COVID-19: Without Help, Low-Income Developing Countries Risk a Lost Decade

South Sudanese refugees practice social distancing as they wait to access a food distribution at Kakuma camp. © UNHCR/Samuel Odhiambo

By Daniel Gurara, Stefania Fabrizio, Daniel Gurara, and Johannes Wiegand
WASHINGTON, Sep 3 2020 – While the COVID-19 crisis is sending shockwaves around the globe, low-income developing countries (LIDCs) are in a particularly difficult position to respond. LIDCs have both been hit hard by external shocks and are suffering severe domestic contractions from the spread of the virus and the lockdown measures to contain it. At the same time, limited resources and weak institutions constrain the capacity of many LIDC governments to support their economies.

Growth in LIDCs is likely to come to a standstill this year, compared to growth of 5 percent in 2019. Further, absent a sustained international effort to support them, permanent scars are likely to harm development prospects, exacerbate inequality, and threaten to wipe out a decade of progress reducing poverty.

 

Multiple shocks take a heavy toll

LIDCs entered the COVID-19 crisis in an already vulnerable position—for example, half of them suffered high public debt levels. Since March, LIDCs have been hit by an exceptional confluence of external shocks: a sharp contraction in real exports, lower export prices, especially for oil, less capital and remittances inflows, and reduced tourism receipts.

Take remittances, for example, that exceeded 5 percent of GDP in 30 (out of 59) LIDCs in 2019. Between April and May, they fell by 18 percent in Bangladesh, and by 39 percent in the Kyrgyz Republic, compared to the previous year. The repercussions are likely to be felt widely where remittances are the main source of income for many poor families.

As for the domestic impact, while the pandemic has evolved more slowly in LIDCs than in other parts of the world, it is now inflicting a sizeable toll on economic activity. Many LIDCs acted swiftly to contain the spread. From mid-March, when reported infections were still low, they put in place containment measures including international travel controls, school closures, the cancelation of public events and gathering restrictions.

Mobility—a proxy for domestic economic activity—also declined sharply, and continued to retreat as measures were broadened to include workplace closures, stay-at-home orders, and internal movement restrictions. From late April/early May, containment measures have gradually loosened and mobility has recovered, but has yet to return to pre-crisis levels.

 

Growth in Low-Income Developing Countries is likely to come to a standstill this year, compared to growth of 5 percent in 2019. Further, absent a sustained international effort to support them, permanent scars are likely to harm development prospects, exacerbate inequality, and threaten to wipe out a decade of progress reducing poverty

 

Managing difficult trade-offs with scarce resources

Most LIDCs cannot sustain strict containment measures for long as large segments of the population live at near subsistence levels. Large informal sectors, weak institutional capacity, and incomplete registries of the poor make it difficult to reach the needy. Further, 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 advanced or emerging market economies, the share of additional spending dedicated to health has been higher.

 

Growth in Low-Income Developing Countries is likely to come to a standstill this year, compared to growth of 5 percent in 2019. Further, absent a sustained international effort to support them, permanent scars are likely to harm development prospects, exacerbate inequality, and threaten to wipe out a decade of progress reducing poverty

 

As broad-based containment becomes difficult to sustain, LIDCs should transition to more targeted measures, including social distancing and contact tracing—Vietnam and Cambodia are good examples. Policy support should focus on supporting the most vulnerable, including the elderly, and on limiting the health crisis’s long-term fallout.

For example, protecting education is critical to ensure that the pandemic does not—as highlighted in a recent Letter to the International Community by a group of eminent persons—“create a COVID generation who loses out on schooling and whose opportunities are permanently damaged.”

Where the necessary infrastructure exists, technology can sometimes be leveraged in innovative ways. For example, to limit the spread of the virus, Rwanda is leveraging its digital finance infrastructure to discourage the use of cash. Togo employs the voter registration database to channel assistance to vulnerable groups.

 

A decade of progress under threat

Despite the best efforts of LIDC governments, lasting damage seems unavoidable in the absence of more international support. Long-term “scarring”—the permanent loss of productive capacity—is a particularly worrisome prospect.

Scarring has been the legacy of past pandemics: mortality; worse health and education outcomes that depress future earnings; the depletion of savings and assets that force firm closures—especially of small enterprises that lack access to credit—and cause irrecoverable production disruptions; and debt overhangs that depress lending to the private sector. For example, in the aftermath of the 2013 Ebola pandemic, Sierra Leone’s economy never recovered to its pre-crisis growth path.

Scarring would trigger severe setbacks to LIDCs’ development efforts, including undoing the gains in reducing poverty over the last 7 to 10 years, and exacerbating inequality, including gender inequality. The Sustainable Development Goals (SDGs) will thus be even more difficult to achieve.

 

Growth in Low-Income Developing Countries is likely to come to a standstill this year, compared to growth of 5 percent in 2019. Further, absent a sustained international effort to support them, permanent scars are likely to harm development prospects, exacerbate inequality, and threaten to wipe out a decade of progress reducing poverty

 

LIDCs cannot make it alone

The support of the international community is key to enable LIDCs to tackle the pandemic and recover strongly. Priorities include: (1) guaranteeing essential health supplies, including cures and vaccines when they are discovered; (2) protecting critical supply chains, especially for food and medicines; (3) avoiding protectionist measures; (4) ensuring that developing economies can finance critical spending through grants and concessional financing; (5) ensuring that LIDCs’ international liquidity needs are met, which requires International Financial Institutions to be resourced adequately; (6) reprofiling and restructuring debt to restore sustainability where needed, which, in many cases, may require relief beyond the G20/Debt Service Suspension Initiative; and (7) keeping sight of the United Nations’ SDGs, 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 programs for a sustainable recovery.

