– With the pandemic declining, modest and uneven progress, huge disparities in controlling COVID-19 and funding government efforts are once again widening the North-South divide and other inequalities.
Developing country pandemic
Developing countries are struggling to cope with their generally weak health systems. These had been weakened by funding cuts and privatization policies mandated by the two Bretton Woods institutions (IBWs): the International Monetary Fund (IMF) and the World Bank. Not surprisingly, COVID-19 has become a “developing country pandemicâ.
Developing countries – especially lower middle income countries (MICs) and low income countries (LICs) unable to afford diagnostic tests, personal protective equipment and other, medical treatment and vaccines – now account for a much larger and steadily increasing share of global deaths and infections.
With extremely uneven vaccination, death and infection rates in high income countries (MICs) have plummeted as the shares of LICs and MICs (LICs) have soared. The Economist estimates much higher death rates in developing countries than official data suggests: 12 times more in LMICs and 35 times more in LICs!
Biggest global divergence
The COVID-19 pandemic and political responses have further delayed the 2030 Agenda for Global Sustainable Development. UNCTAD estimates that production in developing countries fell 2.1% in 2020. To make matters worse, progress towards achieving the Sustainable Development Goals (SDGs) has been poor even before the pandemic.
The world now faces greater divergence as developing countries fall further behind due to the pandemic and disparate responses to it. the IMF management offers $ 50 billion Can Speed ââUp Vaccination To End Global Pandemic, With Benefits Worth $ 9 Trillion!
the IMF estimates average LIC growth fell sharply to 0.3% in 2020, compared to more than 5% in the previous three years. It also projects 33 developing countries – including 15 in sub-Saharan Africa (SSA) and nine small island developing states – will still have lower per capita incomes in 2026 than in 2019.
Limited budget space
Most developing countries faced limited âfiscal spaceâ even before the pandemic. The average tax-to-GDP ratio in 2018 was 12% in lower PRIs and 13% in LMICscompared to 25% in developed countries.
Weaker budgetary resources in developing countries are often due to lower revenue collection, lower incomes and larger informal sectors. They also lose between 49 and 194 billion dollars per year illicit transfers, for example âfalse commercial invoicesâ or âtransfer pricingâ of companies.
Africa loses around $ 89 billion, about 3.7% of African production, to illicit capital flight each year. This loss of income is almost equivalent to the total inflow of official development assistance (ODA) and foreign direct investment received by African countries during the period 2013-2015.
Developing countries are generally caught in harmful tax competition in a “race to the bottom” following the “neoliberal” advice of the BWIs and others. Thus, the statutory corporate tax rates went from 39% in MICs and 46% in LICs in 1990 to 24% and 29% in 2019 respectively.
From the pan to the fire
Developing countries have long faced limited fiscal capacity and policy space or choice, compounded by decades of neoliberal conditionalities and policy advice. Donors and BWIs also urged LMICs to borrow from international financial markets rather than official sources.
At the same time, ODA increasingly supports private companies. These new mechanisms, for example, ‘mixed financing‘, pledged to turn aid’ billions into billions’ from private finance for Agenda 2030. The pledge has failed dramatically, depriving countries that depend on declining ODA while advancing the interests of private finance.
Thus, the debt of the PRFIs increased before the pandemic. Total debt (public and private) reached more than 170% of the output of emerging countries and developing economies and 65% of the GDP of LICs in 2019. The increase in EMEs concerned almost equal shares of external and domestic debt.
This bad situation got worse – with less tax revenue, reduced exports and ODA cuts – due to the pandemic when public expenditure needs are increasing sharply. In April 2020, UNCTAD called for $ 1 billion in debt relief developing country bonds – estimated to be between US $ 2.6 billion and US $ 3.4 billion in 2020 and 2021.
Donor support is unlikely
However, rich countries, especially G20 members, responded sparingly to this call, while private commercial lenders have so far rejected all debt relief initiatives. This poor country situation was made worse by World Bank refusal to complete the cancellation of the IMF’s debt service for the most vulnerable LICs.
Meanwhile, ODA has remained less than half of donors’ aid commitment, made half a century ago, of 0.7% of their gross national income (GNI). The overall ODA / GNI ratio rose from 0.31% in 2017 at 0.29% in 2019.
The IMF estimates that LICs need around US $ 200 billion for relief and recovery until 2025, and an additional US $ 250 billion to resume development progress. He predicts that an additional $ 100 billion will be enough to cover “downside risks”, for example due to delayed vaccination and more lockdown measures.
However, some large donors have already reduce their already modest aid budget allocations. Meanwhile, no rich country has yet pledged to transfer its new IMF special drawing rights (SDRs) to provide more recovery finance to developing countries through the 15 designated multilateral financial institutions that can use SDRs in this way.
Financing of relief, recovery, reform
Tax measures of around 16 billion dollars have already been deployed worldwide, HICs representing more than 80%. In contrast, fearing the macroeconomic consequences of borrowing and spending much more, developing countries have become much less committed.
While developed countries deployed 28% of their much higher national incomes, the ratios are only 7% for EMEs, 3% for ASS and 2% for LICs. In addition to urgently containing the pandemic and its consequences, developing countries need to fund relief and recovery from COVID-19-related recessions quickly, efficiently and adequately.
Cooperative efforts to obtain many more tests, equipment, treatments and vaccines must be rapidly stepped up. Meanwhile, the United Nations system, including the BWIs, urgently needs to expand the capacity of developing countries to fund measures to âbuild better forwardâ.