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TWN Info
Service on UN Sustainable Development (Nov20/14) Geneva, 20 Nov (Kanaga Raja) – The health and economic crisis triggered by the COVID-19 pandemic has called for new responses and new directions to change course from the world’s pre-existing vulnerabilities that have aggravated the pandemic’s effects, and has provided a catalyst for more inclusive trade and economic development. This is one of the main conclusions highlighted by the United Nations Conference on Trade and Development (UNCTAD) in a new report on the impact of the COVID-19 pandemic on trade and development. UNCTAD said the pandemic’s impact has been asymmetric and tilted towards the most vulnerable, both within and across countries, affecting disproportionately low-income households, migrants, informal workers and women. It said there is a pressing need to reshape global production networks to be more green, inclusive, and sustainable while simultaneously resetting the multilateral system, to support the most vulnerable and deliver on climate action. The health and economic crisis calls for new responses and new directions to change course from the world’s pre-existing vulnerabilities that have aggravated the pandemic’s effects, it said. COVID-19 poses an enormous challenge to development aspirations, said UNCTAD, adding that it is a stark reminder of shared vulnerability and demonstrates the need for real change. “Nonetheless, it can also be an inflection point to alter course and build a more resilient new normal. Much will depend on the policies adopted and ability to coordinate, both at the international and national levels,” UNCTAD emphasized. “Thus, despite the grim outlook, it is still possible to turn COVID-19 into the finest hour of the United Nations and build a more inclusive, resilient and sustainable future,” it added. UNCTAD also said a viable vaccine for COVID-19 will not halt the spread of economic damage, which will be felt long into the future, especially by the poorest and most vulnerable. At a virtual media briefing on 19 November, Dr Mukhisa Kituyi, the Secretary-General of UNCTAD, said that the UNCTAD report highlights that this is exactly the right time to address the weaknesses of globalization that led to the rapid spread of the virus across the world and its very uneven economic impacts. “This report is the culmination of the last nine months’ of UNCTAD’s effort to monitor the development impact of the COVID-19 crisis showing how globalization has helped spread the virus but also must now play a part in its recovery,” he added. He said that while the health crisis has targeted all populations especially the men, it is the youth and women who are bearing the brunt of the economic crisis. Highlighting the national responses in the wake of the crisis, Dr Kituyi said UNCTAD estimates that a typical developed country spends around 4.5% of GDP on additional expenditures and forgone revenues plus 5.6% of their GDP on liquidity support. In contrast, he said a typical least-developed country (LDC) can afford far less – just 1.9% of GDP on additional spending and 0.6% of GDP on liquidity support. Given the differences in population size and the size of their economies, this means that a typical developed country spends around US$1,400 per capita on direct fiscal stimulus, while a typical LDC can afford just US$18 per capita, and other developing countries spend around US$38 per capita. He said to avoid these uneven impacts and responses, the UNCTAD report argues that “we must transition to a “new normal” that re-shapes global production, and resets multilateral cooperation.” “We are seeing new hopes that changes in behaviour that have taken place during the pandemic can sow the seeds of a fairer globalization and a more resilient multilateralism.” He said the report benchmarks UNCTAD’s expectations for a better recovery called for by the United Nations as a whole. Asked about the ongoing discussions at the WTO on the proposal by India, South Africa, Eswatini and Kenya on a TRIPS waiver to combat COVID-19, Dr Kituyi said, “I think it’s a positive step.” “How much it gains traction and what particular impacts it will have, I think the jury is still out. But I think it’s a step in the right direction particularly now with the ravages of the health end of the pandemic,” he said. IMPACT OF COVID-19 PANDEMIC According to the UNCTAD report, on 23 September 2020, the World Health Organization reported that more than 31 million people had been confirmed infected with COVID-19. That same day, almost 963,000 deaths globally were attributed to the virus. At current rates, the number of confirmed cases is doubling roughly every nine weeks. If this pattern continues, cases are likely to exceed 60 million by early December 2020. The Americas account for 50 per cent of all confirmed cases in the world and 53 per cent of all recorded deaths attributable to COVID-19. Europe is the second largest contributor overall, accounting for 20 per cent of cases and 24 per cent of deaths. However, in recent months, the Americas and South-East Asia are the regions that have been contributing the most to the number of cases and deaths. UNCTAD said it expects gross domestic product (GDP) to fall by around 4.3 per cent in 2020, with an expected global recovery of 4.1 per cent in 2021. Developed economies are expected to be more affected in 