Now or Never for Global Leadership on COVID-19
During the global financial crisis of 2008, G20 leaders coordinated a global response, and in other emergencies – such as tsunamis, civil wars, or epidemics – coalitions of countries have convened donor conferences to generate the necessary resources. Today, we need both.
Internationalizing the Crisis
The public-health effects and economic impact of the COVID-19 pandemic in developing and emerging economies are only just becoming apparent, but it is already clear that the toll will be devastating. If the international community wants to avoid a wave of defaults, it must start developing a rescue plan immediately.
NEW YORK – As it spread from one country to another, the novel coronavirus paid no attention to national frontiers or “big, beautiful” border walls. Nor were the ensuing economic effects contained. As has been obvious since the outset, the COVID-19 pandemic is a global problem that demands a global solution.
In the world’s advanced economies, compassion should be sufficient motivation to support a multilateral response. But global action is also a matter of self-interest. As long as the pandemic is still raging anywhere, it will pose a threat – both epidemiological and economic – everywhere.
The impact of COVID-19 on developing and emerging economies has only begun to reveal itself. There are good reasons to believe that these countries will ravaged far more by the pandemic than the advanced economies have been. After all, people in lower-income countries tend to live in closer proximity to one another. A higher share of the population suffers from pre-existing health problems that render them more vulnerable to the disease. And these countries’ health systems are even less prepared to manage an epidemic than those of the advanced economies (which have hardly functioned smoothly).
A March 30 report from the United Nations Conference on Trade and Development offers an early glimpse of what lies in store for emerging and developing economies. The most successful of them rely on export-led growth, which will now collapse as the global economy contracts. Not surprisingly, global investment flows are also plummeting, as are commodity prices, indicating a tough road ahead for natural-resource exporters.
These developments are already being reflected in the yield spreads on developing countries’ sovereign debt. Many governments will find it exceedingly difficult to roll over the debts coming due this year on reasonable terms, if at all.
Moreover, developing countries have fewer and harder choices about how to confront the pandemic. When people are living hand to mouth in the absence of adequate social protections, a loss of income could mean starvation. Yet these countries cannot replicate the US response, which features (so far) a $2 trillion economic package that will blow up the fiscal deficit by some 10% of GDP (on top of a pre-pandemic deficit of 5%).
Following a virtual emergency summit on March 26, G20 leaders issued a communiqué committing “to do whatever it takes and to use all available policy tools to minimize the economic and social damage from the pandemic, restore global growth, maintain market stability, and strengthen resilience.” To that end, at least two things can be done about the dire state of affairs in emerging and developing economies.
First, full use must be made of the International Monetary Fund’s Special Drawing Rights, a form of “global money” that the institution was authorized to create at its founding. The SDR is an essential ingredient in the international monetary order that John Maynard Keynes advocated during the Bretton Woods Conference of 1944. The idea is that, because all countries will obviously want to protect their own citizens and economies during crises, the international community should have a tool for assisting the neediest countries without requiring national budgets to take a hit.
A standard SDR issuance – with some 40% of the SDRs going to developing and emerging economies – would make an enormous difference. But it would be even better if advanced economies like the United States donated or lent (on concessionary terms) their SDRs to a trust fund dedicated to helping poorer countries. One might expect that the countries providing this assistance will attach conditions, in particular, that the money not go to bailing out creditors.
It’s also crucial that creditor countries help by announcing a stay on developing and emerging economies’ debt service. To understand why this is so important, consider the US economy. Last month, the US Department of Housing and Urban Development announced that there would be no foreclosures on federally insured mortgages for 60 days. In essence, this policy is part of a broader “stay” on the entire US economy as a response to the COVID-19 crisis. Workers are staying home, restaurants are staying closed, and airlines are all but shut down. Why should creditors be allowed to continue racking up returns, especially when the interest rates they charge should have already created a sufficient risk cushion? Unless creditors grant such a stay, many debtors will emerge from the crisis owing more than they can possibly repay.
