The worldwide economic crisis triggered by the COVID-19 pandemic has exposed fundamental flaws in the international financial and fiscal system once again (IFFS).
It failed to respond adequately to the crisis, particularly in low-income nations, which were badly struck by the pandemic's worldwide economic consequences.
Despite the fact that the pandemic had a less widespread impact on health conditions in many low-income countries, they were disproportionately affected by the spillover effects of the economic crisis in major economies, particularly those in Europe and the United States, and had few financial resources to mitigate the impact on their populations' livelihoods.
In this paper, we look at how the pandemic has affected people's livelihoods throughout the globe.
Here I explain how the COVID-19 problem has triggered a significant global recession, with possibly long-term consequences for human development, rising poverty, income inequality, and food insecurity.
Even though they have been less affected by the pandemic's expansion, some of the world's poorest nations, such as those in Africa, are among the most impacted economically.
While high-income countries have made exceptional steps to alleviate livelihood consequences, poor countries' reactions have been subdued due to a lack of financial resources.
The economic implications of the pandemic have once again exposed the flaws in the present IFFS, which fails to provide sufficient contingency funding where it is most required.
Whereas high-income countries could engage in large and practically costless fiscal and monetary growth, poor countries racked up massive debts and suffered acute liquidity constraints when it came to even the most basic debt refinancing.
The IFFS' flaws include pervasive biases in internationally poorly-coordinated tax systems, resulting in tax base erosion and profit shifting, the inadequacy of international contingency financing mechanisms, the lack of appropriate sovereign debt management mechanisms, and the absence of a truly international currency that could serve as a multilateral source of liquidity provisioning during times of crisis.
With such measures in place, the pandemic response would have given a more equal playing field for rising and developing nations, as well as minimized the worst economic impacts of the pandemic.
Apart from the pandemic, these measures will promote recovery and concentrate international development finance on the globally accepted Sustainable Development Goals.
Important political difficulties will have to be overcome to adopt such changes in the current climate of fading multilateralism as outline here.
First, the Group of Twenty (G20) major nations agreed to a unified corporate tax rate of 25% in an attempt to curb profit shifting by multinational corporations, a problem that is already undermining many countries' tax bases.
Second, the International Monetary Fund (IMF) has approved the release of 650 billion dollars in Special Drawing Rights (SDRs).
Although suitable allocation methods for the use of the increased foreign liquidity have yet to be agreed upon, this is a significant step forward.
It demonstrates that change is achievable, despite the fact that there is still a long way to go.
You may also want to read more analysis about the COVID-19 Pandemic here.
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