(MENAFN – Caribbean News Global)
By Anis Chowdhury and Jomo Kwame Sundaram Reprint
The COVID-19 pandemic continues to wreak unprecedented human and economic devastation, erasing years of modest and uneven progress towards the Sustainable Development Goals (SDGs). Developing countries now need a lot more support, as progress towards the SDGs was “not on track” even before the pandemic.
By the end of 2022, average incomes are expected to be 18% below pre-crisis levels in low income countries (LICs) and 22% below in emerging and developing countries excluding China – against 13% lower for developed economies.
These lower incomes will push hundreds of millions of people into extreme poverty and hunger, surviving on incomes of less than $ 1.90 / day. The World Bank estimates that the poor increased from 119 million to 124 million in 2020 and from 143 million to 163 million more this year.
The budget gap is growing rapidly
As the UN Secretary-General noted, “The richer countries have benefited from an unprecedented $ 16 trillion in emergency support measures,… the least developed countries have spent 580 times less. in per capita terms for their response to COVID-19 ”.
Last year, the International Monetary Fund (IMF) and UNCTAD estimated that developing countries needed about $ 2.5 trillion to help affected families and businesses and accelerate economic recovery.
IMF Managing Director Kristalina Georgieva later admitted that developing countries needed a lot more. The IMF’s April 2021 Fiscal Monitor estimates that access to basic services only by 2030 in 121 developing countries would require US $ 3 trillion, of which up to half in LICs.
Most developing countries cannot do more because of financial constraints. As public spending needs increase, the pandemic has dramatically reduced their income. A recent IMF study found that “countries with lower GDP per capita experience larger output losses”, in part due to “weaker fiscal stimulus”.
With limited tax and other revenues, developing countries will need to borrow more, thus increasing their already high public debt. As the IMF notes, “ the international community [needs] provide additional support in the form of grants, concessional finance and, in some cases, debt relief ”.
Too little, too late?
The Bretton Woods institutions (BWI) – the IMF and the World Bank – must mitigate further setbacks, enabling relief, recovery and reform. The Fund and also the bank reacted, sometimes in an innovative way, but much too slowly. More importantly, the actual support from both IBWs to date falls short of the needs.
The Fund used its Disaster Control and Relief Trust Fund to provide six-month relief from IMF debt repayments owed by 29 low-income countries. But last October, the IMF’s board rejected a new pandemic support facility with easier-than-usual terms.
Although the Fund has committed around $ 250 billion, or a quarter of its $ 1 trillion lending capacity, it has so far deployed only a tenth of its capacity, according to the former senior official, Ousmène Mandeng. Rather, he argues, the Fund should provide much more support that countries need and want.
According to The Economist, since March 2020, the IMF has disbursed only US $ 32 billion in emergency funding while offering US $ 74 billion through other facilities, both “ on more terms. ”
The 85 countries that now receive IMF funds represent only about 5% of global GDP. None of them were able to access the Fund’s new “short-term liquidity line” due to its strict conditions.
IBWs face the challenge
In April 2020, the Bank announced the creation of a new multi-donor trust fund, the Multi-Donor Fund for Health Emergency Preparedness and Response. This is supposed to complement the $ 160 billion that the World Bank Group has pledged to deploy by mid-2021.
Bank disbursements have been slow despite the urgency, with actual disbursements to needy countries totaling just US $ 79 billion in June 2021, less than half of what had been promised. The Bank also ditched its emergency pandemic financing facility, which was criticized for being too small and too slow.
However, fast-disbursing budget support during the much deeper and wider pandemic crisis is actually less than during CFM. The Bank no longer offers emergency budget support.
Just as the Fund lent more in 2009 during the global financial crisis (GFC) than since the start of the pandemic, new loan disbursements from the Bank increased less during the first half of the pandemic than during the GFC.
The Bank committed US $ 19.5 billion to fund the G-20’s clearly inadequate Debt Service Suspension Initiative (DSSI) from April to December 2020. In the meantime, he has refused to freeze any debt for the loans owed to him, arguing that this would jeopardize his credit rating and, therefore, his ability to borrow cheaply.
IBWs must be part of the solution
Blocked by the Trump administration, the likely $ 650 billion IMF Special Drawing Rights (SDR) issuance still represents only half of the SDR1tn ($ 1.37 billion) deemed necessary by the Financial Times.
SDRs do not need to be repaid and are subject to a very low interest rate (currently 0.05%), which costs less than loans. They are often more attractive than grants, which are usually tied to conditions.
While the 75 LICs are expected to receive around US $ 62 billion in SDRs, poor countries could benefit much more if rich countries transfer their unused SDRs to BWIs. In addition to debt relief, the Bank could then provide longer-term development finance at the lowest possible cost to borrowing countries.
As UNCTAD has also argued, the multilateral system must lend much more to developing countries at a lower cost. In 2019, the average interest rate on multilateral debt to LICs was 1.7%, compared to 2.5% for bilateral loans.
The rates of private creditors are much higher. With the status of “privileged creditor” (that is to say being reimbursed before others), the Bank can borrow – and lend – at the lowest rates. This is most easily done by expanding the loans and guarantees of the bank.
Bank for recovery and development?
Loans worth $ 500 billion, mostly for the poorest countries, are expected to be announced this week at the spring meetings of the IMF and the World Bank. Since IBWs can offer much better terms, this will certainly help, but much more is urgently needed.
Borrow at the current rate of 1.75% from the International Bank for Reconstruction and Development on a 20-year loan, total debt service in 2021 and 2022 would drop from $ 90 billion to $ 65 billion, for example , a savings of $ 25 billion for the eligible G20-DSSI. PFR.
If all developing countries took advantage, the savings would be much larger, around US $ 285 billion. But to do this, both the IMF and the bank would have to expand their lending capacities with additional resources.
Currently, too many developing countries are forced to adapt by cutting their social and environmental programs. By lowering loan costs and other demands, IBWs can become part of the solution rather than part of the problem.
This article was originally published by IPS , April 6, 2021.