Such stays are just as important internationally as they are domestically. Under current conditions, many countries simply cannot service their debts, which, in the absence of a global stay on repayment, could lead to massive, rolling defaults. In many developing and emerging economies, the government’s only choice is either to funnel more income to foreign creditors or allow more of its citizens to die. Obviously, the latter will be unacceptable to most countries, so the real choice for the international community, then, is between an orderly or a disorderly stay, with the latter scenario inevitably resulting in severe turbulence and far-reaching costs to the global economy.
Of course, it would be even better if we had an institutionalized mechanism for restructuring sovereign debt. The international community tried to achieve that in 2015, when the United Nations General Assembly adopted a set of shared principles with overwhelming support. Unfortunately, that framework lacked the necessary buy-in from key creditor countries. It is probably too late to establish such a system now for use in the current crisis. But there will inevitably be more crises down the line, which means that sovereign-debt restructuring should be high on the agenda for the post-pandemic reckoning.
In John Donne’s immortal words, “No man is an island …” Nor is any country – as the COVID-19 crisis has made abundantly clear. If only the international community would get its head out of the sand.
Africa Needs Debt Relief to Fight COVID-19
Combating COVID-19 is more challenging in Africa than in other parts of the world. But a two-year moratorium on all external-debt repayments would at least give governments there the fiscal space they need to respond to the pandemic.
WASHINGTON, DC – After a slow start, COVID-19 has spread increasingly rapidly throughout Africa, with more than 7,000 confirmed cases and 294 deaths across 45 countries and two territories as of April 7. Unless the continent urgently receives more assistance, the virus will continue to cut a deadly and remorseless path across it, with ever grimmer health and economic consequences. As an essential first step, therefore, we call for immediate debt relief for African countries in order to create the fiscal space governments need to respond to the pandemic.
After all, combating COVID-19 is more challenging in Africa than in other parts of the world. Access to quality health care across the continent remains limited, despite some countries’ recent progress. One-third of Africans cannot wash their hands regularly, because they lack access to clean water. Lack of refrigeration to store perishable foods or medicines makes it hard for most households to comply with stay-at-home orders. And many millions of workers’ livelihoods are in jeopardy because they have limited access to broadband connectivity, telework, or other opportunities to maintain basic incomes.
Nonetheless, African governments are responding to COVID-19 with determination, including by instituting states of emergency, requiring physical distancing, imposing forced quarantines, and restricting travel and public gatherings. And private-sector firms, civil-society groups, and grass-roots movements are joining the fight any way they can.
For its part, the African Union, to ensure synergy and minimize duplication, has adopted a joint continental strategy and established a task force to coordinate the efforts of member states and partners. The World Health Organization also is showing resolve to assist African governments.
But the key challenge is the availability of resources.
Africa needs an initial $100 billion in financial support, because sharp declines in commodity prices, trade, and tourism – a direct result of the pandemic – are causing government revenues to dry up fast. Meanwhile, investor pullback from risky assets has pushed up the cost of borrowing in financial markets, limiting viable options for resource mobilization.
Unsurprisingly, therefore, the average fiscal-support package announced by African governments so far amounts to a meager 0.8% of GDP, one-tenth the level in advanced economies. And, beyond the near term, the continent’s additional financing needs could rise to $200 billion.
True, international and other regional institutions are stepping up to complement national efforts. The African Development Bank recently issued a $3 billion “Fight COVID-19” social bond, while the African Export-Import Bank has set up a $3 billion credit facility.
Moreover, the G20 recently called for a coordinated collective response to assist the world’s most vulnerable countries, pledged to provide immediate resources on a voluntary basis, and instructed finance ministers and central-bank governors to develop an action plan. International organizations – including the World Bank, the International Monetary Fund, the United States Agency for International Development, the Global Fund, and Gavi, the Vaccine Alliance – have all announced programs to support developing countries. And the high uptake of these schemes by African governments illustrates the resource shortages they face.
