An excellent but incomplete IMF decision

By José Antonio Ocampo, Professor at Columbia University and former UN Under-Secretary-General for Economic and Social Affairs and Finance Minister of Colombia

The decision of the IMF Board last Friday to approve the allocation of $650 billion in Special Drawing Rights (SDRs) is excellent news for the world economy. This proposal had been on the table since the early phase of the COVID-19 crisis. It was vetoed by the United States under the Trump administration, but endorsed by the Biden administration, who proposed the magnitude of the agreed allocation.

The decision follows that adopted during the Global Financial crisis in 2009 to allocate $250 billion, the advantage of which was that it was timelier. There were several proposals made early during the current crisis, including the one we made with Kevin Gallagher and Ulrich Volz in March of last year, and that by Christopher G. Collins and Edwin M. Truman in April, who emphasised the importance it had for increasing the foreign-exchange reserves of low-income countries.

There were later proposals, several of a political character, to issue as much as one or two trillion dollars. They went much beyond the total IMF capital (quotas), which implied that they would have required approval by the US Congress, which would have delayed the decision. The $650 billion meets the criteria of being less than IMF quotas.

The SDRs are the global monetary asset that the IMF issues. They are part of the foreign exchange reserves of countries. Their basic limitation is that they can only be used by central banks or by specific international institutions that are allowed to hold them. Nonetheless, they can be sold to other central banks, which makes them liquid. The country that uses them has to pay an interest to the IMF SDR accounts.

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Intermediate cities: a green and transformative post-COVID-19 recovery?

By Dražen Kučan, Sector Lead / Senior Urban and Energy Efficiency Specialist, Green Climate Fund

Guilty as charged: cities and urban populations are among the core drivers of anthropogenic climate change. Cities produce between 71% and 75% of total greenhouse gas (GHG) emissions1. There needs to be a ‘paradigm shift towards low emission and climate-resilient development pathways’. A shift that can happen in developing countries by supporting and investing in high impact climate mitigation as well as resilience and adaptation initiatives.

While the paradigm shift is defined by the ‘degree to which the proposed activity can catalyse impact beyond one-off project or programme investment’, the reality is not so straightforward in the context of the urban sector. Urban areas are complex, multi-stakeholder environments that require holistic, structurally sound, sustainable solutions. They need transformative investments in energy efficient buildings; decarbonising urban energy systems; compact and resilient urban development (including investment in mass transit and non-motorised transit systems and vehicle electrification); grey to green urban infrastructure upgrading; the circular economy; and methane and emissions-free integrated waste management.     

Demand pressure on developing new urban infrastructure is high: new homes and infrastructure will have to be built at great speed for the approximately 2.5 billion new city dwellers expected by 2050. About 85% of new housing demand is projected to be in fast emerging economies (such as China) and in the majority of developing countries. Furthermore, of the 70 million new residents expected to move to pre-existing urban areas each year, the vast majority will live in intermediary cities, mostly in Africa and Asia. This adds to climate pressures, both in terms of accelerated emissions and enhanced vulnerabilities. 

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COVID-19 pandemic: threats to SMEs in poorest nations require swift policy action

By Frank Hartwich and Jenny Larsen, United Nations Industrial Development Organization (UNIDO)

Factories around the world roared into action again in the second half of 2020, following the COVID-19-related slump that brought large parts of industrial production to a standstill in early 2020. The bounce back, led by Europe, China and other parts of Asia, has been faster than expected, with most of the losses felt in the first half of 2020 recovered by early 2021, although there are big differences between regions and sectors.

Using the limited data available, it appears that manufacturing in selected LDCs has also staged a recovery. UNIDO’s Index of Industrial Production (IIP) – only available for four of the 46 LDCs – showed a dramatic drop in the early part of 2020, followed by a sharp rise in early 2021, although a closer look at the data reveals a nuanced picture. Mozambique and Senegal saw little impact from the pandemic whereas in Bangladesh and Rwanda the effects were much stronger. In general, within low-tech industries which predominate in LDCs, the food industry benefitted from the pandemic while other sectors such as textiles, clothing and leather were hit particularly hard.

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Enjeux et défis du financement du développement dans la zone de l’Union économique et monétaire ouest-africaine post-COVID-19

Par Alain Tchibozo, Chef Economiste, Banque Ouest Africaine de Développement – BOAD

Endettement accru par les dépenses liées à la Covid-19

Le recours à l’endettement pour financer les plans de riposte et de relance économique explique principalement le fait que le déficit budgétaire des pays de l’Union Économique et Monétaire Ouest Africaine (UEMOA) se soit accru. Au plan des finances publiques, même en tenant compte d’un redémarrage de l’activité autour de 5.5% cette année (contre 1,5% en 2020), le déficit budgétaire global représenterait en 2021 près de 5,0% du PIB, après 5,4% en 2020. L’accumulation de déficits publics liés au financement de dépenses de fonctionnement des États apparaît de fait comme le principal facteur d’endettement public. Or la détérioration des finances publiques restreint l’accès futur des États à de nouveaux financements. En 2021, le service de la dette intérieure (paiement des intérêts et amortissement du principal) représentera plus de 50% du service total de la dette dans sept des huit États membres de l’UEMOA. En outre, la part des recettes publiques consacrée au service de la dette représente depuis 2020 plus d’1/3 des recettes totales dans sept États. Aussi, la question de la soutenabilité de la dette sera un enjeu crucial pour les États de la zone ces prochaines années.

