures of other countries. Policymakers across the globe need to classify different types of lockdowns given the different political, economic and social circumstances of different countries.
4. The Need for Gendered Policy Response
Deshpande discussed why we must pay attention to gender matters especially in times of a pandemic. She highlighted the case of India and showed that mothers are affected more by school closures as their burden of providing childcare increases. Secondly, the diversion of healthcare resources towards addressing COVID-19 means that there are now fewer resources available for reproductive health. So, there is a lack of access to newborn clinics, abortion clinics and contraception. Furthermore, calls reporting domestic abuse have increased drastically since lockdown began. Keeping these statistics in mind, Deshpande highlighted that countries need to collect gender-disaggregated data in order implement gender-sensitive responses to COVID-19. This crisis gives us an opportunity to reorient priorities because we must protect and expand health resources, and create safe spaces for women and children who have experienced abuse. Furthermore, there needs to be equal gender representation in key decision-making bodies.
5. Macroeconomic Challenges Going Forward
Bhorat discussed the economic dynamics of COVID-19 in South Africa and its macroeconomic implications. He showed that all industries in South Africa are operating below full capacity, however, the sectoral effects of COVID-19 are heterogeneous as some sectors have completely shut down, while others are operating at 20 per cent of their full capacity. GDP growth projections show that the economy is going to contract in 2020 with a 6.4 per cent decline in GDP, and although growth is expected to bounce back in 2021, it is only expected to increase between 2 and 5 per cent. For the distributional impact, the World Bank Macro-Sim model showed that COVID-19’s impact across income distribution is uneven with the poor and middle-class seeing income declines of 5 and 20 per cent respectively. This will cause a huge spike in overall income inequality in South Africa. Bhorat estimated that COVID-19 is going to cause a revenue shortfall of 15 per cent, with a GDP contraction of 6 per cent causing the Deficit GDP ratio to rise from 13.5 to 19.01 per cent. So, the macroeconomic challenge going forward is the management of this massive increase in Deficit GDP ratio while the short-term revenue is declining and the share of dollar-denominated debt is increasing.
A few reflections:
￼As a result of COVID-19, low-income countries are going through turbulent times. Alongside the cost of a loss of lives and a deepening health crisis, countries are going through an economic downfold that will severely impact the wellbeing of the population in the years to come. The lockdown policies have led to high economic and social costs. This world crisis is like no other and therefore requires unconventional responses. The policymakers need to focus on the pandemic and the economy together rather than creating a trade-off between the two. In order for lockdown measures to be successful in terms of flattening the curve and suppressing the pandemic, the vulnerable and poor population needs to be protected. Now more than ever, the policymakers need to understand that a lack of investment in health, education and social protection systems will intensify the crises further. The provision of in-kind support and cash transfers are essential for populations that are vulnerable and do not have access to markets due to the pandemic and the lockdown. Indeed, new evidence on the economic and social consequences of the COVID-19 crisis highlights the need for expanding social protection systems both during the crisis and beyond.
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