Pandemic-driven poverty

EDITORIAL: The latest warning from World Bank President David Malpass, that the coronavirus pandemic might already have driven 100 million people back into extreme poverty, is a cause for very serious concern and goes to show that this particular storm is still very far from over. The Washington-based development lender has been following the effects of the pandemic, especially all the lockdowns that have had to be enforced across the world, on the most vulnerable income groups for months now so its president knows what he is talking about. Earlier, it had estimated that about 60 million people might be forced back into extreme poverty because of these extraordinary circumstances. But now clearly it can see that the damage is far deeper than it might have thought earlier, and has warned that the number could go still higher if the pandemic worsens or lingers a while longer. And since the chances of the virus going anywhere anytime soon are very slim, if any, many countries especially the poorer ones would just have to come to terms with the fact that efforts spread over many years to raise millions of people out of debilitating poverty are going to be reversed and there is precious little they can do about it.

Those who can do something about all this are international creditors who must now reduce the debt held by poor countries, especially those that are at greater risk from the coronavirus and hence are forced to dole out more cash to keep their markets solvent and jobs sectors from completely collapsing. Some economies in the Group of 20 (G20) have already committed to suspending poor country debt till the end of the year, with the prospect of extending the moratorium into next year, but a lot more will have to be done. That is because no matter how much you delay pressing debt payments, the sword will still be hanging over the heads of decision makers as they try to negotiate through the global recession that seems set to devastate weak economies. The situation demands that each country be treated according to its own unique circumstances, and chances of default of course if something is not done about the debt, which is why the World Bank has also backed such an approach. Quite admirably, it has also decided to deploy $160 billion to 100 countries through June 2021 to try and lessen the immediate impact of the emergency, and about $21 billion has already been released, yet the poverty numbers keep disappointing so far.

This is precisely the trend that Prime Minister Imran Khan feared could also take Pakistan in its grip when he tilted towards limited and smart lockdowns as opposed to a complete shutter down all over the country. The economy had to be kept running to some extent to make sure that those at the very bottom of the food chain didn't simply die of hunger and starvation while everybody was quarantined. But while Pakistan has emerged quite successfully over the last couple of months, others have faltered and some even suffered a very strong second wave of the virus. They, of course, had no option but to close everything down all over again. And that is contributing to this poverty time bomb since even if the virus is contained in a few months or years, not all the jobs that are going will be returned and high increases in poverty always tend to invite all sorts of social and civil strife.

The only option right now is to make sure that countries with the highest number of poor people are kept from economic collapse. And for that international financial institutions (IFIs) will have to take the lead. Malpass said the World Bank was frustrated by very slow progress among private creditors in providing some sort of terms for debt suspension for poor countries. These circumstances are, after all, without parallel since the economic collapse and global recession have not been triggered by any manner of bad policy decisions or practices but rather an exogenous shock that will have to wait for a cure in a laboratory rather than some boardroom. Still, economic managers can and must help soften this terrible blow, at least for a while.

Copyright Business Recorder, 2020