Prospects for post COVID-19 recovery are dangerously diverging, according to the International Monetary Fund (IMF) The United Nations said developing nations have spent 580 times less per capita on their COVID-19 response, in comparison to richer nations, because they do not have the money to do so. Credit: James Jeffrey/IPS

By Nalisha Adams
BONN, Germany, Mar 30 2021 (IPS)

The inability of developing nations to spend on post COVID-19 recovery and resilience has placed the world on the “the verge of a debt crisis”. “We face the spectre of a divided world and a lost decade for development,” United Nations Secretary-General António Guterres said on Monday, Mar. 29, during a high-level meeting on financing development post COVID-19.

He said that developing nations needed access to liquidity to allow them to sufficiently respond to the pandemic and invest in recovery and urged the global community to provide this necessary support.

Guterres highlighted the over 2.7 million COVID-19-related deaths and the over 128 million people who fell into extreme poverty over the last year.

He noted that while the world’s rich nations have benefited from an unprecedented $18 trillion of emergency support measures, setting the stage for economic recovery post COVID-19, many developing nations could not invest in recovery and resilience. In fact many have spent 580 times less per capita on their COVID-19 response, in comparison to richer nations, because they do not have the money to do so.

One third of emerging market economies where at high risk for fiscal crisis while six countries had already defaulted on loan payments. Guterres said the situation was even worse for least-developed and low-income countries.

“They face a painfully slow recovery that will put the 2030 Agenda for Sustainable Development and the Paris Agreement completely out of reach,” Guterres warned.

The meeting titled “International Debt Architecture and Liquidity – Financing for Development in the Era of COVID-19 and Beyond Initiative” was convened jointly by Guterres, Jamaican Prime Minister Andrew Holness and Canadian Prime Minister Justin Trudeau.

“We are at a turning point in the COVID-19 crisis,” Guterres said.

He said the stark reality of lack of funding among developing nations was clearly evident in the access to COVID-19 vaccines.

“Many developed countries are on the brink of mass vaccination drives. In developing countries this could take months, if not years, further delaying a global recovery,” Guterres said.

Jamaican Prime Minister Holness said that while vaccine rollouts where gathering pace, “an uneven and inequitable vaccination programme will lead to an uneven global recovery and sadly a re-inforcement of poverty”.

“Unless we are prepared to enter deeper cooperation with fairer, smarter, and broader views of our world and common interests, we should temper our expectations that the crisis is nearing its end,”  Holness said.

While Guterres welcomed that steps that had been taken to date by international financial institutions, noting the G20s debt services suspension initiative and the common framework for debt treatments, he said this was still “far from enough”.

He also pointed out that the common framework for debt treatments was facing difficulties as countries were reluctant to use debt recovery mechanisms as they were concerned this would have a negative impact on their credit ratings.

He said there was an opportunity to address weaknesses in current debt architecture. 

“Ultimately we need a shift in mindsets to responsible borrowing and lending.”

Director-General of the World Trade Organisation (WTO) Ngozi Okonjo-Iweala said because of the closure of export opportunities and lowering commodity prices, COVID-19 has worsened debt dynamics for many developing countries.

“The collapse of export receipts from tourism has prompted balance of payment difficulties for many developing countries, especially island economies from the Caribbean to the Pacific to the India Ocean,” Okonjo-Iweala said.

She noted that the beginning of the COVID-19 crisis, trade finance dried up for ‘several’ low-income nations as foreign banks cut existing credit lines or refused to endorse letters of credit unless guaranteed by others.

“Without trade finance countries cannot import the basic necessities, they can only do it by paying cash in advance,” she said, adding that action on trade can help alleviate debt pressures.

“Lowering trade barriers gives countries more opportunities to push down their debt to export ratios. Addressing supply side constraints and improving access to trade finance would help them take better advantage of market opportunities,”  Okonjo-Iweala said.

She said that by delivering results at the WTO, including at the organisation’s 12th Ministerial Conference (MC12), which will take place in November, “governments can reinforce the predictable framework of rules that underpin global trade and enhance the ability of countries to earn their foreign exchange they need”.

“Lost decades are a policy choice. We can and we must do better,” Okonjo-Iweala said.