2020 than developing countries, at -5.8 per cent and -2.1 per cent, respectively, and expect a weaker recovery in 2021, at +3.1 per cent compared with +5.7 per cent. Unlike the global financial crisis of 2008/09, developing countries are expected to experience negative growth in 2020, and developed economies are expected to experience a much deeper fall in output, at -3.4 per cent in 2009 compared with -5.8 per cent in 2020. Growth in trade in goods and services declined in the first quarter of 2020, as the early effects of the pandemic began to be felt. The value of year-on-year merchandise trade is estimated to have declined by 18 per cent in the second quarter, and trade in services by 21 per cent in the same period. Based on preliminary data available at the time of writing, the outlook for the third quarter was improving, with a projected year-on-year growth of -5 per cent for goods and -9 per cent for services, signaling a potential recovery of much of second quarter losses, said UNCTAD. While the value of total trade in services fell by 7.6 per cent in the first quarter of 2020, travel services were particularly hard hit, falling by more than 24 per cent. The COVID-19 pandemic has also had an immediate and negative impact on foreign direct investment (FDI) in 2020. The outlook remains dire, with further deterioration projected in 2021, said UNCTAD. “The exceptional global circumstances as a result of the pandemic led to delayed implementation of ongoing investment projects and the shelving of new projects, as well as the drying up of foreign affiliate earnings of which normally a significant share is reinvested in host countries.” As a result, global FDI flows are forecast to decrease by up to 40 per cent in 2020, from their 2019 value of close to $1.6 trillion. This would bring FDI to below $1 trillion for the first time since 2005. FDI is projected to decrease further in 2021 and only begin to recover in 2022 at the earliest. The World Bank projects that remittances to low- and middle-income countries will decline by almost 20 per cent, to $445 billion in 2020, due to the economic crisis induced by the COVID-19 pandemic and shutdown measures. The projected fall, which would be the sharpest decline in recent history, is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country. The decline will represent the loss of a crucial financing lifeline for many vulnerable households, said UNCTAD. It also said the pandemic will have short-term and long-term impacts on vulnerable groups and sectors, which require policymakers to focus not only on the short-term challenges but also address the long-term consequences of the crisis, to ensure a sustained recovery. This requires strengthening efforts to transform production and export structures in developing countries, to build resilience to future shocks and create good conditions for sustained growth. The United Nations baseline projections in May 2020 suggested that, as a result of the pandemic, global output would decline by 3.2 per cent and the number of people in extreme poverty at the global level would increase by 34.3 million in 2020, with Africa accounting for about 56 per cent of the increase. The baseline projections by the International Food Policy Research Institute suggest that global output will decline by 5 per cent and that global extreme poverty will increase by about 140 million people, with Africa accounting for about 80 million and South Asia for 42 million. An estimate by the World Bank indicates that the number of people in extreme poverty in the baseline scenario will increase by 71 million in 2020, with the poverty rate increasing from 8.2 per cent in 2019 to 8.8 per cent in 2020. UNCTAD said these poverty estimates are of concern because they suggest that the pandemic will make it even more challenging to achieve SDG 1 on ending poverty in all its forms everywhere. Before the onset of the pandemic, significant progress had been made in reducing global extreme poverty, with the global poverty rate falling from 35.9 per cent in 1990 to 10 per cent in 2015 and 8.6 per cent in 2018. As a result of the pandemic, the global poverty rate is expected to be 8.8 per cent in 2020. Among developing countries, the impact of the pandemic on poverty rates is expected to be severe, particularly in Africa and LDCs because of their high vulnerability and limited capacity to adjust and respond to shocks, said UNCTAD. Africa accounts for about 13 per cent of the global population but is expected to account for over 50 per cent of global extreme poverty in 2020. LDCs, of which many are in Africa, account for about 14 per cent of the global population and are expected to account for 53 per cent of global extreme poverty in 2020. UNCTAD said that one factor that has contributed to the projected high poverty-related impact of the crisis, particularly in Africa and LDCs, is the lack of social protection and labour programmes in these economies, which makes it challenging to cushion the impact on vulnerable groups. “Cushioning the poverty impact of the crisis requires adopting and enhancing access to social protection and labour programmes to assist vulnerable groups to mitigate the negative effects of these shocks and ensure better recovery in the medium to long term,” it added. Another factor that has contributed to the high poverty-related impact of the crisis in vulnerable developing countries