The article outlines a four-point recovery plan for emerging economies regarding the COVID-19 outbreak. Tabled by an entity of the United Nations, the plan seems to be pro-developing countries as it proposes assistance that will aid these nations during and post the pandemic.
The United Nations Conference on Trade and Development (UNCTAD) has proposed a four-point recovery plan for the novel coronavirus (COVID-19), specifically tailored for emerging economies. It consists of the following: a $1 trillion investment injection for weaker economies, debt freeze for distressed economies, healthcare investments and state-led capital controls.
$1 trillion investment injection for weaker economies
“Faced with ‘a looming financial tsunami’; this year, UNCTAD’s four-pronged strategy initially calls for a $1 trillion investment injection for weaker economies. This would come from so-called ‘special drawing rights’ governed by the International Monetary Fund (IMF) which would need to ‘go considerably beyond’ the 2009 allocation made in response to the global financial crisis,” according to UN News.
During the 2009 global financial crisis, “[t]he IMF overhauled its lending framework to make it better suited to country needs, giving greater emphasis to crisis prevention, and streamlined program conditionality. Since the start of the crisis, the IMF committed well over $700 billion in financing to its member countries,” based on IMF’s Response to the Global Economic Crisis report.
The Fund’s African members are countries like Egypt, Ethiopia, South Africa, Ghana, Tunisia, Morocco, Liberia, and Zimbabwe. Small and medium size enterprises form the backbone of these economies. The COVID-19 outbreak has affected a number of them by diminishing their incomes and consequently narrowing their survival span. Therefore, SMEs stand to directly or indirectly benefit from any form of substantial investment to the region’s economies.
Oumar Seydi was the Director for Africa Region of the International Finance Corporation, a member of the World Bank Group, and he is currently the Africa Director at the Bill and Melinda Gates Foundation. According to Seydi, there is a financing gap of over $136 billion annually for SMEs in the continent. If effectively utilised, the abovementioned investment may assist to fill such a gap.
Debt freeze for distressed economies
“The second measure is a debt freeze for distressed economies, involving an immediate standstill on sovereign debt payments, followed by significant debt relief. By way of example, UNCTAD cites how half of Germany’s debt after World War Two was canceled. Based on this precedent, around $1 trillion in debt should be canceled this year, overseen by an independently created body,” the UN entity adds.
Several African countries are already in high debt distress. Based on data from the Jubilee Debt Campaign, an overall of 38% of Gambia’s total revenue in 2019 was directed at servicing debt, Angola 43% and Ghana spent 39%. The servicing of debt is likely to be a challenge as government revenues decline. In recent days, Nigeria and Angola, for instance, had reduced state spending due to a decrease in expected income from oil exports.
Simultaneously, the fiscus of other African countries are being affected by various factors ranging from the fall in commodity prices, agriculture produce exports, travel and tourism activities, weakening local currencies, large capital outflows and drop in remittances from citizens abroad.
“The third measure targets $500 billion investment in poorer countries’ emergency health services and related social relief programmes,” according to the intergovernmental organisation’s news service.
African countries’ healthcare systems are mostly underfunded, overburdened and consisting of infrastructures that are not well maintained. Uganda, for instance, has no functioning public ambulance system. The former makes medical evacuations of patients a feat, especially when considering the poor (or non-existed) road facilities in certain areas.
Except for a few countries such as South Africa, the situation is similar in many other African countries. The Democratic Republic of Congo is an epitome. Furthermore, the country is battling to contain the spread of measles, which is a highly contagious infectious disease that can result to pneumonia or encephalitis (swelling of the brain).
“As of 17 November 2019, a total of 250,270 suspected cases with 5,110 associated deaths have been reported by the Democratic Republic of the Congo,” based on the World Health Organisation’s Measles – Global situation, released last year November. “All provinces are affected, and a national outbreak response vaccination campaign is ongoing in phases and should be completed by the end of the year.”
When factoring in other forms of ailments such as malaria and typhoid fever, one sees a darker picture and an urgent need of such funds in order to slightly improve healthcare services in that country and many others.
State-led capital controls
“Finally, UNCTAD urges the implementation of state-led capital controls to curtail already surging capital outflows from these developing countries. This would help to reduce a cash shortage driven by sell-offs in developing country markets and to arrest declines in currency values and asset prices,” according to UN News.
Considering that African currencies are mostly regarded as riskier assets in contrast to the United States Dollar (USD) or Euros, for example, the continent’s currencies have been traded off for safe-haven currencies, mainly the USD. This has contributed to a decrease in their values.
Reporting by Gaby Ndongo. Editing by Kupa Kambasha. Feature image from Pexels.