These efforts notwithstanding, however, global action and support for Africa to date have not gone far enough. We therefore strongly support the urgent call by the IMF and the World Bank for bilateral debt relief for low-income countries. Furthermore, we believe that this should be matched by parallel treatment regarding private and commercial debt, which now accounts for a significant share of many African countries’ external debt.
Because time is of the essence, we call for a two-year standstill on all external-debt repayments, both interest and principal. During this standstill, the G20 should task the IMF and World Bank with undertaking a comprehensive debt-sustainability assessment and considering further debt restructuring, where appropriate, to preserve or restore debt sustainability.
Debt relief should also extend to middle-income countries that currently are experiencing capital flight and unsustainable debt burdens. Assessments of these economies’ debt sustainability must go beyond the debt-to-GDP ratio and also consider the ratio of debt-service payments to government revenue. Several middle-income countries currently spend 20% or more of their revenues on debt service, which crowds out much-needed health, education, and infrastructure expenditures.
With the benefit of immediate debt relief, African governments should focus on protecting vulnerable populations and bolstering social safety nets. And, like governments elsewhere, they should also support the private sector, especially small- and medium-size enterprises. That includes paying these firms’ arrears, and ensuring minimal disruption to the flow of credit, in order to avoid a deeper and more prolonged banking and economic crisis.
Such measures will help to preserve jobs. Without them, Africa could face an unprecedented human and economic catastrophe that could morph into even costlier political and social instability.
The COVID-19 pandemic has revealed the extent of our interconnectedness, reminding us of how closely the fates of all countries are intertwined. The global health system is only as strong as its weakest link: success in combating the pandemic in any country will be short-lived until every country succeeds.
Beyond the immediate responses, therefore, the pandemic and its economic fallout highlight the longer-term efforts needed to strengthen Africa’s health systems, diversify its economies, and broaden domestic revenue sources. Achieving these goals matters not just for the continent, but for the entire world.
This commentary is also signed by Tidjane Thiam of the Council on Foreign Relations; Donald Kaberuka, a former president of the African Development Bank and Board Chair of the Global Fund; Vera Songwe, Executive Secretary of the United Nations Economic Commission for Africa and a senior non-resident fellow at the Africa Growth Initiative at the Brookings Institution; Strive Masiyiwa, founder and Executive Chairman of Econet Global; Louise Mushikiwabo, Secretary General of the Organisation Internationale de la Francophonie; and Cristina Duarte, a former finance minister of Cabo Verde.
The COVID-19 Default Time Bomb
The world is facing a potential flood of disorderly sovereign defaults at a time when developing-country governments need to be spending huge sums on keeping their citizens healthy. To avoid a catastrophic outcome, the International Monetary Fund should coordinate a broad debt moratorium.
BERKELEY/CHICAGO – Without a comprehensive debt moratorium, the COVID-19 pandemic will lead to a wave of uncontrolled sovereign defaults, especially among emerging and developing economies. Should that happen, global efforts to contain the public-health crisis will fail, and the current economic collapse may well turn into a permanent decline.
Rich and poor countries alike are facing an unprecedented economic crisis as businesses close and workers lose their income. A downturn of this magnitude can cause tremendous long-term damage, as critical economic linkages vanish. Scores of firms will close permanently unless urgent action is taken. To this end, the United States Congress recently passed a $2 trillion rescue package, while the Danish and Canadian governments, for example, are subsidizing 75% of the payroll of their countries’ small and medium-size enterprises (SMEs). China, meanwhile, has expanded credit and eliminated payroll taxes, and just announced a rescue package worth almost $1 trillion.
But COVID-19 poses even greater problems for emerging economies such as India and Mexico. There, the economic costs of social distancing are even higher than in the US and Europe, and vulnerable SMEs, with low cash reserves, account for a much larger share of the economy. Such countries also have far more precarious health-care systems. The funds required to support vulnerable workers and businesses, as well as to treat COVID-19 patients, could be as much as 10% of their GDP.
Where will that money come from? Some advanced economies, such as the US, can borrow much more at little extra cost. But some of that funding comes from foreign investors seeking financial safety, and some from US private investors liquidating their foreign holdings. In other words, the financing that America and other advanced economies need comes in part from countries like Mexico.
