UN calls for $2.5-trn rescue package for developing world

31 Mar '20

3 min read

Pic: Shutterstock

The COVID-19 pandemic will drive the world economy into recession this year with a predicted income loss of trillions of dollars, creating serious trouble for developing nations, India and China being likely exceptions, said the United Nations Conference on Trade and Development (UNCTAD). The UN has called for a $2.5-trillion rescue package for developing nations.

A latest report by UNCTAD, however, did not explain in detail as to why and how India and China will be the exceptions. Two-thirds of the world's population living in developing countries is facing unprecedented economic damage from the COVID-19 crisis.

The speed at which the economic shockwaves from the pandemic has hit developing countries is dramatic, even in comparison to the 2008 global financial crisis, said the report, titled ‘The COVID-19 Shock to Developing Countries: Towards a ‘whatever it takes’ programme for the two-thirds of the world's population being left behind’.

“The economic fallout from the shock is ongoing and increasingly difficult to predict, but there are clear indications that things will get much worse for developing economies before they get better,” said UNCTAD secretary general Mukhisa Kituyi.

Commodity-rich exporting countries will face a $2 trillion to $3 trillion drop in investments from overseas in the next two years, it said.

In recent days, advanced economies and China have put together massive government packages which, according to the Group of 20 leading economies (G20), will extend a $5 trillion lifeline to their economies.

It added that while the full details of these stimulus packages are yet to be unpacked, an initial assessment by the UNCTAD estimates that they will translate to a $1 trillion to $2 trillion injection of demand into the major G20 economies and a two percentage point turnaround in global output.

Further, given the deteriorating global conditions, fiscal and foreign exchange constraints are bound to tighten further over the course of the year.

UNCTAD estimates a $2 trillion to $3 trillion financing gap facing developing countries over the next two years.

In the face of a looming financial tsunami this year, UNCTAD proposes a four-pronged strategy that could begin to translate expressions of international solidarity into concrete action.

This includes a $1-trillion liquidity injection for those being left behind through reallocating existing special drawing rights at the International Monetary Fund; a debt jubilee for distressed economies under which another one trillion dollars of debts owed by developing countries should be cancelled this year and a $500-billion Marshall Plan for a health recovery funded from some of the missing official development assistance (ODA) long promised but not delivered by development partners.

In the two months since the virus began spreading beyond China, developing countries have taken an enormous hit in terms of capital outflows, growing bond spreads, currency depreciations and lost export earnings, including from falling commodity prices and declining tourist revenues, the report said.

Lacking the monetary, fiscal and administrative capacity to respond to this crisis, the consequences of a combined health pandemic and a global recession will be catastrophic for many developing countries and halt their progress towards the Sustainable Development Goals, the report added.

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