FDI to drop globally by 40%, remittances by 20% in 2020 amid COVID-19 crisis: Brookings Institute

Doaa A.Moneim , Monday 21 Sep 2020

The institute proposed four key steps to deal with the significant challenges emerging from the ongoing crisis

Mahmoud Mohieldin

Foreign direct investment (FDI) is projected to drop by 40 percent globally in 2020, bringing FDI below $1 trillion for the first time since 2005, while remittances, a critical source of development income, are expected to fall by 20 percent by the end of 2020, according to a study published by Brookings Institute.

Low and middle-income countries will still be asked to pay a total of $130 billion in debt service over 2020, which is a result of requesting debt relief to address the COVID-19 pandemic’s impacts and to deal with its harsh repercussions, the study said.

The study was prepared by the Special Envoy on Financing the 2030 Agenda for Sustainable Development Mahmoud Mohieldin and the Director of External Affairs at World Bank Group Michael Kelleher.

COVID-19 is choking the world economy and compounding the suffering of the globe’s most vulnerable people, with the death toll approaching 1 million, which worsens more both the human and economic costs of the pandemic in the deepest recession since World War II, according to the study.

It also stressed that the pandemic has triggered the first increase in global poverty in a generation, while social distancing is causing a unique global supply shock, severely reducing investment in low-income nations.

In this regard, the study said that the world’s poor are suffering the most from the economic and health effects of COVID-19, which require a comprehensive and equitable response.

“More than 100 million additional people will be pushed into extreme poverty, some say nearly twice this amount, the first increase of global poverty since 1998. As a result of mass unemployment, disruption to food production supplies, and declining aid, as many as 12,000 people per day could die from hunger by the end of 2020, doubling the number of families that are food insecure, and creating new epicentres of hunger across the globe,” according to the study.

The study also revealed that working-hour losses for the second quarter of 2020 relative to the last quarter of 2019 are estimated to reach 14 percent worldwide, equivalent to 400 million jobs lost.

Moreover, trade in some sectors including commodities, tourism, transport, and distribution have been devastated by both health restrictions and capital outflows, according to the study.

To face such a significant challenge, the study proposed four key steps in light of the sustainable development goals role that they can play in this regard.

These steps include providing the necessary funds for countries to protect their people and economies, given that the combined global fiscal response to the crisis is now over $11 trillion, while the developing countries have insufficient fiscal space that limit their ability to respond.

They also include helping poor countries alleviate debt burdens with voluntary sovereign-debt buybacks.

“This could be managed by the IMF, which has noted that emerging and developing nations need an additional $2.5 trillion to deal with the pandemic. The IMF could also issue new Special Drawing Rights (SDRs), and reallocate unused SDRs from advanced to developing economies to boost liquidity,” the study proposed.

Supporting developing countries is also required, especially since debt relief and boosting liquidity is not possible so long as major leakages exist in the system in the form of illicit financial flows.

“In Africa alone, $1 trillion is estimated to have been lost over the last 50 years, equal to the amount of official development assistance received on the continent during the same period,” the study said.

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