What’s more, unlike during the 2008 global financial crisis, every emerging and developing economy now needs to borrow at exactly the same time. So, even if Mexico were able to issue bonds, it would be competing with many other countries in the same situation. It is an unfortunate fact, but countries have no one else to borrow from but other countries.
Left to their own devices, financial markets will pick winners and losers. The winners will be those countries with enough capacity to issue safe bonds. They will be able to borrow huge amounts at rock-bottom interest rates. The losers will be the world’s Mexicos. In fact, such countries will be doubly damned: not only will they be unable to raise funds to deal with the crisis, but capital will also move away, as it has already started to, precisely because of borrowing by the US, China, and European countries. It is little wonder, then, that more than 90 countries have already approached the International Monetary Fund for financial assistance.
A cascade of disorderly sovereign defaults now, when developing-country governments need to spend huge sums to keep their citizens healthy and their economies on life support, would have enormous human and economic costs, and sharply diminish our chances of containing the pandemic. After all, to contain the virus anywhere requires containing it everywhere.
To avoid a catastrophic outcome, the world urgently needs strong collective action. The IMF estimates that emerging economies’ funding needs total $2.5 trillion, but this figure seems low. In any case, the resources of the World Bank and IMF are currently far too limited. Efforts to boost the Fund’s firepower – currently only $1 trillion – must be aggressively pursued.
In the meantime, the IMF should act to head off the coming wave of sovereign defaults by coordinating a broad debt moratorium. The moratorium would suspend all sovereign-debt repayments to private and public creditors by emerging and developing economies that requested such a freeze, and would remain in place until the health crisis passed.
Our estimates suggest that a one-year debt moratorium could free upwards of $1 trillion, or 3.3% of low- and middle-income countries’ combined income – vastly more than the estimated $14 billion that would be freed by the proposed moratorium on debt repayments to public creditors by poorer countries only. That would go a long way toward helping countries like Mexico and India tackle the current crisis.
Although some might object that a debt moratorium will stop most private lending to these countries, such capital flows have already stopped or reversed. And although a moratorium could lock such countries out of international capital markets for a long time, the stigma on this occasion should be much less, because the moratorium would be imposed as a result of a worldwide pandemic rather than fiscal profligacy. The IMF’s imprimatur should also help.
Private creditors will be more likely to agree to a moratorium once they understand that the alternative is a slew of uncontrolled defaults, which will not help their bottom line. A debt moratorium preserves the option of avoiding a formal debt restructuring if economic conditions improve after the pandemic.
A substantial share of this sovereign debt is now issued under local law, which can be modified. Debt issued under foreign law and without collective-action clauses is more problematic. In that case, sovereign-immunity laws in the US and the United Kingdom could temporarily be changed to permit judges to end lawsuits from holdouts against countries that the IMF certifies as unable to service their current debt owing to the pandemic. Such a solution would be in the social and economic interest of rich countries, too.
During Latin America’s debt crisis in the 1980s, it took almost ten years for creditors to enter into earnest discussions under the so-called Brady Plan. This time must be different. We need to coordinate a broad debt moratorium immediately to avoid another lost decade (or two) for the Mexicos of this world.
COVID-19 is the IMF’s Chance for Redemption
After decades of failing to fulfill the explicit purpose for which it was created, the International Monetary Fund now finds itself uniquely positioned to facilitate a globally coordinated response to the COVID-19 crisis. But to make good on its potential, the Fund first needs to abandon some bad old ideas.
NEW DELHI – The COVID-19 pandemic has thrust the entire world – rich and poor – into uncharted territory, prompting extraordinary policy responses almost everywhere. The looming economic fallout will be more severe than that of the Great Depression, the 2008 global financial crisis, and perhaps even the two world wars. After all, none of these previous epochal crises involved a simultaneous global collapse of both demand and supply, with little certainty of how long the sudden stop would persist.