is the lack of productive capacities and structural transformation in these economies. The COVID-19 pandemic could also cause a food crisis in developing countries through both supply-side and demand-side channels. Restrictions on movement due to the pandemic have slowed down economic activity, potentially affecting food production and reducing food supply. Food export controls by major exporters, such as outright export bans and other measures including export taxes, could exacerbate the supply shock already engendered by restrictions and lockdown measures, said the report. Countries that are both dependent on food imports and reliant on tourism revenues are expected to be among the most severely affected with regard to food security. As the second-most dependent country group on food imports, Small Island Developing States (SIDS) may lose their capacity to import food due to the decline of foreign currency derived from the tourism sector. Tourism makes important contributions to development in both developed and developing countries. The sector has been severely affected by the crisis, given the severity of the restrictions on movement, border closures and other restrictions imposed on travel in response to the pandemic. These measures have resulted in a significant decline in international tourism arrivals, with negative consequences for revenue and growth. In the first half of 2020, international tourist arrivals fell by 65 per cent, compared with the same period in 2019. The greatest drop was observed in East Asia and the Pacific (72 per cent), followed by Europe (66 per cent), Africa (57 per cent), the Middle East (57 per cent) and the Americas (55 per cent). It is estimated that in 2020, there will be between 850 million to 1.1 billion fewer international tourist arrivals, $910 billion to $1.2 trillion lost in tourism export revenue and 100 million to 200 million jobs at risk due to the pandemic. “Developing countries in Africa, LDCs and SIDS are particularly susceptible to the decline in international tourism because of their high levels of openness to trade in goods and services and dependence on tourism for foreign exchange and revenue.” SIDS are the most vulnerable to downturns in international tourism because of the small sizes of their economies and their higher levels of exposure to and dependence on the tourism sector and trade, said UNCTAD. It said international tourist arrivals in SIDS are estimated to have declined by about 62 per cent in the first six months of 2020, representing a significant loss in foreign exchange and tax revenue and reduces the capacity of Governments to provide an adequate and appropriate response to the negative impact of the crisis. “Reducing the poverty-related impact of the crisis requires the adoption of universal social protection policies in developing countries, to help cushion the impact and enable societies to recover better. It also requires building productive capacities through, for example, enhanced support for micro-enterprises and SMEs, to help increase their capacity to create decent jobs,” said UNCTAD. “More generally, there is a need for a coordinated global response to the crisis, as a global crisis requires a global solution, and no country acting in isolation has either the resources or the capacity to effectively deal with the health-related and socioeconomic challenges arising from the emergency.” It is evident that some of the short-term national responses in developed and emerging economies have a negative impact in vulnerable developing countries, said UNCTAD. “In this context, there is a need for international coordination to ensure that short-term responses to the crisis do not create long-term economic problems in developing countries.” The COVID-19 pandemic has come at a time when developing countries are already struggling with mobilizing sufficient resources to achieve the Goals, said the report. By 2019, a number of such countries had reached unsustainable debt burden levels, making further borrowing for health-related, social and economic spending to combat the impact of the pandemic an unviable option. The total external debt stocks of developing countries and transition economies as a group reached an estimated $10.1 trillion in 2019; the highest level to date. This is more than double the level recorded at the outbreak of the global financial crisis, when total external debt stocks amounted to $4.3 trillion. In reaction to the deep recession caused by lockdown measures, donor countries have been able to mobilize significant amounts to support and stimulate their domestic economies. In contrast, developing countries have much more limited resources for financial support and stimulus packages. Given the size of most developing economies and their limited fiscal space, the per capita amount of such packages is limited in comparison with both their needs and the magnitudes mobilized by developed countries. This means that without stepped-up international assistance, many developing countries cannot afford adequate response policies to the COVID-19 crisis, said UNCTAD. “Stepping up international financial support is particularly important as the pandemic emerged at a time when developing countries were already dealing with growing debt difficulties,” it added. Many developing countries lack fiscal space and have shallow financial and banking systems that leave them ill equipped