South Sudanese refugees practice social distancing as they wait to access a food distribution at Kakuma camp. © UNHCR/Samuel Odhiambo

By Daniel Gurara, Stefania Fabrizio, Daniel Gurara, and Johannes Wiegand
WASHINGTON, Sep 3 2020 (IPS)

While the COVID-19 crisis is sending shockwaves around the globe, low-income developing countries (LIDCs) are in a particularly difficult position to respond. LIDCs have both been hit hard by external shocks and are suffering severe domestic contractions from the spread of the virus and the lockdown measures to contain it. At the same time, limited resources and weak institutions constrain the capacity of many LIDC governments to support their economies.

Growth in LIDCs is likely to come to a standstill this year, compared to growth of 5 percent in 2019. Further, absent a sustained international effort to support them, permanent scars are likely to harm development prospects, exacerbate inequality, and threaten to wipe out a decade of progress reducing poverty.

Multiple shocks take a heavy toll

LIDCs entered the COVID-19 crisis in an already vulnerable position—for example, half of them suffered high public debt levels. Since March, LIDCs have been hit by an exceptional confluence of external shocks: a sharp contraction in real exports, lower export prices, especially for oil, less capital and remittances inflows, and reduced tourism receipts.

Take remittances, for example, that exceeded 5 percent of GDP in 30 (out of 59) LIDCs in 2019. Between April and May, they fell by 18 percent in Bangladesh, and by 39 percent in the Kyrgyz Republic, compared to the previous year. The repercussions are likely to be felt widely where remittances are the main source of income for many poor families.

As for the domestic impact, while the pandemic has evolved more slowly in LIDCs than in other parts of the world, it is now inflicting a sizeable toll on economic activity. Many LIDCs acted swiftly to contain the spread. From mid-March, when reported infections were still low, they put in place containment measures including international travel controls, school closures, the cancelation of public events and gathering restrictions.

Mobility—a proxy for domestic economic activity—also declined sharply, and continued to retreat as measures were broadened to include workplace closures, stay-at-home orders, and internal movement restrictions. From late April/early May, containment measures have gradually loosened and mobility has recovered, but has yet to return to pre-crisis levels.

Managing difficult trade-offs with scarce resources

Most LIDCs cannot sustain strict containment measures for long as large segments of the population live at near subsistence levels. Large informal sectors, weak institutional capacity, and incomplete registries of the poor make it difficult to reach the needy. Further, governments have only limited fiscal resources to support them.

Recent surveys conducted across 20 African countries reveal that more than 70 percent of respondents risk running out of food during a lockdown that lasts more than two weeks.

Faced with such constraints, the short but sharp front-loading of containment fulfilled a critical purpose: it flattened the infection curve, while granting time to build up capacity in the health sector.

Many LIDCs have followed this path: while they expended less fiscal support to their economies than advanced or emerging market economies, the share of additional spending dedicated to health has been higher.

As broad-based containment becomes difficult to sustain, LIDCs should transition to more targeted measures, including social distancing and contact tracing—Vietnam and Cambodia are good examples. Policy support should focus on supporting the most vulnerable, including the elderly, and on limiting the health crisis’s long-term fallout.

For example, protecting education is critical to ensure that the pandemic does not—as highlighted in a recent Letter to the International Community by a group of eminent persons—“create a COVID generation who loses out on schooling and whose opportunities are permanently damaged.”

Where the necessary infrastructure exists, technology can sometimes be leveraged in innovative ways. For example, to limit the spread of the virus, Rwanda is leveraging its digital finance infrastructure to discourage the use of cash. Togo employs the voter registration database to channel assistance to vulnerable groups.

A decade of progress under threat

Despite the best efforts of LIDC governments, lasting damage seems unavoidable in the absence of more international support. Long-term “scarring”—the permanent loss of productive capacity—is a particularly worrisome prospect.

Scarring has been the legacy of past pandemics: mortality; worse health and education outcomes that depress future earnings; the depletion of savings and assets that force firm closures—especially of small enterprises that lack access to credit—and cause irrecoverable production disruptions; and debt overhangs that depress lending to the private sector. For example, in the aftermath of the 2013 Ebola pandemic, Sierra Leone’s economy never recovered to its pre-crisis growth path.

Scarring would trigger severe setbacks to LIDCs’ development efforts, including undoing the gains in reducing poverty over the last 7 to 10 years, and exacerbating inequality, including gender inequality. The Sustainable Development Goals (SDGs) will thus be even more difficult to achieve.

LIDCs cannot make it alone

The support of the international community is key to enable LIDCs to tackle the pandemic and recover strongly. Priorities include: (1) guaranteeing essential health supplies, including cures and vaccines when they are discovered; (2) protecting critical supply chains, especially for food and medicines; (3) avoiding protectionist measures; (4) ensuring that developing economies can finance critical spending through grants and concessional financing; (5) ensuring that LIDCs’ international liquidity needs are met, which requires International Financial Institutions to be resourced adequately; (6) reprofiling and restructuring debt to restore sustainability where needed, which, in many cases, may require relief beyond the G20/Debt Service Suspension Initiative; and (7) keeping sight of the United Nations’ SDGs, including by reassessing needs when the crisis subsides.