In an already unequal world, the COVID-19 meltdown has further increased inequalities within and among countries. Developing countries (even those with very few coronavirus cases) are being economically and financially devastated by collapsing global trade, sharp capital-flow reversals, and currency depreciation, all of which intensify external debt-servicing problems.
Moreover, policy responses within countries have compounded existing inequalities. In India, for example, the Modi government’s inept, draconian response is forcing millions of vulnerable people out of cities and back to their native villages, generating a gratuitous humanitarian catastrophe on top of the underlying COVID-19 crisis.
An unprecedented global challenge demands an unprecedented response, including a globally coordinated health strategy, because the coronavirus will remain a threat as long as infections are still spreading in even one country. Sadly, the response so far has taken the opposite form: the world is in the grips of a competitive struggle over basic items like face masks, medicines, and testing kits – with the world’s most powerful country leading the race to the bottom. Worse, the pandemic’s terrible health implications could well be dwarfed by the sheer scale of the economic disaster and its effects on livelihoods and other health conditions.
Rather than wringing our hands, we must start preparing to do whatever it takes to prevent an even deeper catastrophe. Given the urgency, we will have to make do with the tools we have available. Despite their flaws, existing international institutions must be made fit for purpose to meet this crisis. We cannot repeat the mistakes made after the 2008 financial crisis, when governments and the international community rescued global capitalism’s biggest players without imposing conditions to ensure socially responsible behavior.
The existing international financial architecture enables three measures, in particular, that deserve immediate consideration. First, the International Monetary Fund should be preparing a massive issuance of new Special Drawing Rights (SDR), its supplemental reserve asset. Second, policymakers should be making plans for significant debt restructuring, including substantial relief for sovereign debtors in low- and middle-income countries. And, third, governments should be considering new, tighter capital controls to prevent financial markets from exacerbating the COVID-19 fallout in emerging markets.
Given that the IMF would play a critical role in all three of these policy domains, it must step up to the plate. That means abandoning both its longstanding inclination toward unnecessary austerity and its instinctive commitment to protecting the interests of financial players over those of ordinary people. It also means clearly repudiating misplaced political gestures like denying Venezuela access to its own SDR account at the IMF.
On the issue of SDRs, a massive new issuance would provide reserve assets to supplement struggling countries’ official foreign exchange reserves. At least SDR1-2 trillion, equivalent to $1.4-2.7 trillion (the value is based on a basket of five leading fiat currencies), will need to be created and distributed without conditionality across member countries, according to their quotas.
Advanced economies with reserve currencies will not need this lifeline, but it will be crucial in emerging and developing economies, which have far fewer resources with which to fight the pandemic and mitigate the attendant economic disaster. An expanded SDR is also a better option than swap lines from the US Federal Reserve. Although this mechanism is currently playing a stabilizing role in the global financial system, how it functions ultimately reflects US strategic national interests, not global ones.
Historically, only around SDR204 billion has been created and distributed globally, with SDR182 billion of that coming in 2009 to help countries cope with the aftermath of the 2008 crisis. These are tiny sums, relative to annual global transactions. In 2018, global trade alone amounted to around $19.5 trillion, and gross capital flows to more than $20 trillion. A massive increase in SDRs right now would increase global money supply, but need not lead to global inflation, especially if the newly unlocked resources go toward preventing supply bottlenecks that are bound to emerge as a result of the pandemic lockdown.
Similarly, while some countries can seek to repudiate external debts on the basis of today’s extraordinary circumstances, individual countries that do so on their own will face additional costs, just as they will find it difficult to impose the necessary capital controls. Both of these options would be much more effective with international coordination. While the IMF is still the institution best placed to facilitate that, it needs to abandon its market fundamentalist insistence on capital-account liberalization and deregulation.
It is hard to imagine a more appropriate moment for the IMF to change its ways – indeed, it is now or never. When the Fund was created in 1945, its explicit purpose was “to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” For decades, the IMF’s record on all of these fronts has been dismal. Now that the world economy is on the brink of collapse, it has a chance to atone for its past sins and finally justify its existence.
