EDITORIAL: The International Monetary Fund (IMF) Managing Director (MD) Kristalina Georgieva has raised a pertinent and important red flag by warning that low-income countries could suffer a “lost generation” unless advanced economies came to their aid right away. Speaking to reporters, she explained that while last year the “Great Lockdown” was in sharp focus, and very rightly so, this year the main risk is the “Great Divergence” in global growth that could see developing countries fall even further behind on the road to development. Statistics showing that advanced economies on an average spent about 24 percent of GDP on support measures during the pandemic compared to six percent in emerging markets and two percent in low-income countries, especially when you take the relative sizes of their GDPs into consideration, that says it all.
That fact that most poor countries have rather large populations, just like ours, makes the situation much worse. Now even the IMF is not ruling out the prospect of social strife and even anarchy in as many as half of the world’s developing countries. The situation requires, just as Georgieva noted, for the rich countries to step in and share some of the burden. It is of course a big problem that some of the world’s most advanced countries have been hit the worst by the pandemic and therefore have had to experience negative or very low growth as well as set aside phenomenal sums of money to keep the wheels of their economies turning. So this isn’t exactly the most opportune time for some of the poorer countries to go to them for debt relief and/or soft loans.
But these aren’t normal times by any stretch of the imagination. Not only did the pandemic shut down almost all the world at about the same time for weeks, in some places months, last year, it also pushed the global economy off a cliff. For a while the entire world experienced GDP contraction. And now, when the second wave of Covid-19 is still going strong, and there are even whispers and worries about a possible third wave as hundreds of new strains of the virus emerge all over the world, less advanced countries do not have the financial capacity to wait out this storm. Therefore, the more robust ones will have to help by writing off existing poor country debt while standing ready to lend more where necessary. The G20’s initiative last year of freezing some low-income country debt was much appreciated and played no small part in keeping some countries on their feet, but a lot more will clearly need to be done. The IMF MD also very rightly worried about the manner of vaccine distribution, calling it “uneven” because poor countries are facing “tremendous difficulties” even as official development funds are drying. It is distressing, to say the least, that in all of Africa only Morocco has begun vaccinating its citizens. And as of yet there’s no telling when the rest of the continent will get going. The rest of the third world isn’t doing much better either. It’s not just a matter of being able to buy the vaccines and get them to specific ports, there’s also the logistical nightmare of administering them to large, often very poor, population groups.
All this makes for quite a powder keg. Rich countries should realise that helping poor countries at this time is also in their own best interest. For, if they let the latter drown in the rush to save themselves, or scramble to vaccinate only their own citizens while everybody else watches from the side, then they will struggle in the world that emerges after the pandemic since, for one thing, they would be deprived of crucial trade markets. That would compromise their projected earnings and, in the case of widespread social and civic breakdown in parts of the world, they would have to deal with countries defaulting on their debt as well as issues like collapsing governments, rising poverty, even hunger and starvation. So it’s better if they act now; write off the debt and provide the financial impetus and freedom that the poor countries are desperate for, and keep things from falling apart till as long as it takes for the vaccinations to reach all people around the world.
Copyright Business Recorder, 2021
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