COVID-19 - Fiscal And Financial Crisis Responses.

First and foremost, save yourself? 

COVID-19's quick proliferation and economic ramifications throughout the globe were aided by the global economy's strong integration. 

The economic implications of the pandemic have disproportionately harmed poorer countries and more vulnerable families. 

The capacity of the economy to respond was quite unequal. 

While wealthier nations took extraordinary macroeconomic measures to alleviate the effect on their populations' lives, most of the worst-affected countries lacked such economic resources. 

Multilateral measures should have given a buffer, but they proved inadequate. 

The Battle for Vaccine Access. 

There was undoubtedly a higher understanding than previously of the need for a worldwide response, particularly the need to preserve lives, in Spring 2020. 

With the help of the national government, the quest for and manufacture of dependable vaccinations got off. 

On a global scale, the World Health Organization (WHO) acted quickly to establish the ACT2 Accelerator and COVAX. 

The goal of these methods was to speed up the development of COVID-19 vaccines, ensure the availability of sufficient doses for all nations, and distribute those doses equitably, starting with the highest-risk populations and gradually expanding to cover the whole world population. 

However, due to limited and declining domestic resources in poor nations, vaccine manufacturing and distribution were still heavily biased in favor of servicing the populations of high-income countries by April 2021. 

More nearly a year into the epidemic, the COVAX was still severely financed, unable to purchase the vaccinations required to cover even a portion of the population of poor countries, since worldwide supplies had been mostly seized by richer nations. 

In consequence, differences in vaccination availability have been a reflection of how financial reactions to the epidemic have played out. 

The fact that emerging nations fall behind in vaccination rates has important ramifications for global immunity rates, since the virus may still evolve and create new worldwide infections, compounding the already severe economic implications. 

Another complicating element is that vaccine manufacturing in poorer nations is complicated by the survival of patent rights that provide pharmaceutical firms a monopoly of production, either directly or via the acquisition of production licenses. 

Forced licensing is permitted under the WTO agreement on Trade-Related Intellectual Property Rights (TRIPS), and the Doha Declaration on TRIPS and Public Health has an explicit section allowing compulsory licensing of vital medications in the event of a public health emergency. 

Rich nations' failure to put existing restrictions in international trade regulations into effect, as well as underfunding of financial assistance for the procurement and development of vaccines in poorer countries, led in a very uneven distribution of vaccines to these countries. 

130 nations have not yet given their citizens a single dose of vaccine by Spring 2021, and at current distribution rates, some individuals in underdeveloped countries would not get a vaccination until 2024. (INET, 2021: 7). 

The potential of COVID-19 contamination persisting in nations with low vaccination rates raises social and economic uncertainty, impeding economic recovery and growth. 

Furthermore, it is no surprise that developing nations with limited vaccination access also have less resources to boost their economies. 

Inequalities in Financial Response Capacity are pronounced. 

Governments require additional resources not only to address the health effects of the COVID-19 crisis and to develop and distribute vaccines, but also to finance the costs of the various lockdowns required to stop the virus from spreading, as well as to stimulate the economy to compensate for the drop in fnal demand caused by the COVID-19 crisis. 

Fiscal and monetary stimulus, as well as emergency assistance measures, totaled US$14 trillion, or 13.5 percent of global GDP. 

The total cost of fiscal stimulus measures came to about $8 trillion (or 8 percent of world GDP). 

The government's reaction was much greater than that in the aftermath of the global financial crisis in 2008–2009, and it is likely to have averted a considerably deeper worldwide recession. 

Inequalities in monetary and fiscal response capabilities are as severe as the total reaction has been. 

The dramatic contrasts between high-, middle-, and low-income nations are clearly visible. 

In relative terms, high-income nations supplied fiscal stimulus worth 12.5 percent of GDP on average, which was three times more than emerging and other middle-income countries could contribute and almost 10 times more than governments in low-income countries. 

In terms of per capita disparities, the disparities are considerably more pronounced. 

According to UN-DESA (2021), rich nations' stimulus packages per capita were about 580 times larger than those adopted by the UN category of least developed countries (LDCs). 

In comparison, industrialized nations' average per capita income is "only" 30 times that of LDCs. 