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COVID-19 is a developing country pandemic

By Indermit Gill, Nonresident Senior Fellow at Brookings and Philip Schellekens, Senior Economic Advisor at International Finance Corporation (World Bank Group)

“Has global health been subverted?” This question was asked exactly a year ago in The Lancet. At the time, the pandemic had already spread across the globe, but mortality remained concentrated in richer economies. Richard Cash and Vikram Patel declared that “for the first time in the post-war history of epidemics, there is a reversal of which countries are most heavily affected by a disease pandemic.”

What a difference a year makes. We know now that this is actually a developing-country pandemic—and has been that for a long time. In this blog, we review the officially published data and contrast them with brand new estimates on excess mortality (kindly provided by the folks at the Economist). We will argue that global health has not been subverted. In fact, compared to rich countries, the developing world appears to be facing very similar—if not higher—mortality rates. Its demographic advantage of a younger population may have been entirely offset by higher infection prevalence and age-specific infection fatality.

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The morning after

By Pablo Ferreri, Public Accountant and former Vice Minister of Economy and Finance of Uruguay

Today, more than a year into the pandemic, we are still witnessing a humanitarian drama on a global scale. Mass vaccination offers a glimmer of hope at the end of the tunnel; however, that light is much further away for developing countries. While we see developed countries moving closer to herd immunity, we also see huge lags in the rest of the world. Moreover, beyond the health drama, the ensuing social and economic crisis will persist for a long time to come. We must focus on “the morning after”, as the health crisis recedes and as vaccination progresses. The morning after the pandemic ends, we will be left with an impoverished and, above all, much more unequal global economy.

Recovery to pre-pandemic levels of global gross domestic product can probably be achieved relatively quickly, but the effects on inequality will be much more long lasting. There will be clear losers in each society, with the poorest being hardest hit. Developing countries will suffer the most severe consequences, as their ability to return to pre-COVID levels of activity and wealth will be severely limited. To get an idea of the magnitude of this crisis, it is enough to recall a recent UN report calling it the worst recession in 90 years, resulting in the loss of 114 million jobs and pushing some 120 million people into extreme poverty. Moreover, by the time the market is in a position to reabsorb many of those who have lost their jobs, their skills will be outdated.

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Divergent recoveries from COVID-19 in Africa require intentional action

By Anzetse Were, Senior Economist FSD Kenya

Accra, Ghana, during regional lockdown, March 2020. Photo: Shutterstock

The COVID-19 pandemic has had divergent impacts within and between economies. 2021 is already being defined by multispeed and divergent recoveries. Rich economies with USA in the lead, and China, are set for a strong recovery, mainly linked to their willingness to support incomes and deploy unprecedented fiscal and monetary support and quick COVID-19 vaccine rollouts. Low-income countries however face grimmer economic prospects due to limited access to COVID-19 vaccines and weak public finances; they will suffer more significant medium-term losses, especially affecting countries that rely on tourism and commodity exports, and those with limited policy space to respond.

In Africa, the AfDB estimates that real GDP contracted by 2.1% in 2020 with projected growth at 3.4% in 2021. Although all African economies have been affected by the pandemic, tourism-dependent economies, oil-exporting economies and other-resource intensive economies have been hit especially hard. Within countries, the sectoral impacts of COVID-19 have been varied, and women continue to be disproportionately affected by the socio-economic effects of the pandemic. This has led to divergent impacts at sector, firm and household levels. Many African households have had to resort to coping mechanisms such as reducing food consumption, dipping into savings, selling assets, looking for new forms of work, and accruing debt, with millions falling into poverty.

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COVID-19 impact on higher education in Africa

By Peter Koninckx, Strategic and Commercial Advisor, Cunégonde Fatondji, Analyst Intern, and Joel Burgos, Senior Project Manager, ShARE

Beyond the death toll and illness of millions of people due to COVID-19, businesses, healthcare, culture and education have had to cope with severe disturbances. But in our opinion, one could argue that higher-education students are amongst the most affected populations, particularly those in Africa. Although Africa is the continent with the least reported cases, the closure of higher education institutions was more widespread, and mitigation measures less effective than in other regions, according to a survey we conducted with more than 165 students across 21 African countries. No quick-fix solution exists, but the current crisis has highlighted the weaknesses in higher education in Africa, indicating where governments, international institutions, NGOs, and the private sector should focus their efforts.

