Thread:

The full health impact of COVID-19 in many developing countries remains to be seen, but the negative economic shocks will be lasting.

Here are 5 reasons why we should care more about COVID-19’s impact on economies in the Global South. And 3 policy recommendations.

Reason 1: Insufficient funds for economic stimulus. All economies are suffering from lockdown, but developing countries do not have bottomless coffers. And they arguably need greater stimulus packages because people fall more easily into poverty when jobs are lost.

Reason 2: Reduction in both volume and price of exports. The fall in international trade will be unprecedented. Additionally, prices of primary commodities — exported by most low-income countries — have fallen 37% this year according to UNCTAD.

Reason 3: Outflows of capital and reduction in FDI. The IMF is reporting outflows of capital from developing countries never seen before. Remittances are dropping sharply. UNCTAD is predicting 30-40% reduction in global FDI in 2020-21, far worse than the 07/08 financial crisis.

Reason 4: Import challenges. The combined effect of reason 3 and 4 will worsen already existing foreign currency shortages in developing countries. On top of this, supply chains have been massively disrupted. Imports of essential medical goods and food have become a nightmare.

Reason 5: Food (in)security. The combined effect of disruptions to global food supply chains and domestic food production systems (due to lockdown) spells trouble for developing countries that are net food importers and already struggle with food security.

Policy recommendation 1: Developing countries should not have to deal with external debt overhang in this period. Debt repayments should be suspended not only until the end of this year, but also for 2021, possibly longer.

Policy recommendation 2: The IMF should boost its stimulus package to developing countries, including a new issue of IMF Special Drawing Rights.

Policy recommendation 3: Debt relief and new funding should be unconditional on domestic market reforms and on terms favourable to developing countries.