On Monday, March 30, 2020, at the Geneva headquarters, the United Nations Conference on Trade and Development (UNCTAD) officially released a 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 report has highlighted the concerns over the growth of the developing countries and the world economy due to the deadliest Covid-19 outbreak, which has caused a worldwide death toll of 37,480, infecting around 7,87,631 (As of March 31, 2020, 1:44:59 PM).
The report implied that the “consequence of health pandemic and global recession will be catastrophic for many developing countries and halt their progress towards the Sustainable Development Goals (SDG).” Therefore causing great damage to the communities of developing nations. For this crisis to mitigate, the UNCTAD has proposed a rescue plan of US $2.5 trillion to prevent the large scale damage to the two-thirds of the world’s population living in the developing countries which is facing unprecedented economic damage.
The proposed rescue package of US $2.5 trillion would be utilized broadly in three ways:
- US $1 trillion should be made available through the expanded use of Special Drawing Rights (SDR)
- US $1 trillion of debts owed by developing countries should be cancelled this year (2020)
- US $500 billion needed to fund a Marshall Plan for health recovery and dispersed as grants.
Damages Caused By Covid-19 Crisis In The Developing Nations:
The report shows that Covid-19 outbreak has caused enormous damage in the past two months in terms of
- Capital Outflows
- Growing Bond Spreads
- Currency Depreciation
- Lost Export Earnings
- Falling Commodity Prices and
- Declining Tourism Revenues
Covid-19 Crisis Hit Harder Than The 2008 Global Financial Crisis (GFC):
The report explains that the Covid-19 crisis has hit deeper than the 2008 global financial crisis with less optimistic levels to rebound the economy to the formal stage. With the contraction of the domestic activities in the developing countries and in the world, it is less optimistic that the economy will rebound to its formal running phase. The aftermath of the 2008 crisis and its effects on the developing countries and its rebound effect between 2009 and 2010, shows that UNCTAD is not very positive now about growth in all these countries.
The report highlights some of the issues:
Net Portfolio Flows:
Between February and March, the calculations of the UNCTAD shows that the Portfolio Outflows from main emerging nations during this Covid-19 crisis doubled from US $26.7 billion of the global financial crisis to US $59 billion now, that is twice the 2008 crisis.
Figure: Net Portfolio Flows, Selected Developing Countries: Debt And Equity Post – GFC And Onset of Covid – 19 Crisis
Currency Decline:
Also, the present crisis has resulted in a decline in the value of the currencies of developing nations between 5% and 25% since the beginning of this year. This is faster than the early months of the 2008 global financial crisis.
Figure: Currency Movements Against The Dollar 2008 Q3 VS 2020 Q1 (In %)
Commodity Price Decline:
The prices of commodities from developing nations have also heavily dropped due to the fall in the foreign exchange rates of their currencies. This had led to an overall commodity price decline of approximately 37% in this year.
Figure: World Primary Commodity Prices, 2017–2020 (Percentage Change Over Previous Year)
Probability Of Recession Or Depression Soon This Year
Hinting on the several problems of the developing and developed countries economies, the report predicts that the world economy may enter into a recession soon. The report states that “even if the massive stimulus packages now being implemented prevent a long period of depression, they will not, as already suggested, avert a recession in the global economy this year” (page 5).
But the UNCTAD is hoping that the stimulus packages adopted by developing nations and China and developed nations like the US and others would avert the situation of the worst economic crisis in history. Having said earlier, the prediction also raises concern over this, as it says that “this no doubt will have a positive impact not only on their own economies but the world economy as well. Although this will, in all likelihood, not prevent a global contraction this year, it should (hopefully) avert the recession turning in to a prolonged depression.”
Worst To Witness
These are the predictions of the international body for now. Different challenges might arise in the coming days for the developing nations—as the cases of Covid-19 are increasing day by day. In the absence of strong public healthcare infrastructure in place, along with structural divides among citizens, challenges will increase manifold. Therefore, unknown threats may weaken and destabilize the communities during this worst public health crisis in modern history.
In conclusion, the UNCTAD Secretary-General Mukhisa Kituyi says that “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.”