to respond to the potential scale and duration of the crisis. Central banks in developing countries do not have the capacity to act as lenders of last resort as such banks do in developed countries. In assessing the redemption schedules for developing country public external debt, UNCTAD said it estimates that developing countries will face substantial debt service payments in 2020 and 2021, amounting to $2 trillion-$2.3 trillion for high-income countries and $700 billion-$1.1 trillion for middle-income and low-income countries (based on the global debt monitor of the Institute of International Finance, the global debt database of the International Monetary Fund and the quarterly external debt statistics of the World Bank). The Debt Service Suspension Initiative is welcome as it provides temporary budgetary relief to eligible debtor countries, but it needs to be emphasized that it is not a debt relief scheme, said UNCTAD. In fact, it said, as the obligations maturing in 2020 are re-packaged into new loans to be paid at a future date, the initiative simply rearranges the payment schedules of debtor countries, thereby providing liquidity support in 2020 without alleviating future debt service payment. Given the broad-based shock to the global economy, efforts to support countries will need to adopt a multifaceted approach in their dealings with the range of creditor types, as access to each varies greatly across income groups. “While debt relief can provide much needed breathing space, the international community should consider expanding its toolbox, to include additional instruments and initiatives to respond to the challenges posed by the crisis.” According to UNCTAD, these could take the form of the following: * Extended and broader temporary debt standstills, to provide additional breathing space, that comprehensively cover multilateral, bilateral and private creditors. These should be granted on a request basis and prioritize vulnerability rather than income criteria. Comprehensive coverage is key to ensuring that suspended repayments are not redirected to creditors not included in the temporary standstills. * Long-term debt sustainability assessments to identify countries that require deeper debt restructuring. These must ensure that the resultant obligations are compatible with the restoration of inclusive growth-related, fiscal and trade balance trajectories; and the investment requirements necessary to implement the 2030 Agenda. * Debt swaps, possibly modelled on existing programmes to address problems with debt structure and composition, particularly exposure to commercial debts; and debt buyback initiatives, in particular for countries with sovereign debt that already trades at substantive discounts. * An ODA Marshall Plan to mobilize unfulfilled ODA commitments, to provide funding for COVID-19 health expenditures and serve to mitigate the rise in debt burdens. UNCTAD said by early September 2020, there were at least 35 vaccine candidates in clinical evaluation and another 145 in preclinical evaluation. Accessibility to treatments and vaccines raises three key considerations for developing countries concerning intellectual property rights. First, innovators are likely to seek intellectual property protection to recoup the research and development costs of new, effective and evidence-based treatments and vaccines. The challenge is to find a balance between providing intellectual property rights to innovators and ensuring that treatments are widely affordable and accessible, in particular in developing countries and LDCs. Second, while the Doha Declaration on the Agreement on Trade-Related Aspects of Intellectual Property Rights and Public Health has allowed for some progress on the availability of affordable antiretroviral medicines, major health challenges in developing countries in recent years have raised new issues. For example, with regard to the problem related to the limited ability of developing countries to make effective use of compulsory licences, an amendment to the Agreement allows for the production and importation of patented medicines where manufacturing capacity does not exist. The full utilization of flexibilities under the Agreement, to improve both the availability of medicines and local research and development and innovation in the pharmaceutical sector, will require an inclusive multilateral approach. Third, the integration of scientists in developing countries into international scientific collaboration, particularly research and development for treatments and vaccines, as well as the integration of manufacturers in developing countries into health product supply chains, would support the building of local capacity. This may better facilitate voluntary licencing agreements in developing countries that would have the technical and productive capacity to produce proprietary health products under licence, said UNCTAD. The report also said the pandemic is acting as a catalyst for deep transformations in global value chains related to new technologies, growing economic nationalism and the sustainability imperative. The pandemic is leading to re-definitions of the investment-development paradigm and sharpened focus on investment policies for sustainable development, on the science and policy interface, on the need to address widening digital divides and on the need to ensure sustainable and resilient transport