- COVID-19 could spark a global recession, reversing up to three decades of improvements in living standards.
- According to one estimate, 420-580 million people worldwide could be pushed into poverty.
- It's vital that governing bodies and world banks work together to support the countries than are unable to support themselves, write two former world leaders and two economists.
G20 leaders urgently need to reconvene to agree on an enhanced and more strongly coordinated global response to the COVID-19 crisis. Although lockdowns are being eased in many places, the daily number of new COVID-19 cases worldwide recently reached its highest level yet, while the pandemic’s devastating economic toll continues to mount as new epicenters arise in the emerging and developing world.
We are at a critical moment, because the poorest countries in Africa, Asia, and Latin America are facing economic and public-health emergencies that demand immediate action. A diverse group of middle-income economies need help, too. Together, these countries represent nearly 70% of the world’s population and account for approximately one-third of global GDP.
Their needs will grow more acute in the months and years ahead. The International Labor Organization expects that global working hours in the second quarter of 2020 will be 10.5% below pre-crisis levels, equivalent to the loss of more than 300 million full-time jobs. And, for the first time this century, global poverty is rising.
Indeed, a global recession could reverse up to three decades of improvements in living standards and, according to one estimate, push 420-580 million people worldwide into poverty. The World Food Program, moreover, has warned that COVID-19 will likely double the number of people suffering from acute hunger, to 265 million.
The pandemic has also given rise to the greatest education emergency of our lifetime, with 1.7 billion children – more than 90% of the global total – having been out of school because of lockdowns. In poor countries, many may never go back. Millions of children who no longer receive school meals are going hungry, and cash-strapped governments are reducing education aid.
This global economic and social emergency will not end until we overcome the global health emergency. And that will require overcoming it in all countries.
We welcome the pledges totaling $8 billion at a special May 4 virtual summit to develop COVID-19 vaccines, diagnostics, and treatments, and we urge governments and other donors to pay these contributions immediately. But much more needs to be done.
Global coordination is particularly important in the development, mass manufacture, and equitable distribution of any eventual vaccine. And, because such a vaccine must be universally and freely available, we urge every G20 member to support the replenishment of funding for Gavi, the Vaccine Alliance, at an online pledging conference on June 4.
In a similar vein, COVID-19 testing capacity must be ramped up and deployed on a vastly greater scale. Moreover, closer cross-border collaboration is essential to increase the limited global supply of vital medical equipment. Developing countries also need support to build up their health systems and capacities, and to improve their social safety nets. And G20 countries should support the United Nations’ appeal to protect refugees, displaced persons, and others who rely on humanitarian aid.
Reflecting the unprecedented economic and fiscal deterioration in many emerging and developing economies, more than 100 countries have approached the International Monetary Fund for help. More will likely do so. But although the IMF has said that these countries need $2.5 trillion to overcome the crisis, only a fraction of that amount has been allocated.
So, while we welcome the good intentions at the heart of the G20’s COVID-19 action plan, world leaders must do more.
First, debt relief for the 76 International Development Association countries needs to be scaled up radically to include relief by bilateral and private creditors until the end of 2021. Moreover, multilateral creditors must demonstrate that they are providing net new lending; if not, they must provide debt relief. And because time is running out for private creditors to grant debt relief voluntarily, a new binding approach now needs to be considered.
Meanwhile, a dozen or more emerging-market economies may well run into debt-servicing problems in the coming months. The IMF should prepare now to bring the relevant parties together.
Second, the G20 should agree that the $2.5 trillion of needed support will be provided. This will require the IMF, the World Bank, and regional development banks to raise their lending and grant ceilings, with the multilateral development banks increasing their outstanding loan portfolio over the next 18 months from $500 billion to $650-700 billion. These institutions must secure greater resources and allow more ambitious deployment of their capital if they are to act adequately.
All of this makes imperative a fresh emission of Special Drawing Rights (the IMF’s global reserve asset), and the transfer of existing unused and new allocations to countries desperate for support. A new SDR issue would release $600 billion immediately, and more than $1 trillion by 2022. The G20 should marshal political support for this measure and undertake the necessary technical work, so that it can be implemented as soon as an agreement is reached.
In the first stage of the COVID-19 crisis, the emphasis was on liquidity provision, employment protection, and emergency investments in health. Now, as policymakers seek to return the world economy to pre-crisis growth levels, enhanced fiscal and monetary coordination is vital.
Governments should therefore consider establishing a global growth target alongside national inflation targets. Green investment must be part of the stimulus, with governments favoring infrastructure projects that advance sustainable development and thus help to combat climate change.
To raise vital revenues for national governments, world leaders should agree on a coordinated strategy to recover money lost to tax havens. Countries should automatically exchange tax information, lift the veil of secrecy surrounding beneficial owners and trusts, and sanction non-compliant countries that refuse to implement the agreed rules.
COVID-19 is a wake-up call for the world to build a new and more effective multilateralism that is equipped to address the challenges of the twenty-first century. The global health and financial architecture must be reinforced, and partly redesigned, to enhance our preparedness and capacity to fight future crises rapidly and at scale. Further G20 action to prevent the pandemic-induced recession from deepening, and to mitigate its impact on the world’s poorest people, would advance this goal. We urge its leaders to embrace what needs to be done now.