As a fallout from the Coronavirus pandemic, the United Nations’ trade and development body sees the global economy going into a recession this year with income losses that could touch trillions of dollars, spelling trouble for developing countries. However, India and China will be likely exceptions, according to a new report by the United Nations Conference on Trade and Development (UNCTAD).
It says the economic fallout from the pandemic has spread faster and has cut deeper compared to the 2008 global financial crisis. The trade and development body is also not optimistic that developing countries will witness the same kind of rapid rebound as they did between 2009 and 2010.
“The economic fallout from the shock is ongoing and increasingly difficult to predict, but there are clear indications that things will get much worse for developing economies before they get better,” said UNCTAD secretary-general Mukhisa Kituyi.
The UN body says it sees a $2-3 trillion financing gap for developing countries over the next two years, and in view of the lack of monetary, fiscal and administrative capacity to respond to this crisis, their progress towards the Sustainable Development Goals will be halted.
UNCTAD said that in the two months since the Coronavirus began spreading outside of China, developing countries have “suffered capital outflows, growing bond spreads, currency depreciations and lost export earnings, including from falling commodity prices and declining tourist revenues”.
Emerging countries have seen portfolio outflows jump to $59 billion in a month between February and March, according to UNCTAD calculations, which is double the outflows of $26.7 billion, experienced by these countries immediately after the global financial crisis.
These countries have also seen the values of their currencies fall between 5% and 25% against the dollar, since the beginning of this year, also faster compared to the early aftermath of the financial crisis. Meanwhile commodity prices in developing countries have dropped 37% this year, since the crisis began, says UNCTAD.
The UN body said that advanced economies and China have put together stimulus packages which, according to the Group of 20 leading economies (G20), will extend a $5 trillion lifeline to their economies.
An initial assessment by UNCTAD says that these packages will translate into a $1 trillion to $2 trillion injection of demand into the major G20 economies and a two percentage point turnaround in global output.
Last week, finance minister Nirmala Sitharaman unveiled a ₹1.7 lakh crore rescue package for the underserved to mitigate the impact of the coronavirus lockdown. And, the Reserve Bank of India (RBI) unleashed a slew of measures, combining rate cuts with regulatory relaxations, to inject a total of ₹3.7 lakh crore into the financial system.
To fight the economic damage from the crisis, the UN called for a $2.5 trillion package for developing countries (excluding China) that house two-thirds of the world’s population. Out of this, $1 trillion should be made available through the expanded use of special drawing rights at the International Monetary Fund, $1 trillion of debts owed by developing countries should be cancelled this year, and $500 billion is needed to fund a Marshall Plan for health recovery and dispersed as grants, says the UN.