infrastructure and trade facilitation. The crisis is exerting negative effects on international production, challenging the role that global value chains can play to support the achievement of the Goals. However, it is also opening new production possibilities for responding to the health and resilience-related imperatives. In this context, investment policy, science, technology and innovation policy, e-commerce strategies, sustainable transport infrastructure and trade facilitation must all play significant roles in the response to the pandemic and an eventual better recovery from its effects, said UNCTAD. DESIGNING POLICIES FOR A FAIRER AND GREENER RECOVERY According to the report, while trade was a major transmitter of economic disruptions across the globe, it also plays a key role in fostering economic recovery from the current COVID-19 crisis. Economic resilience will not be achieved by closing borders, but rather by diversifying the origin and destination of markets. The question is how best countries can balance the speed and the magnitude of recovery with inclusiveness and sustainability in socioeconomic growth that is aspired to in seeking to achieve the 2030 Agenda for Sustainable Development. This suggests that a country needs to design a policy mix that would aim at stronger, more inclusive and more environmentally sustainable recovery, said UNCTAD. As countries are lifting emergency trade measures and introducing recovery plans, they need to assess the multi-faceted impact of trade policies, utilizing them to achieve stronger and more resilient recovery. Overall, trade policies that support a swift and resilient return of the private sector will help leverage Governments’ burden of “building back better”. UNCTAD said that three elements that are important when selecting trade as an integral element of a recovery package are: (a) transparency, (b) cooperation, and (c) making best of the existing multilateral trading system and its framework. In this context, the report called for enhancing transparency of trade measures; enhancing trade cooperation to address global health crises; and making the best use of the multilateral trading system. Regardless of their level of development, countries will need to formulate an economic recovery strategy to support essential sectors and preserve jobs. In doing so, they need to consider the benefits of fairness in the market for enhancing productivity, innovation and the well-ness of consumers. In this context, competition authorities and consumer protection agencies can play an important role when designing a financial stimulus package, to strike the right balance between the urgent need to revitalize businesses and the long-term goal of preserving a fairer and equitable market, said UNCTAD. UNCTAD called for empowering competition authorities to prevent market concentration; enhancing regional and international cooperation against anti-competitive practices; preventing market concentration in the digital economy; and protecting consumers in the rapidly expanding digital market. As countries move from the rescue to the recovery phase, policymakers have an opportunity to decouple growth from high CO2 emissions and invest in green technologies and industries. Such investments can build on, if not embed, shifts in human habits and behaviour already under way, said UNCTAD. “Now is the time to capitalize on the many technological solutions that have been developed, such as green housing, complete with district energy systems; green public transport systems, rail upgrades, electric buses and electric vehicle charging networks; energy storage; and hydrogen etc.” Fast-track green policies include residential and commercial energy efficiency retrofits, as well as natural capital spending through afforestation, expanding parkland and enhancing rural ecosystems, said UNCTAD, calling for increasing incentives to renewable energy and promoting nature-based solutions. State interventions in response to COVID-19 are unprecedented. Fiscal measures signed into law by Group of 20 nations in May 2020 totaled $9 trillion in government spending, it noted. They are focused on preserving liquidity, solvency and livelihoods, which is understandable from a short-term perspective. But this would be a missed opportunity if a given stimulus package is not designed to support medium and long-term objective of achieving fairness, resilience and sustainability, it said. While trade is an important instrument for achieving prosperity through economic recovery, trade policy alone would not be able to ensure that the recovery would contribute concurrently to people and planet. A comprehensive recovery package for building a stronger, fairer, more inclusive, and greener (and bluer) economy would require cooperation-oriented trade policy and effective competition policy and consumer protection policy, with the aspiration of green growth at the centre of a long-term objective, said UNCTAD. Without empowering agencies that prevent anti-competitive practices and market concentration, and those that protect consumers in the new and changing market environment, trade-led economic recovery cannot be fair and inclusive in a way that leaves no one behind. It is most vital that the long-term aspiration of green growth should remain the foundation for any economic recovery plan, UNCTAD concluded.
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