A better recovery from the current world crisis is essential to healing pre-existing conditions in the global economy, and G20 leaders are well positioned to help mend open wounds and remedy deepening divides
The COVID-19 global health emergency has exposed the world economy’s pre-existing economic vulnerabilities, with disastrous consequences for development. Developing countries today face an economic crisis that has spread as quickly as the coronavirus itself. To escape another lost decade, G20 leaders must recognise the scope of the impact of the crisis on developing countries and help infuse recovery plans with support for appropriate trade and development policies to address these vulnerabilities.
Global output contracted more sharply in the first half of this year than during the global financial crisis a decade ago, in some cases registering the steepest drop on record. International trade is expected to drop 20% – a staggering $6 trillion – in 2020, significantly larger than the decline of about $4 trillion during the recession in 2009. Foreign direct investment will drop 40% in 2020, with declines of 45% in developing economies and 50% in the least developed countries, reaching their lowest level in two decades.
There have been wide and immediate consequences of this unprecedented shock, especially in developing countries, including rising risk of external debt crises, job losses, business failures, drying up of foreign remittances, and workers quickly returning to rural communities in response to the health emergency and lockdowns. UNCTAD projects that in the least developed countries alone another 70 million people will be pushed into extreme poverty over the next year, part of the first increase in the global extreme poverty headcount in more than two decades.
Unfortunately, for the hundreds of millions of people falling back into poverty, notions like ‘essential workers’ or ‘teleworking’ have little meaning. Indeed, while the crisis has accelerated the digital transition, the divide between the digitally enabled and the digitally poor has deepened. Most developing countries now face even steeper obstacles to ensure their integration into the growing digital economy.
Fast actions, smart solutions
In the short term, redressing this grave situation requires fast action on various fronts. UNCTAD has led calls for a substantive extension and expansion of the G20’s Debt Service Suspension Initiative, including wider coverage of creditor types and of recipient countries, to include multilateral and private creditors and to cover more middle-income countries and small island developing states. Although the current ad hoc system for sovereign debt restructuring cannot be reformed immediately, G20 leaders must recognise that this institutional deficiency in the international financial architecture remains among the gravest ‘pre-existing conditions’ plaguing the global economy and must be addressed in the near future.
Other immediate actions are within reach. G20 leaders can help to expeditiously lower the costs of sending and receiving remittances. They can renew emergency publicly financed relief packages to include relief efforts in developing countries. Donor countries should make every effort to meet the target of 0.7% of gross national income for official development assistance, with a focus on the least developed countries. They should allocate more development assistance to productive sectors, including the high-value service sectors and information and communications technologies that can generate high-quality jobs. Support should also prioritise public financing for jobs and income support, particularly for vulnerable groups and workers in the informal economy, especially women.
We also need to work on smart solutions for a better longer-term recovery – starting now. Nowhere is this clearer than in the area of private investment, where the pandemic has augmented the dramatic transformation in global value chains brought about by the new industrial revolution and the digitalisation of the economy.
seeds for recovery
Sowing the seeds for recovery and sustainable reconstruction requires globally coordinated action for joint trade and investment promotion and the mobilisation of all trade and investment stakeholders to pay greater attention to development. G20 leaders can make concerted efforts at mainstreaming the Sustainable Development Goals into national and international investment policies, fostering new partnerships and sustainability-themed financial instruments, and deepening the integration of the SDGs as well as environmental, sustainability and governance principles in capital markets and international direct investment.
G20 leaders can help close the wide divide between those who are connected and those who have no access to digital technologies to overcome the challenges of COVID-19. This is especially relevant as the crisis may be speeding up the shift towards digitalisation that is strengthening the market positions of a few mega-digital platforms, which will leave little room for emerging players in developing countries. As G20 members are home to many of the big platforms, they play a particularly important role through bolstering support to small and medium-sized digital entrepreneurs in developing countries, especially to help them begin exporting and creating value for their own domestic digital ecosystems.
Unfortunately, not enough has been done in this respect. For example, the share of aid for ICT in total ‘aid for trade’ has declined from 3% in the early 2000s to around 1.2% in the past five years.
UNCTAD stands ready to provide support on these and other important trade and development challenges that have now come to the fore. We look forward to continued engagement across the entire international community on these important issues.