Kristalina Georgieva, managing director of the International Monetary Fund (IMF), admitted that while the global economic outlook was improving thanks to efforts on vaccines and unprecedented actions by governments and the international community “prospects for recovery are dangerously diverging”. 

“What we can now report is that relative to pre-crisis projections, and excluding China, this group [of developing nations] is projected by 2022 to have cumulative per capita income losses as high as 20 percent,” Georgieva said, noting this would be a one-fifth loss of what was already a lower income to begin with.

The per capital income loss in advanced economies would be 11 percent, she said.

“We need a comprehensive approach to support vulnerable countries and people. And it must include measures at home to improve revenue collection, spending efficiency … as well as very substantial international support, [such as] grants and concessional lending,” Georgieva said.

She said the IMF would do its part through concessional financing. She also noted that the new special drawing rights (SDRs) or supplementary foreign exchange reserve assets defined and maintained by the IMF, of $650 billion, which was endorsed by the G7 earlier this month to address the long term needs for formal assets. She said she submit a proposal in June to provide more transparency into lending.

“A new SDR allocation would support the global recovery, provide substantial direct liquidity boosts to all IMF members, without adding to debt burdens, and freeing up resources for countries under pressure to do what is right and take care of their people and their businesses,”  Georgieva said.

She said in parallel the IMF was exploring options for members with strong financial positions to reallocate SDRs to support vulnerable countries.

She added that action on debt was an integral part of the comprehensive response to COVID-19 recovery.

President of the World Bank Group David Malpass said the world faced devastating challenges, especially for the poorest countries.

“For countries with unsustainable debt we are looking for solutions that meet both the near-term liquidity challenges and the longer-term sustainability challenges,” Malpass said, explaining that solutions for both time frames was critical in helping people get access to resources for health, education and climate.

He said along with the IMF, the World Bank was supporting the G20s debt services suspension initiative that saw 40 countries benefit from $6 billion in debt services suspension last year. He added that the 6-month extension of debt services suspension initiative to June 2021 could provide an additional $7 billion of temporary relief for countries.

President of the African Development Bank (AfDB) Akinwumi A. Adesina said the COVID-19 pandemic “has devastated Africa’s accounts” in a year that saw 106,000 deaths related to the virus and GDP decline of between $145 to 190 billion.

Despite the current situation, Adesina said that the AfDB projects that the Africa’s read GDP growth would recover from -2.1 percent GDP growth in 2020 to 3.4 percent for 2021. He added, however, that this growth was conditional on equitable access to vaccines and on resolving Africa’s debt distress. He said the structure of Africa’s debt had changed dramatically and its total external debt stands at $700 billion.

“We need global solidarity on vaccine access for Africa. We also need global solidarity on debt for Africa,” Adesina said.

He called for the extension of the G20 debt services suspension initiative and for it to also include vulnerable and middle income countries.

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A major donor conference in Nepal’s capital, Kathmandu, came to a close on Jun. 25 with foreign governments and aid agencies pledging three billion dollars in post-reconstruction funds to the struggling South Asian nation.

An estimated 8,600 people perished in the massive quake on Apr. 25 this year, and some 500,000 homes were destroyed, leaving one of the world’s least developed countries (LDCs) to launch a wobbly emergency relief effort in the face of massive displacement and suffering.

Two months after the disaster, scores of people are still in need of humanitarian aid, shelter and medical supplies.

Speaking at the conference Thursday, Nepal Prime Minister Sushil Koirala assured donors that their funds would be used in an effective and transparent manner.

Rights groups have urged the government to focus on long-term rebuilding efforts rather than sinking all available monies into emergency relief.

In a statement released ahead of the conference, Bimal Gadal, humanitarian programme manager for Oxfam in Nepal, warned of the impacts of unplanned reconstruction and stated, “The Nepalese people know their needs better than anyone and their voices must be heard when donors meet in Kathmandu. They have been through an ordeal, and now it is time to start rebuilding lives.”

“This conference is a golden opportunity to get people back on their feet and better prepared for the future,” he said.

“This can only happen if the government of Nepal is supported to create new jobs, build improved basic services like hospitals and clinics, and to ensure all new buildings are earthquake-resilient.”

Despite a huge thrust from civil society organisations, the International Monetary Fund (IMF) has announced that the country does not qualify for debt relief under its Catastrophe Containment and Relief (CCR) Trust, which recently awarded 100 million dollars in debt relief to Ebola-affected countries in West Africa.