Lacking sufficient local resources to maintain their economies, emerging nations must search for foreign resources to pay for health care and boost their economies. 

For a variety of reasons, this proved difficult for many developing nations. 

First, following a period of declining external debt levels aided by the Highly Indebted Poor Country (HIPC) effort in the 2000s, many low-income developing nations' external debt loads increased again in the 2010s. 

In 2019, the IMF estimated that half of low-income countries were at danger of or currently in financial crisis, up from a quarter in 2013. 

Low-income nations' average foreign debt ratio has already risen to 65 percent of GDP in 2019, up from 47 percent in 2010. 

Many nations' public debt burdens have grown significantly as a result of increased borrowing from private lenders, with the percentage of private non-guaranteed debt in total foreign debt stocks of low-income countries rising from 3.2 percent in 2010 to 10% in 2019. (Chandraskhar, 2021). 

With dramatic decreases in GDP and export profits due to the worldwide recession triggered by the pandemic, these high levels of foreign indebtedness prompted much greater misery in 2020. 

The IMF erased US$213.5 million in loan payment commitments for 25 qualified HIPCs in 2020 to relieve some of the pressure. 

While this debt relief was welcome, it was insufficient to prevent further financial turmoil. 

Similarly, the G20's debt service suspension initiative (DSSI) has given no debt relief and, in effect, has just served to kick the can down the road, since no debts have been cancelled and interest has continued to collect throughout the all-too-brief suspension period (Chowdury & Jomo, 2021). 

Second, in 2020, poor nations will confront a capital outflow to rich countries, as well as a dollar appreciation (and depreciation of their own currencies). 

According to Gallagher et al. (2021), market panic and volatility were exacerbated by a high level of uncertainty and an initial lack of coordinated policy responses, which resulted in the largest outflow of portfolio capital from emerging market and developing economies in history, as well as a global shortage of dollar liquidity. 

At the same time, most developing countries' external financing requirements grew dramatically, as export profits fell as a result of the global demand slump (and, for many, this was exacerbated by falls in main commodity prices), and currency depreciation raised their import costs. 

As previously stated, their financial demands have escalated as a result of the necessity to tackle the pandemic's health and economic effects. 

Despite widespread knowledge and G20 vows, the IMF and the World Bank's responses were far from proportional to the severity of the crisis (see Afesorgbor et al., 2021). 

While the IMF said that it would commit its US$1 trillion loan capacity, it has only offered US$107 billion in financial assistance to 85 countries as of March 15, 2021. 

In September 2020, the World Bank launched a US$160 billion pandemic assistance package. 

While important, several aspects of this program have been criticized for failing to assist eliminate financial barriers and failing to pay attention to accessible healthcare. 

Only 8 of the 71 COVID-19 health initiatives (financed by the World Bank) incorporate steps to assist low-income people who are currently facing financial obstacles to health care (Oxfam, 2021a). 

The greater resources made accessible were accompanied by conditions that rendered them less effective as a reaction to the pandemic's effects. 

Oxfam's (2020) analysis of the contents of recent and ongoing IMF agreements revealed that, between March and September 2020, 76 of the 91 IMF loans for 81 countries with a total value of US$89 billion had conditionality attached that required recipient governments to slash public expenditure in ways that could result in deep cuts in the funding of public healthcare systems and pension schemes, as well as requiring economy-wide wage freezes and reducing public sector remuneration. 

Even in the middle of the epidemic, over one-third of the nations receiving IMF loans are subject to interest surcharges (totaling more than $4 billion), significantly boosting debt-servicing costs (INET, 2021: 10). 

In summary, the existing IFFS has proven insufficient as a financial safety net for countries that have been hit hard by a pandemic. 

As a result, it only exacerbated global inequalities, as countries with abundant fiscal and monetary resources were able to take unprecedented fiscal and monetary support measures to protect the livelihoods of their own populations, while paying little attention to the international ramifications on the livelihoods of populations in less affluent nations. 

This apparent lack of international cooperation during the pandemic is reflected in a nearly 40% reduction in bilateral official development funding expected for 2020. (Development Initiatives, 2021).

~ Jai Krishna Ponnappan.

You may also want to read more analysis about the COVID-19 Pandemic here.

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