Kristalina Georgieva and Sigrid Kaag
WASHINGTON, DC/THE HAGUE – Owing to the COVID-19 pandemic, the global economy is suffering its sharpest decline since the Great Depression. But while everybody is hurting, it is the world’s poorest countries that will pay the highest price unless they receive more help.
Some 1.5 billion people live in low-income developing countries, struggling to overcome weak public health systems, limited institutional capacity, and, in many cases, high debt levels. All these countries entered the crisis with a limited capability to fight it. They faced a dramatic increase in spending needs just when the pandemic caused a decline in revenues from tourism, remittances, and commodity prices. While actions to protect advanced-economy businesses and workers amounted to some 20% of GDP, this support in low-income countries was only about 2%.
With as many as 115 million additional people at risk of falling into extreme poverty this year, today’s deep economic decline is threatening to reverse two decades of gains in living standards. The current damage will last for many years to come, as children – especially girls – drop out of school, the quality of health services deteriorates, and employment levels remain depressed.
This matters for all of us. Insecurity in poor countries translates to instability for the rest of the world. And, more importantly, the COVID-19 crisis will never truly be over until it is defeated everywhere.
To that end, international institutions and bilateral donors must help poor countries as they work to create the right economic conditions for recovery at home. The International Monetary Fund continues to provide hands-on technical assistance and training to its members, helping governments handle debt, raise revenues, and manage public finances to ensure effective delivery of vital services, including health. The Netherlands has supported these efforts by contributing to dedicated IMF thematic funds and the Fund’s network of regional capacity-development centers in Sub-Saharan Africa, the Middle East, and the Caribbean.
The critical task now is to help low-income developing countries overcome the current crisis and strengthen resilience for the future. Bilateral donors like the Netherlands supplement IMF lending programs with targeted interventions for health, education, and job creation, as well as through programs that address climate change and greening the economy.
We also need to do more to help countries with unsustainable debt burdens. Even before the pandemic, around half of low-income countries were in, or at high risk of, debt distress. Now that many countries have only limited, if any, access to new market financing, they are confronting a terrible trade-off between supporting their people during the pandemic and servicing their debt.
The international community has taken some important steps to address this problem. With the support of 13 bilateral donors, including the Netherlands, the IMF has provided one year of debt-service relief of about $500 million to 29 of its poorest members, and is now seeking additional resources to extend this relief beyond April 2022. We have welcomed the extension of the G20’s Debt Service Suspension Initiative, which has already provided the poorest countries with about $5 billion in temporary debt-service relief. The IMF also supports the G20 and Paris Club’s establishment of an ambitious new Common Framework for debt resolution, which combines a standard approach to decision-making among creditors with a case-by-case approach to debt relief.
Beyond addressing debt, low-income developing countries need strong international financial support. Since the onset of the pandemic, the IMF has doubled access to emergency financing facilities and provided $11 billion in emergency financing to 47 countries in this group. The IMF remains committed to ensuring sufficient access to such credit in the years to come.
To do so, the IMF counts on its wealthiest member countries to support this effort by providing new loan resources for financing concessional lending programs. Since the beginning of the pandemic, the Fund has secured an additional $22 billion, and is now working to mobilize grants to ensure zero-interest lending at these levels, to which the Netherlands will be contributing as well. Many bilateral donors have also bolstered their own programs to support low-income countries. The Netherlands, for example, recently pulled together €500 million ($595 million) to keep existing development efforts afloat, and to fund new ones to help poor countries fight the pandemic.
Finally, low-income countries need trade now more than ever. Over the past two decades, global poverty levels fell dramatically as these countries ramped up their participation in international markets. But the pandemic and ongoing trade tensions have jeopardized that progress. An open, stable, and transparent rules-based trading system remains absolutely critical for ensuring global economic stability, inclusive and sustainable growth, and long-term prosperity.
The IMF continues to promote the recovery of global trade by working to maintain open markets and advocating for further policy reform. Within the European Union, the Netherlands and France have pushed for trade policies that put more emphasis on sustainability and responsible business conduct.
Meeting the many unmet needs of low-income countries will require further joint efforts by bilateral donors, including national public development banks and multilateral institutions. Together, we can help the most vulnerable countries and communities recover from the pandemic. In doing so, we will build a more resilient, inclusive world for everyone.
Kristalina Georgieva is Managing Director of the International Monetary Fund. Sigrid Kaag is Minister for Foreign Trade and Development Cooperation for the Netherlands.
Copyright: Project Syndicate, 2020.