The Jubilee USA Network, an alliance of over 75 U.S.-based organisations and 400 faith communities worldwide, has been pushing for major development banks, including the IMF, the World Bank and the Asian Development Bank (ADB) to ease debt payments from Nepal, one of the world’s 38 low-income countries eligible for relief from the IMF’s new fund.

According to Jubliee USA, “Nepal owes 3.8 billion dollars in debt to foreign lenders, including 54 million dollars to the IMF and approximately three billion dollars to the World Bank and Asian Development Bank.

“According to the most recent World Bank numbers,” said Jubilee USA in a statement, “Nepal paid 217 million dollars in debt in 2013, approximately 600,000 dollars in average daily debt payments, or more than 35 million dollars since the earthquake.”

Considering that the earthquake and its aftershocks caused damages amounting to about 10 billion dollars – about one-third of the country’s total economy – experts have expressed dismay that the country’s creditors have not agreed on a debt-relief settlement.

“This is troubling news,” said Eric LeCompte, a United Nations debt expert and executive director of Jubilee USA Network. “Given the devastation in Nepal, it’s hard to believe that the criteria was not met.”

“This fund was created for situations just like this and debt relief in Nepal could make a significant difference,” said LeCompte.‎ “Beyond the IMF, the World Bank and Asian Development Bank who hold about three billion dollars of Nepal’s debt have unfortunately not announced any debt relief plans yet.”

Edited by Kitty Stapp

A family stands beside a damaged house near Naglebhare, Nepal. The housing sector bore the brunt of the April earthquake, accounting for three-fifths of all damages. Credit: Asian Development Bank/CC-BY-2.0

By Zhai Yun Tan
WASHINGTON, Jun 17 2015 (IPS)

The 7.8 magnitude earthquake that shook Nepal in April, and the numerous aftershocks that followed, left the country with losses amounting to a third of its economy.

As this South Asian nation of 27 million people struggles to get back on its feet, a major donor conference scheduled for Jun. 25 promises to bring some relief, but the extent of the disaster means that Nepal will be dealing with the fallout from the quake for a long time to come.

“The economy of Nepal took a huge hit from these earthquakes and there is a danger that many of the country’s impressive gains in overcoming poverty could be reversed." -- Annette Dixon, vice president for the South Asia Region at the World Bank
The country’s post-disaster needs assessment reported damages of 5.15 billion dollars, losses of 1.9 billion dollars and recovery needs of 6.6 billion dollars. The housing sector bore the brunt of the disaster, accounting for three-fifths of the damages and half of the country’s most pressing needs.

Nepal Finance Minister Ram Sharan Mahat has called this the worst disaster in Nepal’s history. Over 8,000 lives were lost, 22,000 people were injured and over 1,000 health facilities were destroyed, according to government data.

“One in three Nepali people have been affected by the earthquakes. One in 10 has been rendered homeless,” the foreign minister said. “Half a million households have lost their livelihoods, mostly poor, subsistence farmers.”

An additional three percent of the population, which amounts to roughly a million people, has been pushed into poverty because of this disaster, according to the World Bank.

The United Nations Office for the Coordination of Humanitarian Affairs (OCHA) said on its website that 8.1 million people are in need of humanitarian support and 1.9 million require food assistance.

Only 129 million dollars of the 422-million-dollar humanitarian appeal by United Nations have been raised.

Nepal, a developing country saddled with debts up to 30 percent of its gross domestic product (GDP) and dependent on external aid, had nonetheless been making developmental and economic gains before the disaster struck.

For instance, government data indicate that the percentage of people living in poverty fell from 42 percent to 23.8 percent within the last 20 years.

“The disaster has dealt a severe blow to our aspirations,” Mahat said.

The donor conference later this month, to be held in Nepal’s capital, Kathmandu, is expected to tackle strategies for reconstruction and the provision of financial support.

“The economy of Nepal took a huge hit from these earthquakes and there is a danger that many of the country’s impressive gains in overcoming poverty could be reversed,” said Annette Dixon, vice president for the South Asia Region at the World Bank.

“The country needs resources to pay for the recovery that can be channeled through credible programmes to make itself more resilient to the next natural disaster and ensure that those most in need receive the help they deserve.”

