COVID-19 poses a huge challenge to developing nations

Subject

COVID-19 economic impact in developing countries.

Significance

The policy response to the pandemic in many developed countries has been twofold, locking down the whole population and announcing stimulus packages to minimise bankruptcies and protect jobs. Yet a combination of factors makes this policy approach unsustainable. Many of these countries have much larger informal sectors, where compliance will be lower, and more difficult to enforce, and stimulus measures will be costlier. Moreover, many of them face foreign exchange and fiscal constraints, making it more difficult to expand monetary and fiscal policies.

Impacts

• The IMF and World Bank will gain influence but struggle to adopt a coherent stance; long term, they could struggle to replenish funds.
• Social policy in developed and developing nations, and within the developing world, will diverge markedly, as will economic outcomes.
• Developed countries are unlikely to respond positively to growing calls for debt relief, certainly on the scale required.
• Policy experimentation may rise in some areas, including in food production or in considering adopting aspects of a basic income policy.
• In the most positive scenario, global collaboration between developing countries -- led by China -- could intensify, boosting spending.