Daniel Gurara is an Economist at the Strategy, Policy, and Review Department of the IMF.

Stefania Fabrizio is Deputy Unit Chief in the IMF’s Strategy, Policy, and Review Department.

Johannes Wiegand is Chief of the Development Issues Unit in the IMF’s Strategy, Policy and Review Department.

This story was originally posted on IMFBlog – Read the original here

Qatar Accuses UAE of Racial Discrimination in UN’s Highest Court

Qatar filed a case with the International Court of Justice under the International Convention on the Elimination of All Forms of Racial Discrimination against the United Arab Emirates. The hearings were held by video link. Courtesy: International Court of Justice

Qatar filed a case with the International Court of Justice under the International Convention on the Elimination of All Forms of Racial Discrimination against the United Arab Emirates. The hearings were held by video link. Courtesy: International Court of Justice

By Samira Sadeque
UNITED NATIONS, Sep 3 2020 – Qatar officials reiterated their claim on Wednesday that the United Arab Emirates (UAE) be held responsible for their “discrimination” against Qatari citizens, as the third day of public hearings proceeded at the International Court of Justice (ICJ), the United Nation’s highest court. But foreign policy experts caution that the case is not good for stability in the Persian Gulf region.

The case, filed under the International Convention on the Elimination of All Forms of Racial Discrimination (CERD), deals with, among other things, the expulsion of Qatari citizens from the UAE because of their nationality.

“In 2017, the UAE began ‘unprecedented discriminatory measures’ that target Qatar based on their national origin,” Mohammed Abdulaziz Al-Khulaifi, legal advisor to Qatar’s Minister of Foreign Affairs and Dean of the College of Law at Qatar University, said at the hearing.

Qatar claims the discrimination began following a 2017 boycott by Saudi Arabia, Bahrain and Egypt. The countries had reportedly cut diplomatic ties with Qatar  because of its alleged support of terrorist groups.

“The UAE has engaged in the violations of the human rights of Qatari people,” Al-Khulaifi added later.

Michael Stephens, a scholar with the Foreign Policy Research Institute (FPRI), told IPS: “Whilst it was understandable Qatar and the UAE had some very big differences over regional politics, the way in which this has been handled has been highly damaging and has really not produced any of the sort of results that the UAE initially hoped for.”

He said that the dispute might be posing a challenge in the Persian Gulf region overall.

“It’s not good because they’re playing out their rivalries in weaker countries, like Libya and Somalia, and polarising politics in those areas,” he said. “I don’t think this is good for the stability of the Gulf.”

He added that this might further undermine the negotiations over the nuclear deal, and “has emboldened actors to play the Gulf states against one another, who are smart and “can take money from both sides”.

  • In 2015, Iran signed a nuclear deal with world powers to limit operations on its nuclear industry, among other things. It was reported that since January Iran has begun reducing its commitments to the deal.

“In general, it has made the Gulf look divided and weak,” Stephens said.

Lubna Qassim Mohammed Yousuf Bastaki, one of the speakers for the UAE, said Qatar’s case, “masquerading” as  discrimination, “concerns UAE measures that were addressed to Qatari nationals on the sole basis of their nationality, as nationality was both the focus and the effect of the UAE measures”.

At the start of proceedings this week the UAE argued that the ICJ had no jurisdiction in the matter as the dispute was based on nationality and not race and thereby did not relate to the CERD.

Bastaki argued that Qatar was invited “based on our commonalities as one people” to join the new union of the Arab emirates. “The fact that we have a  common origin which traversed the new national boundaries was understood,” she said.

She also said under the UAE law, Qataris are among the few who have the ability to become UAE nationals easily.

“This well illustrates the artificiality of the supposed racial distinctions which Qatar is now seeking to conjure up,” she said. 

Bastaki is not the only person to express her concern about the specific allegations of discrimination based on nationality.

“The Qataris have a much stronger argument, I think in that they sense that their nationals have been mistreated, but they’ve also made this slightly odd claim that this is about racism, when they are basically from the same background,” Stephens of FPRI told IPS. “Certainly the ruling families come from the same background.”

“So, claiming ‘racism’ is a difficult one that would only be possible if you had a Qatari from an Iranian origin, or a different background,” he added.

Stephens said that the UAE has certainly at times acted discriminatingly towards those who showed support for Qatar, citing the arrest of a British fan who was supporting Qatar during a football match. Last January, Ali Issa Ahmad was held by UAE police for two weeks after he supported Qatar in a football tournament held in the UAE.

“But the Qatari football team was allowed to play in the tournament and actually won,” Stephens said. “So it’s not a complete shutdown.”

Stephens said he can’t gauge the outcome of the rulings; he said Qatar’s position appears to be “strengthening” with more international arbitrators getting involved.

Stephens said the UAE’s claims that they were acting against people who supported terrorism, is a “very, very difficult claim to make: how would they prove that? How would they show just a normal Qatari walking around in Dubai or Abu Dhabi was supporting terrorism, by virtue of the fact that they’re Qatari?”

The hearings will continue till Friday.