OP-ED: Emerging economies need more help

While developed countries are pulling out all the stops in battling the Covid-19 pandemic, a quiet crisis is unfolding in the developing world, including emerging markets, which could overwhelm not only their health systems but also their economies, with damaging repercussions for the rest of the world. Although the number of reported infections in developing countries is relatively low, this may be a reflection of inadequate levels of testing and the fact that the pandemic has hit these countries relatively late. But its potential impact on them could be devastating, given their weak health facilities and the difficulties they face in implementing preventive measures like social distancing when large sections of their urban populations live in crowded conditions.

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The economic impact could be equally severe. From being the fastest-growing economies in the world, many emerging market countries will slide into recession, with most likely to record negative growth this year because of collapses in revenues from commodity exports, tourism and worker remittances. They have also been hit by record amounts of capital outflows, to the tune of close to US$100 billion (S$142 billion) between Jan 20 and the end of last month. This is more than four times the outflows they experienced during the global financial crisis.

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Most developing countries also lack the policy space to support their economies and will incur huge fiscal deficits even with the relatively small fiscal packages they can afford. Many will be vulnerable to credit rating downgrades, resulting in higher borrowing costs at a time when their dollar-denominated debts are already at record levels. With developed countries preoccupied with dealing with their own domestic crises and their finances already stretched, it will fall mainly to multilateral institutions to plug the financing gaps that will emerge in developing countries.

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The International Monetary Fund, which is already overwhelmed with requests for financial assistance from developing countries, estimates that at least US$2.5 trillion will be needed to enable these countries to see through the crisis. It has established a new fast-disbursing loan facility, provided debt relief to some of its poorest members and has a lending capacity of US$1 trillion. But this will still fall far short.

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If developed countries cannot step up their bilateral support for the developing world, they must at least replenish the resources of multilateral agencies, including the World Health Organisation. The consequences of failing to ensure that developing countries have the financial and medical resources to manage the pandemic will be damaging to developed countries as well – not only because of lower global economic growth but also because the pandemic will not be defeated until it is defeated everywhere.