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Opinion

Debt suspension initiative

ARTICLE: Pakistan hopes to a make a potential saving of $ 2.7 billion or nearly 1% of 2019 GDP, as the Paris Club,...

July 01, 2020

ARTICLE: Pakistan hopes to a make a potential saving of $ 2.7 billion or nearly 1% of 2019 GDP, as the Paris Club, recognising Islamabad's eligibility to benefit from World Bank's Debt service suspension Initiative (DSSI) has decided to provide us a time-bound suspension of debt service due from 1st May to 31st December 2020.

Meanwhile, the World Bank is strengthening Pakistan's healthcare system while also mitigating the socioeconomic disruptions. For example, health workers will be trained to watch for and help prevent gender-based violence in households under quarantine. The Bank is also supporting a tele-school initiative to compensate for school closures due to the lockdown. As well,40,000 people whose movement will be restricted for up to 6 months will also receive food rations.

The WB has already helped Pakistan to expand its national safety net, the Benazir Income Support Program (BISP): 4.5 million existing beneficiaries received an increase in transfers, while 7.5 million new beneficiaries received a one-time transfer to help with Covid-19-related issues.

In April, the World Bank's Development Committee and the G20 Finance Ministers endorsed the DSSI in response to a call by the World Bank and the IMF to grant debt-service suspension to the poorest countries.

The main goal of the DSSI is to allow poor countries to concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people.

The scale and speed of the response of the DSSI is said to have been critical in helping countries mitigate the adverse impacts of the crisis and prioritize the human capital investments that can accelerate recovery.

The World Bank estimates that the coronavirus pandemic will push 71 million people into extreme poverty. Globally, the number of people facing acute food insecurity is also likely to double by the end of the year.

WB's latest estimates show that South Asia will likely experience its worst economic performance in the last 40 years. Growth is projected to contract by 2.7 percent in 2020.

When the pandemic first hit South Asia, the World Bank responded rapidly, rolling out $1.6 billion of emergency support by the beginning of April. Since then, WB's support has grown to more than $4.2 billion, and more than $1.9 billion of these funds have been disbursed already.

This support has helped governments buy vital protective equipment and medical supplies for frontline workers, provide learning to children, and deliver cash transfers and food to the most vulnerable.

Among world regions, South Asia may see the largest increase in the number of poor because of Covid-19. Low-income people, especially informal workers, are at great risk, as they lack access to health care and are more likely to have lost their jobs.

WB is aiming to provide additional funding of close to $2 billion in the coming days. This support will help South Asian governments revive economies, jump start businesses and jobs, and protect their people.

Already the International Monetary Fund has warned of a "crisis like no other." In its latest report, the IMF has forecast that global GDP will plunge by 4.9% in 2020, wiping out a staggering US$ 12 trillion in the next two years.

Governments in many developed countries have concluded that increasing public expenses, and therefore public debt levels, is preferable to the widespread destruction of productive capacity during the epidemic.

A study by the Institute of International Finance revealed that as a co6seque6ce global debt across all sectors jumped by more than $10 trillion in 2019 to $255 trillion, or "322% of GDP."Worldwide liabilities are now 40 percentage points, or $87 trillion higher than at the start of the Financial Crisis.

The IMF has predicted that China will be the only economy to grow this year by a modest 1%. GDP in the United States could shrink by 8%, while the euro-zone faces a 10% drop.

Italy and Spain could suffer 12.8% contractions, France 12.5% and Germany 7.8%. The United Kingdom's GDP is also projected to shrivel by 10.2%, while Japan's economy could contract by 5.8%.

Meanwhile, US dollar could fall 35% against other currencies in the next three years. A debt epidemic and an anemic dollar would certainly push the global economy back into intensive care.

The Covid-19 pandemic has been a wake-up call, underscoring the importance of investing in resilient health systems that can detect, identify, treat, and halt transmission. It highlights the critical need to invest in better preparedness.

According to WB experts, the Universal Health Care (UHC) movement has focused on ensuring that health services are accessible and affordable for all. However, achieving UHC also depends on disease prevention, health promotion and emergency preparedness. These experts have identified the following key areas where joint action can be taken:

  1. The new normal for UHC includes greater emphasis on common goods for health. Covid-19 reinforces previous experience that strong health systems based on primary healthcare are the foundation for health security and UHC. National policies to promote UHC have sometimes neglected prevention, promotion and emergency preparedness. There's a strong case to position these public health actions as the first step towards UHC, and a core responsibility of governments.

  2. Invest more and better in health - for both health and economic reasons. Countries are facing economic recessions because of the crisis. But the pandemic gives compelling reasons to prioritize health investments now: the costs are small compared with the economic costs of not acting. Health financing policies should prioritize public financing for health and remove financial barriers to services.

  3. Seize the moment: opportunities for change can benefit both health security and UHC. The pandemic has shown that the choice is not between health security and UHC: strong health systems, grounded in primary health care, are needed for both. The crisis reinforces the need for global cooperation on priorities including addressing health workforce shortages and ensuring equitable access to new diagnostics, medicines and vaccines. If retained, positive innovations developed during the pandemic - in service delivery models, information technologies, product development, financing, governance, and ways of working - will contribute to progress on both health security and UHC.

  4. Local and global movements for shared health goals. Governments need to work closely with local communities as part of the solution to the pandemic; this is also a key lesson from the Ebola crisis in 2014-15. For populations to be better protected in future, governments must create space for communities to participate actively in shaping more equitable health systems. Strong civil society voices have a vital role in demanding health systems that protect everyone.

Meanwhile, WB experts estimate that school closures due to Covid-19 have left over a billion students out of school. Indeed, COVID-19 could result in a loss of 0.6 years of schooling adjusted for quality, bringing down the effective years of basic schooling that children achieve during their schooling life from 7.9 years to 7.3 years.

Put another way, the experts said, in the absence of effective policy action, each student from today's cohort in primary and secondary school could face, on average, a reduction of $872 in yearly earnings. This is approximately equivalent to $16,000 over a student's work life at present value.

Without effective policy responses when students return to school, approximately $10 trillion of lifecycle earnings (at present value in 2017 PPP) could be lost for this cohort of learners - because of their lower levels of learning, their lost months in school closures, or their potential for dropping out from school. This is approximately 16% of the investments that governments have made in this cohort of students' basic education.

While school closures could lead to falling test scores on average, in the intermediate scenario there may be as much as a 25% increase (from 40% to 50%) in the share of lower secondary-aged children who are below the minimum level of proficiency. This highlights the importance of increasing the readiness of education systems to teach children at the right level.

Before the Covid-19 outbreak, the world was already tackling a learning crisis, with 53% of children in low- and middle-income countries living in Learning Poverty - unable to read and understand a simple text by age 10. Unless drastic remedial action is taken, the effects simulated here will likely create a substantial setback to the goal of halving the percentage of learning poor by 2030.

The combination of being out of school and the loss of family livelihoods caused by the pandemic may leave girls especially vulnerable, and exacerbate exclusion and inequality - particularly for persons with disabilities and other marginalized groups.

These simulated effects should be used to inform mitigation, recovery, and "building back better" strategies. This includes effective remote learning strategies to provide learning continuity while schools are closed using multiple education technology solutions (radio, television, mobile phones, digital/online tools, and print) with support to students, teachers and parents. Governments should also implement appropriate actions to ensure the safe reopening of schools consistent with each country's overall COVID-19 health response, and to accelerate learning by building more equitable and resilient post-Covid-19 education systems that enable children to learn continuously both in schools and at home.

Copyright Business Recorder, 2020