A post-COVID de-globalised world could cause an existential threat to emerging economies that are hampered by large dollar debts, weak institutions and no safety net
During the Spanish Flu, the majority of the coverage on the pandemic focused on the US, western Europe and a few pacific islands. Meanwhile, over 20% of deaths from the disease occurred in western India.
Now to some extent we should forgive our media and political commentators for currently exacerbating our still euro-centric news cycle. After all, suffering has been inflicted across all corners of the world, leaving nobody unaffected by the grips of such a cruel enemy. But this doesn’t excuse the complete negligence of many areas of the world that don’t possess the institutional framework to help rally back against COVID-19.
South Sudan have just four ventilators. Venezuela have seen more than half of their doctors flee the country, with 90% of their hospitals facing shortages of medicine and critical supplies.
Burkina Faso: 11 ventilators for a population of 20.9 million. Sierra Leone: 13 ventilators for a population of 7.9 million. Somalia: 15 ICU beds for a population of 15.8 million
These people have no NHS to clap for. Very few can get access to the domestic social safety nets which are keeping richer countries’ economies ‘in cooling’. The ability to socially distance is in fact a privilege, not a curse.
Cites Urban Programme have some fantastic 3D charts showing that the population density of Cairo, for example, is 5 times that of New York City. The economic collision of dense populations and a lack of welfare state creates a highly precarious situation for those from low-income countries. But the short-term economic and social impacts don’t stop there.
Half a billion people are projected to fall back into poverty, according to the United Nations University World Institute for Development Economics Research (UNI-WIDER). Areas such as Sub-Saharan Africa are facing their first recession in 25 years. These forecasts signal that 30 years’ worth of life-changing economic development will be destroyed in months.
The gaze of financial markets will soon sharpen on emerging market debt. Many low and middle income countries have their debt issued in dollars. With capital flight meaning that investors are buying up dollars, this appreciates the value of the hegemonic currency, thus increasing the size of the debt that these countries owe.
But we are in the game of big debts everywhere; why is it any different for the low- and middle-income world? The problem is that their debts are not anywhere near as sustainable. Many borrow from private creditors, which can consist of thousands of different agents, including pension funds and bond holders, rather than governments. This can lead to greater coordination problems when asking for debt relief, as well as speculative attacks.
When this uncertainty leads to increased interest rates, the debt burden will bite even further. Over 60 countries are currently spending more on repaying their creditors than on healthcare. But even this analysis is only scratching the surface at the prospective COVID-19 legacy that will mark the developing world for years to come.
One of the big fallouts in the coronavirus aftermath will be a partial de-globalisation effect. The world of (relatively free) movement, large global supply-chains and general economic interdependence may roll back. In practice, this means less economic support for a developing world that will see the greatest fall in living standards in modern times.
Borders will strengthen in their malice as leaders increase their hostility to outside threats. Those from countries with poor public health will be viewed with suspicion, and hostility towards refugees will heighten. Given that a combination of climate change and COVID-19 will exacerbate the already terrible nature of the refugee crisis, our duties towards helping those in such dire situations should strengthen. But I fear that no such welcoming arms will be opened.
Global institutions are sure to take a hit in their standing. Donald Trump has already stopped the IMF’s planned pandemic bailout in its tracks. When the dust settles, the World Health Organisation and other international bodies will come under attack. The very institutions that are designed to help the developing world flourish will be destabilised by political movements that seek to shift the blame from their poor domestic handling of the crisis.
This is even before we consider the problem that is China. Poor Sino-American relations will reduce the chances of quickly forming comprehensive rescue packages for countries that are in need. Each development policy will be viewed as a strategic instrument to exert soft power, rather than as a necessary means to protect the global poor.
There may well be positives that emerge from this crisis for the developing world. Supply chains have often pushed up local food prices, as well as damaging, displacing or destroying local communities due to deforestation. Despite this, there is no doubt that nation states will become far more inward looking in many areas of public policy.
The recession will harm all nations. COVID-19 has shown that the developed world itself has a crisis in weak institutions. However, this doesn’t mean that we turn our back on many of the problems that need global solutions. Rich countries can repeat the now famous mantra of doing ‘whatever it takes’ to save their economy. But many nations will be forced to take whatever they can get.