The conference will be jointly conducted by the Nepal government, the Asian Development Bank, the European Union, the government of India, the Japan International Cooperation Agency, the United Nations and the World Bank.

More challenges lie ahead for Nepal as the annual monsoon season approaches, potentially displacing thousands more people. Charity groups such as CARE are scrambling to provide iron sheeting to households and those in temporary shelters to keep them dry, according to the group’s recent update.

“Our biggest priority now is to make sure we get people through the monsoon safe and dry,” said CARE shelter expert Tom Newby in the Jun. 5 release. “Families want to know how to rebuild their homes safer and better and our job is to help them do this.”

Orla Fagan, public information officer at OCHA’s Asia Pacific regional office, said in an email to IPS that providing shelter is a key concern.

“There were around 500,000 families affected and left without homes after the two earthquakes,” Fagan said, adding that greater relief efforts are needed before the country can move on to reconstruction.

Rupa Joshi, communications manager for the United Nations Children’s Fund (UNICEF) in Nepal, is concerned about the country’s fragile hillsides.

“The monsoon is already upon us,” Joshi said in an email to IPS. “We feel when the rain comes in, or pour like it did last week in eastern Nepal, our mountains will see numerous large landslides.”

Agencies like UNICEF and the World Food Programme (WFP) are working to help children return to school, provide safe birth-centers and deliver food to people in Nepal’s hard-to-reach mountainous areas.

Meanwhile, groups like Jubilee USA Network, an alliance of over 75 U.S.-based NGOs and 400 faith communities, are fighting to help Nepal obtain debt relief from the World Bank, the Asian Development Bank (ADB) and the International Monetary Fund (IMF), to which Nepal owes about 54 million dollars.

“The country pays 600,000 dollars a day [to its creditors],” Eric LeCompte, executive director of the coalition, told IPS. “It is a significant amount that can be freed up for relief efforts.”

Nepal could also qualify for assistance under the IMF’s Catastrophe Containment and Relief Trust (CCR), which aims to relieve debt burdens of low-income countries like Nepal.

To qualify for the trust, Nepal will have to demonstrate that the natural disaster has directly affected at least one third of its population and destroyed more than a quarter of its productive capacity.

Jubilee USA Network has succeeded in securing similar debt-relief schemes for several Ebola-stricken countries by applying pressure on the IMF.

LeCompte said the Jun. 25 conference is crucial for Nepal.

“The Nepal government is expected to ask for debt relief at the conference,” LeCompte said. “It will push the decision-making process onto the banks.”

Edited by Kanya D’Almeida

An Ebola treatment centre in Kenema, Sierra Leone, on the day of a visit from Anthony Banbury, Special Representative of the Secretary-General and Head of the UN Mission for Ebola Emergency Response (UNMEER). Credit: UN Photo/Ari Gaitanis

By Carey L. Biron
WASHINGTON, Nov 13 2014 (IPS)

The United States proposed Tuesday that the international community write off 100 million dollars in debt owed by West African countries hit hardest by the current Ebola outbreak. The money would be re-invested in health and other public programming.

U.S. Treasury Secretary Jack Lew will be detailing the proposal later this week to a summit of finance ministers from the Group of 20 (G20) industrialised countries. If the idea gains traction among G20 states, that support should be enough to approve the measure through the International Monetary Fund (IMF), where the United States is the largest voting member."The plan is for that money to be re-invested in social infrastructure, including hospitals and schools … to deal with the short-term problem of Ebola but also the long-term failure of the health systems that allowed for this outbreak.” -- Jubilee USA’s executive director Eric LeCompte

“The International Monetary Fund has already played a critical role as a first responder, providing economic support to countries hardest hit by Ebola,” Lew said in a statement to IPS.

“Today we are asking the IMF to expand that support by providing debt relief for Sierra Leone, Liberia and Guinea. IMF debt relief will promote economic sustainability in the worst hit countries by freeing up resources for both immediate needs and longer-term recovery efforts.”

These three countries together owe the IMF some 370 million dollars, according to the U.S. Treasury, with 55 million dollars due in the coming two years. Yet there are already widespread fears over the devastating financial ramifications of Ebola on Guinea, Liberia and Sierra Leone, in addition to the epidemic’s horrendous social impact.