Mobilizing Development Banks to Fight COVID-19
Both developed and developing countries urgently need large-scale funding to help maintain economic activity and jobs during the current pandemic. Fortunately, more than 400 development banks around the world can play a vital role in minimizing economic decline, supporting recovery, and financing structural transformation.
NEW YORK/PARIS – There is no historical precedent for the current worldwide shutdown of most “non-essential” economic activities in response to the COVID-19 pandemic. Nor do policymakers have any experience of trying to engineer a smooth recovery after a shock of this magnitude. Clearly, however, governments now need to take responsibility. With markets having vanished or sharply contracted, the public sector has become the lifeline for millions of people and companies in distress.
Both developed and developing countries urgently need large-scale counter-cyclical funding to help maintain economic activity, and especially jobs. And one of the key instruments that most governments and the international community have to help achieve this are development banks. These institutions can significantly leverage public resources to help minimize economic decline, support recovery, and finance structural transformation.
Development banks operating on a national, regional, or global scale are frequently overlooked even by financial specialists. But there are more than 400 of them, with combined assets of more than $11 trillion, according to the French Development Agency (AFD), equivalent to roughly 70% of the assets of the entire US banking sector. Capitalized by governments, but co-funding their lending with the private sector, development banks commit $2 trillion each year, representing 10% of annual global investment.
These institutions range from the most global (the World Bank) to the most local, and from the largest national development bank (China Development Bank, with $2.4 trillion in assets) to very small lenders. But they share a common purpose, and can help to lay the foundation for a different financial model that considers not just profitability, but also equitable development and climate-change mitigation.
Indeed, development banks’ raison d’être is to overcome market failures, as well as to finance structural transformations that bring about a fairer and more sustainable economy. They most often target their operations where the market partly fails or is absent – such as financing small businesses, promoting innovation, building infrastructure, providing housing for the poor, and mitigating climate change. And they fund concrete projects or sectors with long-term finance.
National development banks have mandates that distinguish them from purely commercial banks, and are thus a “visible hand” that governments can activate to help mitigate the economic fallout from the COVID-19 crisis. And international development banks, which have a mandate to finance projects in poorer countries, can channel some of their long-term funding to these economies, using resources provided by rich countries.
This is true not only of multilateral, regional, and bilateral development banks, but also of development-finance institutions devoted to private-sector financing in developing economies. The latter group includes the members of the Association of European Development Finance Institutions, such as Dutch development bank FMO, Germany’s DEG, and France’s Proparco. In particular, international development banks should quickly scale up long-term lending to local commercial banks, which can then lend to local companies.
If development banks worldwide increased their activity by 20%, they could mobilize an additional $400 billion this year alone. Moreover, because these institutions not only channel their own funds but also catalyze private finance, the amount available for economic recovery could at least double, implying $800 billion or more of additional financing this year.
To this end, several national development banks have already announced major initiatives, with Germany’s KfW planning to increase lending by €100 billion ($108 billion), and Brazilian state banks preparing to boost lending by the equivalent of 4% of the country’s GDP. Colombia’s Bancóldex and France’s AFD also are working on large plans. These initiatives need to be implemented quickly and effectively, and other countries should take similar action as soon as possible.
For governments seeking to realign their national development banks in this way, success depends on meeting three conditions. First, these banks should combine transparent, efficient, and accountable governance with decision-making autonomy. Second, they must have sufficient scale, which may require governments to provide additional capital. And, third, these institutions need appropriate instruments to enable them to mobilize sufficient private finance while channeling their own funding to meet development objectives.
COVID-19 has plunged the world into an unprecedented economic crisis. But by significantly increasing their lending, development banks can support economic activity and jobs, and help to build a more equitable and sustainable future.
LONDON – This week, leaders from medicine, economics, politics, and civil society are uniting to demand immediate and coordinated international action – in the next few days – to mobilize the resources needed to address the COVID-19 crisis, prevent the current health catastrophe from becoming one of the worst in history, and avert a global depression. As a letter to the world’s leaders notes, because we are so far behind the COVID-19 curve, many lives are being lost needlessly, other health issues are being ignored, and societies and economies are being devastated.
