The world is currently shaken by the second wave of the COVID-19 pandemic which is sweeping through many regions, particularly Asia, Africa and South America. But, focused as we are on the public health crisis, we risk neglecting the economic problems associated with the pandemic that could plague developing countries long after the wave has subsided.
Globally, the International Monetary Fund has warned of a “Great Divergence”, where the rich countries are recovering strongly while others are sinking. Recent evidence suggests that several advanced economies, notably the United States, and a few developing countries, such as Vietnam, Thailand and Bangladesh, appear to be pulling out of the crisis and may grow faster than before the pandemic. But many emerging economies and low-income countries are in danger of languishing for a long time.
Focused as we are on the public health crisis, we risk forgetting the economic problems associated with the pandemic that could plague developing countries long after the wave has passed.
A large divergence is visible even within economies. The pandemic has punished industries such as hospitality, travel and tourism, and boosted others such as pharmaceuticals, digital platforms and network technology. It is therefore not surprising that many rich people, including those who know how to navigate the stock markets, have actually come out better off from the crisis, while the poor have borne the brunt of it.
Therein lies the real danger. Unlike a pandemic that puts rich and poor at risk, the type of economic crisis currently brewing in much of the developing world does not affect the rich as much and therefore does not make the headlines and is easy to ignore, that is, until it can no longer be ignored.
Indeed, the evidence of problems is starting to accumulate. Emerging economies everywhere face growing debt, and some, like Zambia and Argentina, have already defaulted. In 2020, the Latin American economy contracted by 7.7 percent; the Philippines and India took even bigger hits, recording growth rates of -9.5% and -9.6%, respectively. And the World Bank estimates that the pandemic may have grown as far as 40 million people in Africa in extreme poverty.
The current wave of COVID-19 that started in India did not become noticeable until the end of March. While systematic data regarding its economic impact is not yet available, anecdotal evidence paints a grim picture. According to the Indian Economic Monitoring Center, the 7 million jobs lost in April, the national unemployment rate rose to 8% from 6.5% in March. In addition, youth unemployment in India has already reached a record high of 23.75% last year.
Regular reports of corpses thrown into the Ganges and washed up in small Indian towns indicate the tragic gravity. But they are also tell-tale signs of a brewing economic crisis. For Hindus, not being able to acquire logs and find a space to cremate the dead is a desperate situation. Only in cases of extreme poverty would they abandon this effort and throw corpses into the river.
Another sobering testimony comes from the two women who run Nanritam, a remarkable NGO that runs an eye school and hospital in a remote part of West Bengal. They explained to me that their school enrollment has dropped to almost half of its normal level. In addition, the pandemic has forced thousands of tribal chhau dancers and jhumur singers from the region, including only regular income this is the 1,000 rupees ($ 14) per month they receive from the state government for resorting to begging. When Nanritam recently announced its simple usual relief allowance for the poor living around their campus, the NGO was taken aback by some who walked and cycled for miles to get it.
But, aside from this evidence, official data is also starting to show warning signs. Wholesale price inflation in India last month climbed to 10.5%, the highest rate in 11 years. This reflects imbalances between supply and demand, which, if not corrected quickly, could become a major crisis, causing macroeconomic imbalances that can affect trade and financial flows. India has a very capable central bank, but many of the country’s current problems will be difficult to correct with monetary policy alone, as they stem from poor governance.
India therefore urgently needs political plans to deal with the crisis. Policymakers should recognize that when basic commodities such as medical oxygen, vaccines, or food are scarce, outright financial interventions may not work, as the rich will be willing to spend whatever it takes to get it. that they need (and more as a precautionary measure). amortize). Providing the poor with cash assistance to ensure they can meet their basic survival needs means that the price of the good will rise until the rich have what they want. The poor will thus be back to square one.
We see this kind of problem at the micro and international level, especially with COVID-19 vaccines. While many rich countries are buy doses to ensure sufficient stocks that go well beyond their basic needs, poor countries, including much of Africa, find themselves without any access to supplies.
Just as national governments in India and other developing countries have a long way to go, multilateral organizations such as the World Bank, the IMF and the G-20 also need to act quickly to build political buffers and help coordinate the process. support. Otherwise, today’s looming economic threat will make headlines tomorrow.