Last month, the World Health Organisation warned that the virus now threatens “potential state failure” in these countries. The World Bank, meanwhile, estimates that the virus, which has already killed more than 5,000 people and infected more than 14,000, could cost West African countries some 33 billion dollars in gross domestic product.

Of course, much of the multilateral machinery is often too cumbersome to respond to a fast-moving viral outbreak. Yet there is reason to believe that the U.S. plan could have both immediate and long-term impacts.

That’s because the plan would see the IMF tap a unique fund set up in the aftermath of the 2010 Haiti earthquake, which facilitated the cancellation of nearly 270 million dollars of Haitian debt to the IMF. Called the Post-Catastrophe Debt Relief (PCDR) Trust, it is aimed specifically at responding to major natural disasters in the world’s poorest countries.

Originally, the PCDR Trust was capitalised with more than 420 million dollars. Today, a U.S. Treasury spokesperson told IPS, the trust has some 150 million dollars in it – money that would be available almost immediately.

“Our proposal is for the IMF to provide debt relief for these Ebola-affected nations from this trust,” the spokesperson said. “The U.S. would like to see around 100 million dollars put toward this effort, however the precise amount will need to be determined in consultations with the IMF and its membership.”

The IMF, meanwhile, says it is preparing to consider the proposal. In September the Washington-based agency made available 130 million dollars in immediate support to Guinea, Liberia and Sierra Leone.

“We are very glad that some donors have expressed an interest in increasing support for the Ebola-affected countries. We are reaching out to all donors to see how we might be able to take this forward … using all the tools available to us,” an IMF spokesperson told IPS.

“[Debt relief] decisions are made according to the merits of the particular case and this would be approached in the same way. We would expect the Board to be briefed soon on this topic.”

Ebola’s “natural disaster”

For development and anti-poverty advocates, debt obligations on the part of poor countries constitute a key obstacle to a government’s ability to respond to critical social needs, both in the short and long term.

In the West African epicentre of the current Ebola outbreak, many analysts have held chronic low national health spending directly responsible for allowing the epidemic to spiral out of control. And when looking at feeble public sector spending, it is impossible not to take into account often crushing debt burdens.

For instance, Guinea spent a little more than 100 million dollars on public health in 2012 but paid nearly 150 million dollars that same year on internationally held debt, according to World Bank figures provided by Jubilee USA, an anti-debt advocacy network that has spearheaded the push for the United States to make the current proposal.

“As bad as Ebola has been, some of these countries have far greater challenges with deaths from malaria than from Ebola,” Eric LeCompte, Jubilee USA’s executive director, told IPS.

“The amount is incredibly important because it cancels a significant portion of the debt completely. And the plan is for that money to be re-invested in social infrastructure, including hospitals and schools … to deal with the short-term problem of Ebola but also the long-term failure of the health systems that allowed for this outbreak.”

LeCompte was also involved in the creation of the Post-Catastrophe Debt Relief Trust, in the aftermath of the Haitian earthquake. His office has advocated for the fund’s monies to be used since then – for instance, to react to flooding in Pakistan and Typhoon Haiyan in the Philippines.

But he says these and other proposals have been rejected by the IMF’s membership, on the rationale that these countries were developed enough to be able to mobilise financing in other ways. (The IMF says PCDR funds are for response to “the most catastrophic of natural disasters” in “low-income countries”, when a third of a country’s population has been affected and a quarter of its production capacity destroyed.)

Not only are Guinea, Liberia and Sierra Leone among the poorest countries in the world, but the Ebola outbreak there has a potentially direct impact on the rest of the globe.

“This is a very clear opportunity to point to the 150 million dollars left in that fund and to note that Ebola is every bit the same as the Haitian earthquake in terms of being a regional calamity,” LeCompte says.

“The difference is that this is also a long-term investment in the very problems that allow Ebola to spread. So we’d be not only addressing the current issue, but also the next disease outbreak in that region.”

It is unclear whether there is a mechanism in place to top up the PCDR Trust in the future. The IMF states that “Replenishment of the Trust will rely on donor contributions, as necessary.”

But for his part, LeCompte says the fund has the potential to fill a significant gap: offering a pot of money, immediately available, that could be quickly mobilised to deal with true crises afflicting the world’s poorest countries, from hurricanes to major financial defaults.

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org