During the global financial crisis of 2008, G20 leaders worked to coordinate a global response. And in other previous emergencies – such as tsunamis, civil wars, or epidemics – coalitions of countries have convened donor conferences to generate the necessary resources. Today, we need both: a G20 task force to coordinate international support and a donors’ conference to make that support effective.
A decade ago, the immediate economic crisis could be surmounted when the under-capitalization of the global banking system was addressed. This time, the economic crisis will not end until the health emergency is addressed, and the health emergency will not end by addressing the disease in one country alone. It can end only when all countries recover from COVID-19 and it is prevented from returning on a regular basis.
All health-care systems and societies – even the most sophisticated and richest – are buckling under the strain caused by the coronavirus. But if we do nothing as it spreads in African, Asian, and Latin American cities and smaller communities – which have little testing equipment and fragile health systems, and where social distancing will be impossible to achieve – it will cause devastation, persist, and perhaps inevitably fuel other outbreaks worldwide.
The only way we can end the crisis sooner rather than later is to do what we have omitted to do for years: fund the public health, scientific, and economic agencies that stand between us and global disaster. World leaders should immediately agree to an initial commitment of $8 billion – $1 billion for the World Health Organization to continue its vital work during 2020, and the remainder to support the Coalition for Epidemic Preparedness Innovations to coordinate efforts to develop, manufacture, and distribute effective diagnostics, therapeutics, and vaccines. These advances, with equitable access for all countries, are vital if we are to end this pandemic and prevent future tragedies.
Funding also must be provided to meet the global need for ventilators and personal protective equipment. Rather than having each country, state, or province scramble for a share of output from existing capacity, with all the cost-inflationary competition that would bring, we should be vastly increasing capacity by coordinating the global production and procurement of such medical supplies. And, if a vaccine becomes available, sufficient funding must be allocated to deliver it, through existing organizations like Gavi, The Vaccine Alliance , to the poorest countries.
According to even the most optimistic estimates from Imperial College, London, there will be 900,000 deaths in Asia and 300,000 in Africa. Developing countries not only lack modern health systems; they also have wholly inadequate social safety nets. At least $35 billion is needed to provide vital medical supplies, recruit staff, and strengthen national resilience.
And yet, despite the looming danger, almost 30% of countries have no COVID-19 national preparedness and response plans, according to the WHO, and only half have a national infection prevention and control program. Many lack adequate water, sanitation, and hygiene standards in their health-care facilities. And while it is estimated that richer countries will have only one-seventh of the hospital beds they need for critical care, poor countries will have far, far fewer, and many will have none at all.
National governments are also attempting to counter the downward slide in their economies. But, to prevent a liquidity crisis from turning into a solvency crisis, and today’s global recession from becoming tomorrow’s depression, better-coordinated fiscal, monetary, and trade measures are urgently needed.
The fiscal stimulus packages now being implemented in some countries will be much more effective if all countries in a position to do so join in. But if we are to limit mass redundancies (which are already occurring on a frightening scale), it is also vital that banks follow through rapidly on government loan guarantees and provide the cash support that companies and their workers need.
The poorest countries need special economic assistance. The international community should begin by waiving this year’s developing-country debt repayments, including $44 billion due from Africa. But the reality is that at least $150 billion in new funds will be needed to protect developing economies.
The World Bank can scale up country support while still meeting its lending ceiling. But that will not be enough. In 2009, during the Great Recession, World Bank spending went from $16 billion to $46 billion. A similar expansion of available resources should be guaranteed now. The International Monetary Fund has said it will mobilize all its available resources. The IMF should allocate around $500-600 billion in Special Drawing Rights (SDRs).
Time is short. Ideally, all this should be agreed and announced this week and be formally confirmed by the IMF and the World Bank Development Committee when they meet on April 17-19. This is may be the most viable exit strategy available to the world. If the price seems high, the consequences of not paying it could well be catastrophic.