No country is emerging unscathed from the Covid-19 pandemic, but the impact on the world’s poorest countries is especially severe. Extreme poverty is on the rise and underfunded health systems are woefully ill-prepared to cope with the virus. The number of children in Africa dying of preventable diseases is increasing. The gains made in development since the turn of the millennium are being reversed.
The international community is well aware of what’s happening. More than 100 countries have sought financial help from the International Monetary Fund. The IMF’s sister organisation, the World Bank, says emerging market and developing economies will shrink by 2.5% this year, their first collective contraction in 60 years. The G20 – the body that brings together the biggest players from the developed and developing worlds – has recognised that oppressively high debt levels make it impossible for low-income countries to boost health spending.
The response to this unfolding human tragedy has been inadequate in every respect. The IMF has nothing like the bare minimum of $2.5tn it says is needed to meet the demands for help. A debt-relief deal agreed in April excludes money that poor countries have borrowed from China and the private sector. The G20 has no meeting planned until November, fully justifying the accusation by Gordon Brown that it has gone awol – absent without lending.
Mr Brown’s criticism is all the more telling because he was instrumental, as UK prime minister, in pulling together a response to the 2008 financial crash that included boosting resources for the IMF and World Bank.
The situation today is far more serious. Pandemics are nothing new, nor are global recessions. What makes the current crisis unique – and so terrifying – is that never before in the modern age have both occurred at the same time. Debt levels were smaller and more manageable for low-income countries in 2008. China’s subsequent strong growth boosted demand for the commodity-producing nations of Africa and Latin America. Above all, there was a willingness to cooperate.
The London G20 in April 2009 now looks to have been the last gasp of a multilateral system created in the mid-1940s and no longer fit for purpose. There is, though, no time for a complete overhaul, and for now at least the world will have to cope using the institutions it has got.
Developed countries should recognise that their response to Covid-19 – central banks printing money through quantitative easing programmes and finance ministries running up record peacetime deficits – is not an option for emerging market and developing nations. Rich countries can borrow heavily at rock-bottom interest rates; poor countries cannot.
As a result, the IMF and World Bank have to act as the finance ministry and the central bank for those countries that can’t go it alone. To fulfil this role, they need to be properly resourced. The IMF has its own way of creating money, known as special drawing rights, which can be converted into hard currency by member countries. There has rarely, if ever, been a stronger case for a new allocation of SDRs. This is also the time for the World Bank to be tripling both its regular lending and the soft loans and grants it provides to the world’s 76 poorest countries through its International Development Association. Credit guarantees from major shareholders would facilitate this.
Next month marks the 15th anniversary of the Gleneagles summit at which the G8 delivered a package of debt relief and aid for poor countries. The argument then was that it made sense for rich nations to convert the money they were owed into social investment in poor countries, many of which were paying far more in interest payments on their debt than they were on health and education. That argument is even more compelling in 2020 than it was in 2005.
None of this is going to be easy all the time Donald Trump is in the White House, but those developed countries still committed to a multilateral approach need to show that they are prepared to act on SDRs and debt relief with or without US support. Some of the leadership Mr Brown provided in 2009 would be most welcome.