[WSMDiscuss] Developing Countries Struggling To Cope With COVID-19

Jomo jomoks at yahoo.com
Tue Feb 23 07:53:31 CET 2021

Developing CountriesStruggling To Cope With COVID-19

By Anis Chowdhury and Jomo KwameSundaram 

SYDNEY and KUALA LUMPUR, Feb 23 2021(IPS) - The ongoing COVID-19 pandemic isadversely impacting most developing countries disproportionately, especiallythe United Nations’ least developed countries (LDCs) and the World Bank’s low-incomecountries (LICs).

Years ofimplementing neoliberal policy conditionalities and advice have made mostdeveloping countries much more vulnerable to the COVID-19 pandemic byundermining their health systems and fiscal capacities to respond adequately.

Less taxes
Four decades of ‘neoliberal’ policy influencehas resulted in a ‘race to the bottom’ to cut direct taxes, particularly corporate tax rates, ostensibly to promote investments and spur growth.

But most LDCsand LICs were left high and dry as foreign direct investment (FDI) seeks profitable locations consideringvarious relevant criteria besides tax rates.Thus, tax cuts havenot induced the promised investments, but also resulted in net revenue losses.

Revenue lossdue to such tax competition could be five times thatdue to illicit financial flows seeking to evade taxes. Low and middle-incomecountries lose US$167~200 billionannually, around 1.2~1.5% of their national incomes, to corporatetax competition.

Poorcountries’ tax bases have narrowed since the 1990s,with Sub‐Saharan African countries suffering the highest revenue losses as ashare of national incomes. More indirect taxes have not compensated for lessdirect tax revenues.

Less government spending
As the tax system became less progressive, tax cuts also depleted the publiccoffers in most developing countries. Pressures on governments to pursue fiscalconsolidation and austerity grew, with devastating impacts forpublic health.

ImplementingIMF-World Bank structural adjustment program conditionalities, most sub-SaharanAfrican countries drastically reduced their healthcare budgets. Percapita public spending on health in LICs fell during2004–2012, while their shares of national income declined during 2004-2015.

Years of public sector underinvestment seriouslyundermined public health systems in most developing countries, especially LDCsand LICs. Government provision was deliberately reduced to promote for-profitprivate healthcare, adversely affecting public service quality, effectiveness, costs and access.

Unsurprisingly,these economies not only lacked fiscal resources to cope with the pandemic, buttheir fiscal systems had also been made incapable of responding to thechallenge. Thus, these poorly funded, inadequate health systems were grosslyunprepared for the pandemic.

Uneven impacts
United Nations Secretary-General António Guterres cautioned last July thatCOVID-19 was making achievement of the Sustainable Development Goals (SDGs) “even more challenging”as many developing countries were already “off track” in 2019, before thepandemic.

On 3rd April,International Monetary Fund (IMF) Managing Director Kristalina Georgieva warnedthat the worst recession since the Great Depression would hit developingcountries hardest, as they have “less resources toprotect themselves”. World Bank President David Malpass also acknowledged thatit would “hurt world’s poorest countriesthe most”.

The pandemichas already set back decades of modest and uneven progress in developingcountries. The World Bank recently estimated thosefalling into extreme poverty worldwide in 2020 at between 119 and 124 millionpeople, i.e., by around 15%.

And thesituation is getting worse. Rich country resistance to the developingcountries’ request for a TRIPS waiver, vaccine imperialism andthe flawed COVAX arrangementsare deepening the crisis inpoor countries as most remain far behind in the vaccine queue.

To boosttheir profits, vaccine developers restrict greater output. Despite havingreceived various generous government subsidies, they refuse to share researchfindings needed to massively scale up generic production. Meanwhile, richcountries have secured many times more vaccines than they need.

Limited fiscal space
Before the COVID-19 pandemic, low income countries already had the largest deficits, higherborrowing costs and more debt relative to government revenue thanhigh-income countries. Thus, they devote ever larger shares oftheir modest revenues to pay interest.

The pandemichas undoubtedly worsened public finances. Average deficits in LICsincreased from -4.0% of GDP in 2019 to -5.7% in 2020, with debtrising from 43.3% to 48.5% of GDP.

Fiscalresponses have been influenced by access to financing. Global fiscal support reachednearly US$14 trillion in 2020, comprising US$7.8 trillion in additionalspending or foregone revenue, and U$6 trillion in equity injections, loans andguarantees.

Nearly US$12trillion (about a fifth of GDP) was deployed in advanced economies to addressthe pandemic and its economic fallout. Meanwhile, LICs could only affordUS$26.6 billion (1.2% of GDP), asemerging market economies deployed around 5%.

Declining fiscal space
Countries relying on primary commodity production, tourism or manufacturing fortransnational supply chains have been most disrupted by the pandemic. More opento the outside world, their government revenue and fiscal space have been moreseverely affected.

Revenueshortfalls from output drops, concurrent commodity price drops and debt demandshave limited many LICs’ fiscal capacities. The pandemic is thus more likely toleave lasting impacts, including worse poverty and malnutrition.

The IMF headurged countries not to hesitate to “spend, but keep the receipts”,suggesting a major U-turn in IMF fiscal policy advice. Likewise, despite herearlier reputation as a ‘debt hawk’, World Bank Chief Economist Carmen Reinhartadvised “First fight the war, thenfigure out how to pay for it”.

But most LICshave little alternative but to rely heavily on foreign aid. Even before thepandemic, aid from the OECD countries only reached 0.31% of theirgross national income (GNI), less than half the 0.7% of nationalincome target agreed to more than half a century ago.

Had donorsmet their LDCs aid target of 0.15~0.20% of their national incomes, LDCs wouldhave received an extra US$32 billion more annually at least. Donor governmentcuts in bilateral aid commitments byalmost 30%, from US$23.9 billion in the first five months of 2019 toUS$16.9 billion during January-May 2020, have only made things worse.

Meanwhile,despite Boris Johnson’s rhetoric about reviving Commonwealth, i.e., colonial,connections now that Britain has ‘Brexited’, he plans to cut bilateral aidby 50~70% followingthe £2.9 billion cut inJuly 2020!

Britain isnow paying “Covid bills off the backs ofthe poor”, even breaching UK law! Ever clever on the hoof, BoJo mayyet donate the excess vaccines he has ordered to the ‘most deserving’ inanother typically spectacular, grandiloquent gesture while continuing to blockmuch broader access by denying developing countries’ TRIPS vaccine waiverrequest.



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