Strong initial reaction to the COVID-19 crisis…

According to the Association of African Universities (IAU) Global Impact Survey on COVID-19, university closures in Africa in response to the pandemic were very effective: 77% of African universities compared to around 55% in Europe, Asia, and the Americas. However, while the percentage of higher education institutions where teaching was entirely cancelled remains low in all other regions (~3%), in Africa it is currently reported to be at 24%. Furthermore, over 40% of institutions in Africa were still developing alternative solutions at the time of the study, while other regions had already implemented them. Based on our own study, 88% of the surveyed students said that their school had discontinued in-person classes because of COVID-19.

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Migración urbana y COVID-19: Las ciudades están en la primera línea de una respuesta inclusiva y de la recuperación

Por Samer Saliba, Líder de Proyectos, Mayors Migration Council1

Foto: Manoej Paateel / Shutterstock

Read this blog in English

La comunidad internacional no está haciendo suficientes esfuerzos para apoyar económicamente a quienes más hacen por las personas migrantes, refugiadas y desplazadas durante la pandemia global: los Gobiernos de las ciudades. Aunque numerosas Alcaldías tienen el mandato de atender a las personas en situación de vulnerabilidad, tales como migrantes y residentes desplazados, frecuentemente las ciudades no cuentan con suficientes recursos económicos para responder a las crecientes necesidades de quienes van llegando. Asimismo, los Gobiernos locales de las ciudades han dejado de percibir ingresos debido a los impactos económicos del COVID-19, lo cual este año limita aún más su capacidad de brindar servicios fundamentales a los residentes. Según algunas estimaciones, los Gobiernos de las ciudades experimentarán una pérdida de ingresos de hasta un 25 % en el 2021, precisamente cuando necesitan incurrir en un mayor gasto para impulsar la recuperación y para atender a una población que crece continuamente. En una encuesta reciente, 33 funcionarios a cargo de las finanzas municipales de 22 países de todos los continentes expresaron que ya se observa una disminución del 10 % en el ingreso total y un aumento de aproximadamente 5 % en el gasto. Este “efecto tijera” de los ingresos y gastos de los Gobiernos locales tendrá un mayor impacto en las ciudades de países en desarrollo. Las ciudades africanas, por ejemplo, podrían dejar de percibir hasta un 65 % de sus ingresos en el 2021.      

Si bien la comunidad internacional está cada vez más atenta a las finanzas municipales en relación con el cambio climático, el desarrollo sostenible y el desarrollo urbano en general, no puede decirse lo mismo respecto a la migración y al desplazamiento urbanos. Pocos mecanismos de financiamiento municipal se centran exclusivamente en la atención de personas migrantes y desplazadas en las urbes, a pesar de que la mayoría de ellas reside en las ciudades. Además, muchas veces las agencias donantes con baja tolerancia al riesgo no toman en cuenta a los Gobiernos de ciudades en países de medianos y bajos ingresos.  Atendiendo a estas necesidades no satisfechas de las ciudades, mi organización, el Mayors Migration Council (MMC), lanzó recientemente el Fondo de Ciudades Globales para una Respuesta Inclusiva a la Pandemia, con el fin de apoyar a cinco Alcaldías en la implementación de programas de respuestas inclusivas y recuperación diseñados por ellas.

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Think global, act local: unpacking progress towards ending child marriage and averting the setbacks of COVID-19

By Chiara Orlassino, Research Adviser and Gabrielle Szabo, Senior Gender Equality Adviser, Save the Children UK1

In 2021, over 28,000 girls got married on International Women’s Day. Ten years from now, the number might still be as high as 26,000 – a far cry from the net zero target of Agenda 2030 (Fig. 1). The grim estimate for 2030 doesn’t even take into account the impact of COVID-19 on child marriage rates, although evidence shows that the pandemic is having a detrimental effect on girls’ rights. With only 10 years to go to 2030, we reflect on progress made on one of the most important Sustainable Development Goals (SDGs) and call for urgent action on inequalities in particular, which COVID-19 is exacerbating. The Generation Equality forum convened by UN Women is a timely process to prioritise gender equality in recovery efforts, building momentum around economic and political investment in girls’ rights.

Last year, Save the Children’s Global Girlhood Report 2020 shed light on progress towards key targets since the adoption of the Beijing Declaration and Platform for Action 25 years prior. Among others, child marriage emerged as one area where strides forward had been particularly fragile and at risk of a dramatic reversal due to COVID-19. Our analysis estimates that the economic impacts of the pandemic alone will put up to half a million more girls at risk of child marriage worldwide by 2025, although the real effect will likely be much larger.

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