Economic growth in low-income developing countries (LIDCs) is likely to come to a standstill in 2020, compared to the five percent economic growth these countries recorded in 2019, amid the Covid-19 crisis, a new research paper published by the International Monetary Fund (IMF) said Thursday.
The paper attributed this expectation to the fact that LIDCs entered the crisis in an already vulnerable position, adding that half of them suffered high public debt levels.
Since March, LIDCs have been hit by an exceptional confluence of external shocks, including a sharp contraction in real exports, lower export prices, for oil in particular, less capital and remittances inflows, and reduced tourism receipts, according to the research paper.
Although these countries have applied precautionary and containment measures to contain the pandemic, measures which have been eased recently, most of them cannot sustain strict containment measures for long as large segments of the population live at minimum subsistence levels. In addition, large informal sectors, weak institutional capacity, and incomplete registries of the poor make it difficult to reach the needy, according to the paper.
“Meanwhile, governments have only limited fiscal resources to support them. Recent surveys conducted across 20 African countries reveal that more than 70 percent of respondents risk running out of food during a lockdown that lasts more than two weeks. Faced with such constraints, the short but sharp front-loading of containment fulfilled a critical purpose: it flattened the infection curve, while granting time to build up capacity in the health sector. Many LIDCs have followed this path: while they expended less fiscal support to their economies than the advanced economies or emerging markets, the share of additional spending dedicated to health has been higher,” reads the paper.
In dealing with such a difficult situation, the paper asserted, LIDCs need to global assistance, saying that the support of the international community is key to enable them to tackle the pandemic and recover strongly, with a significant focus on guaranteeing essential health supplies, including cures and vaccines when they are discovered, protecting critical supply chains, especially for food and medicines, avoiding protectionist measures, ensuring that developing economies can finance critical spending through grants and concessional financing, and ensuring that LIDCs’ international liquidity needs are fulfilled, which requires international financial institutions to be resourced adequately.
Further, they need also to re-profile and restructure debt to restore sustainability where needed, which may require relief beyond the G20/Debt Service Suspension Initiative, while keeping sight of the United Nations’ Sustainable Development Goals, including by reassessing needs when the crisis subsides.
“The Covid-19 pandemic will be defeated only when it and its socioeconomic consequences are overcome everywhere. Urgent action by the international community can save lives and livelihoods in LIDCs. The International Monetary Fund is doing its share: among other things, the IMF has provided emergency financing to 42 LIDCs since April. It stands ready to provide more support and help design longer-term economic programmes for a sustainable recovery,” reads the research paper.