World Bank Group President David Malpass expects the corona crisis to result in a deeper global recession than the Great Depression of the 1930s. The pandemic will hit the world’s poorest countries even harder than industrialised nations, especially as the former have barely any fiscal leeway. Their social-security and healthcare systems are not sufficiently robust. The particular vulnerability of the poorest countries also results from the one-sided focus of their economies, most of which are geared primarily to the export of certain commodities and products. Additionally, the International Monetary Fund (IMF) and the World Bank estimate that around half of low-income countries were already heavily in debt before the crisis. And more poor nations will become highly indebted as a result of the pandemic.
Consequently, the world’s poorest countries will be unable to cope with the corona crisis on their own. The international community and, in particular, the international financial institutions such as the World Bank and the IMF, should take a leading role in providing financial assistance, to these nations in the short and medium term. According to the World Bank Group President, without swift action on this front, the development gains made by these countries in recent decades will be lost.
The World Bank and the IMF have responded quickly, deploying a number of instruments to provide a relatively high degree of liquidity to developing countries at short notice. The IMF will provide around USD 50 billion in emergency lending to the poorest countries and emerging markets. About USD 10 billion will be offered interest-free to the poorest countries by the Rapid Credit Facility and about USD 10 billion by the Rapid Financing Instrument to emerging markets. The IMF has temporarily doubled the annual accessible volume of these two emergency finance facilities. 44 African nations had already requested financial assistance under these two instruments by mid-April. The IMF has accelerated its internal disbursement procedures to ensure that countries receive the funding more rapidly. The IMF has also reformed its Catastrophe Containment and Relief Trust to provide debt service relief to more poor nations simultaneously and at short notice. The reforms include payment in tranches and for a maximum period of two years.
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This blog first appeared on the DIE site.
Author: Kathrin Berensmann, DIE.
Image courtesy of Jernej Furman via Flickr.
The views are those of the author and not necessarily those of ETTG.