Foreign Desk Report
NEW YORK: Developing countries, including Pakistan, will be hit hardest by the economic shockwaves caused by the novel coronavirus crisis that has shaken the world and will need a support package of up to $2.5 trillion to cope with the damage, a United Nations report has predicted.
According to a report by the UN Conference on Trade and Development (UNCTAD), which was released on Monday, Pakistan, Argentina and the Sub-Saharan African countries would face a “frightening combination” crises including mounting debts, a potential deflationary spiral as well as a disastrous impact on the health sector. Their economies will take “enormous hit” from high capital outflows, lost export earnings due to falling commodity prices and currency depreciations, with an overall impact likely worse than the 2008 crisis, the report said. “It’s going to be really bad,” said Richard Kozul-Wright, director of globalisation and development strategies at UNCTAD who oversaw the report.
“The international institutions have to take these sorts of proposals very, very seriously as it’s the only way that we can see to prevent the damage already taking place and which will get worse,” he added. In what he said was likely a conservative estimate, Kozul-Wright said the coronavirus would cause a $2-$3 trillion financing deficit over this year and next.
In an early sign of the impact, portfolio outflows from main emerging economies were $59 billion a month between February and March compared to $26.7 billion in the immediate aftermath of the 2008 crisis, the report said. Developing countries will need a $2.5 trillion support package this year to face the economic crisis, the report said. Needed measures will include a $1 trillion liquidity injection and a $1 trillion debt relief package and another $500 million will be needed for emergency health services and related programmes, on top of capital controls.
The figures in the report titled “The Covid-19 Shock to Developing Countries” echoed an earlier estimate by the International Monetary Fund. UNCTAD considers around 170 countries to be developing but the financing gap figure stripped out China and South Korea.
“If G20 leaders are to stick to their commitment of ‘a global response in the spirit of solidarity’, there must be commensurate action for the six billion people living outside the core G20 economies,” Kozul-Wright said.
Leaders of the Group of 20 major economies had pledged on Thursday to inject more than $5 trillion into the global economy to limit job and income losses from the coronavirus and “do whatever it takes to overcome the pandemic”.
The economic fallout from coronavirus pandemic is likely to get “much worse” before it gets better for some six billion people living in developing economies, the UN said on Monday, in an appeal for a $2.5 trillion rescue package to boost their resilience to further hardship.
According to new analysis from UNCTAD, the UN trade and development body, commodity-rich exporting countries will face a $2 trillion to $3 trillion drop in investment from overseas in the next two years.
An economic downturn in these emerging economies was already evident in the last quarter of 2019 – before the new coronavirus outbreak emerged in central China last December, Richard Kozul-Wright, UNCTAD director of globalization and development strategies, said.
“The health crisis is still to come in many developing countries,” he said. “Now, if that crisis comes as these countries have been significantly weakened by the economic shockwaves from the crisis. And that is a…very vicious combination of an economic crisis and a health crisis. So we’ve got to find ways of strengthening the healthcare system and services in developing countries and building up resilience on that front very quickly.”
Rich industrial nations have already announced a $5 trillion global rescue package plan to provide an economic safety net to their businesses and workers. This unprecedented measure should reduce the extent of their shock – “physically, economically and psychologically”, Kozul-Wright said.