CHALLENGE IS TO AVERT TOTAL COLLAPSE AND FOOD INSECURITY
The threat to human life from COVID-19 and food insecurity is most likely to put greater challenges before all the countries of the world, especially the least developed and developing countries. A historical fall in the development finance in 2020 coupled with likelihood of second wave of COVID-19 will be an additional challenge to surmount.
The latest ODA insights and outlook in the COVID-19 crisis has found its direct and immediate implication for official development assistance (ODA) budgets presenting our greatest global test in living memory. Human toll is likely to be severe – whether from the direct impact of the virus, social and economic outcomes of lockdown measures, and global recession. The most vulnerable people and groups will likely be hit the worst, says UNDP. This is particularly true for those women, men, and children living in fragile contexts, where the current crisis is likely to exacerbate existing health and societal problems.
Estimates of global extreme poverty (living below an earning of $1.90 a day) increases from the present level vary – from an additional 71-100 million people as estimated by the World Bank to the most extreme forecast of half a billion as estimated by Sumner, Hoy, and Ortiz-Juarez – being pushed into extreme poverty. The World Food Programme also expects a doubling of the number of people facing acute food insecurity. Regardless of the exact number, an increase in poverty indicates that the world in back-sliding on hard-won development gains, putting even further strain on developing countries.
International co-operation for development, and ODA in particular, can be crucial countercyclical flow in times of crisis. It has the potential to be a transformative force to support and guide a sustainable recovery in developing countries, upholding good practices around prevention, innovation, reliability and predictability, and supporting country ownership and systems. ODA also plays a key role in building health and social protection systems in developing countries, which are critical to countries’ ability to respond to the COVID-19 crisis and are central to resilience and recovery.
Moreover, when it invests first and takes the greatest risk in areas of critical importance of well-being, ODA is catalytic – it paves the way for further external or domestic investment. ODA has supported nascent social protection systems that were expanded after the 2008-09 financial crisis and are today being used to channel support to people impacted by the COVID-19 crisis. However, ODA is just one source of development financing and is by no means the largest. Nor is it a replacement for strong domestic public financial management systems and resources. However, the need for concessional development finance like ODA is unparalleled in 2020.
A forthcoming OECD research report has found that other sources of development financing have already been severely impacted by this crisis, compounding pre-existing financial shortfalls and rising public debt in developing countries in recent years. Domestic resource mobilization will suffer and external private finance is projected to drop by $ 700 billion in 2020. Remittances are projected to fall by 20 per cent in 2020, foreign direct investment has a forecast of decline of 30-40 per cent in 2020-21, and GDP growth is predicted to be at -2.1% to -5.1% in sub-Saharan Africa (Zeufack et al.), 1% in Asia (IMF), and -4.6% in Latin America and the Caribbean (World Bank). Trade will also be severely impacted, with the UNCTAD estimating that the crisis could trigger up to $ 50 billion of losses in exports across global value chains.
To avoid total collapse, the global nature of this crisis itself suggests that solidarity and co-ordinated international action is in the interest of every country. In this context, many international groupings have issued calls to action to ensure developing countries are not forgotten in the recovery, and recognized the need to scale up financing for this. However, with the global economy predicted to shrink as a result of COVID-19 crisis, there is a risk that simply maintaining current (2019) ODA/GNI ratios will lead to an overall drop in finance. Unlike private flows, official support for development could actually take a positive trajectory in this crisis. However, at present, developing countries do not have a complete picture of all sources of financing for development, which can also undermine debt sustainability and macroeconomic stability. One of the important trends giving some hope is that it is the political will and global solidarity that drive ODA, not GDP growths of the countries. The sixty years of ODA data proves it. It provides support to health systems and safeguards to social sectors when they matter most.
The presence of a quality health system and social protection policies and programmes are two key factors that help determine a country’s ability to prevent, withstand, recover, and adapt to impacts of the COVID-19 pandemic. Despite developing countries having a younger population who may suffer less from the worst health effects of COVID-19, other factors make them more vulnerable to the pandemic’s effects. These included high population density, high rate of informal labour, and heavy reliance on the service and manufacturing sectors for employment and foreign exchange.
Food insecurity is already rising alarmingly. In this scenario, increasing domestic spending over time via state, community, or private sector resources is essential in order to build strong, resilient, and sustainably financed health systems and social protection programmes. Domestic investment is particularly important to build resilience in these systems. With a doubling of the number of people facing acute food insecurity to 265 million in 2020, as per estimate of World Food Programme, governments, with support from development partners and in partnership with civil society and the private sector, also need to urgently expand social protection programmes.
However, ILO has said that spending on social protection accounts for less than 10% of public expenditure (excluding health) suggests insufficient investment, even before the COVID-19 pandemic hit. Weak national health systems coupled with increases in poverty due to the lack of social protection means more people may have to resort to humanitarian health assistance and food aid in 2020, OECD has warned. OECD predicts three possible scenarios ahead. The first scenario is based on early signals of global political commitments to support an inclusive global recovery, if sustained, could lead an increase in ODA volume and share of GNI in 2020. The second scenario is based on assumption that ODA level of 2019 will be maintained, in which case ODA as a share of GNI would increase in 2020. The third scenario is based on the assumption that the countries will be struggling to maintain their budgets, in which case even pegging ODA to GNI at 2019 levels, ODA could decline by up to $14 billion in 2020. All these indicate the challenges ahead in respect of avoiding food insecurity, toll of human life, and avoiding a total collapse.