The COVID-19 pandemic will be defeated only when it and its socioeconomic consequences are overcome everywhere. Urgent action by the international community can save lives and livelihoods in LIDCs. The International Monetary Fund is doing its share: among other things, the IMF has provided emergency financing to 42 LIDCs since April. It stands ready to provide more support and help design longer-term economic programs for a sustainable recovery.

Daniel Gurara is an Economist at the Strategy, Policy, and Review Department of the IMF.

Stefania Fabrizio is Deputy Unit Chief in the IMF’s Strategy, Policy, and Review Department.

Johannes Wiegand is Chief of the Development Issues Unit in the IMF’s Strategy, Policy and Review Department.

This story was originally posted on IMFBlog – Read the original here

Credit: IPS

By Stefania Fabrizio, Daniel Gurara and Lisa Kolovich
WASHINGTON DC, Feb 20 2020 (IPS)

Making sure that opportunities to enter the workforce are fair and rewarding for women benefits everyone. Yet, the average female workforce participation rate across countries is still 20 percentage points lower than the male rate, largely because gender gaps in wages and access to opportunities, such as education, stubbornly persist.

Our new study finds that fiscal policy choices that address gender equality—such as investing in education or infrastructure, developing better sanitation facilities, implementing individual-based tax regimes, and offering parental leave—create more economic opportunities for women, increase growth, and reduce poverty and inequality.

When governments actively promote policies to increase female labor force participation, more women do indeed join the labor force. Most measures pay for themselves in the long run without additional costs for governments and the added bonus—a larger workforce leads to higher economic activity and growth, which generate additional tax revenue for the country.

Inclusive fiscal policies

Since the mid-1980s, at least 80 countries across all levels of development and regions have adopted fiscal policies to promote gender equality. Previous IMF research suggests that in advanced economies, when governments actively promote policies to increase female labor force participation, more women do indeed join the labor force.

Canada, Czech Republic, and Sweden, for example, have witnessed a substantial increase in women’s paid work when the countries switched to using individual rather than family income taxation.

For low-income and developing countries, programs aimed at reducing gender gaps in education, particularly for secondary and university education, have supported more economic opportunities for women.

Other effective fiscal policies, such as better infrastructure, decrease the time spent on unpaid care work, while providing more women the choice to enter into paid employment.

The bottom line is that greater gender parity at all levels, from unskilled workers to top management positions, can also foster the creation of new ideas—leading to higher productivity.

Credit: Food Tank

Competing demands

Policymakers face difficult choices every day, given limited room in the budget and competing demands. These choices often come down to investing in schools or roads, introducing new revenue measures, or offering free, high-quality childcare.

Here, policymakers must consider not only what happens to economic growth, but also how these policies can reduce income and gender inequality.

To help with these decisions, our recent analysis examines how policies designed to increase women’s labor force participation can accomplish multiple economic and social goals.

We find that some gender-responsive fiscal policies increase labor productivity and in turn, sustainable growth. Take for instance, an effort to reduce the gender gap in literacy rates.

In low-income countries the average literacy rate of men is about 70 percent while it is only 54 percent for women. But if fiscal policies can be used to close this gap, then women’s productivity increases and ultimately, more women are equipped for jobs in more skill-intensive sectors.

Labor-saving infrastructure, such as greater access to safe water, frees time, particularly for women. For instance, in Malawi, women on average spend 54 minutes a day collecting water. Better access to infrastructure means that women may then choose to pursue paid work.

Removing tax distortions for the earner in the family with the lower wage, usually the woman, by changing the personal income tax structure from a family to an individual system creates incentives for more women to work, and with greater diversity in the workforce, fresh and innovative ideas can boost productivity.

Securing the future

Not all gender-responsive fiscal policies benefit women equally. Subsidizing childcare and providing paid maternity leave would have a greater impact on poorer women because they typically face higher childcare costs relative to their income.

For example, in the US, poorer women spend 17.4 percent of their income on childcare compared to 7.8 for richer women.

Time horizons matter too. A mix of measures could help support economic goals in a sustainable manner while tackling immediate social needs.

For example, investing in education to equip girls with the same skills as boys would boost women’s human capital while shaping future labor productivity. In the meantime, cash transfers that target poorer working women may help reduce poverty and inequality.

Our research shows that tackling gender-biased social norms is crucial. In fact, removing discriminatory practices and addressing social norms amplifies the positive effects of gender-responsive measures. Not only would this improve human rights, but it also would help promote women’s economic empowerment.

According to the Organization for Economic Co-operation and Development (OECD), discriminatory laws and social practices reduce women’s years of schooling by 16 percent and decrease labor force participation by 12 percent, resulting in a global income loss of 7.5 percent of the global GDP.

Progress in some countries is encouraging. For example, under the Promundo initiative, 34 countries have introduced programs to engage men and boys on gender norms with participants responding very positively to the initiative.

Real changes are happening. Still, we have a long way to go to make the world a place with the same opportunities for men and women. Policymakers and citizens working together can foster equality, equity, and brighter prospects for all, and ensure that gender equality becomes a reality in all of our lifetimes.

IMFBlog, where this article was originally published, is a forum for the views of the International Monetary Fund (IMF) staff and officials on pressing economic and policy issues of the day.

The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.

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