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A man checks his mobile phone in the city of Luanda, the capital of Angola. (Photo by RODGER BOSCH/AFP via Getty Images.)
Most countries were ill-equipped to deal with the twin health and economic crises caused by COVID-19.
When the virus hit earlier this year, only one in three countries had safety nets for workers to fall back on if they lost their jobs or became ill. While rich countries approved multi-trillion-dollar economic stimulus packages, including emergency cash transfers and support for small businesses, most countries didn’t have deep enough pockets to follow suit.
The World Bank says poverty is rising for the first time in 20 years, and Oxfam has warned that half a billion people around the world could be pushed into poverty by the pandemic. The International Monetary Fund (IMF) estimated the financing needs of emerging economies at $2.5 trillion. The needs are huge. And much more must be done.
Special Drawing Rights (SDRs) are a life-saving finance mechanism the IMF has not activated yet. SDRs are a form of global currency that can be pumped into the global economy in times of global shock, with allocations for each member country according to IMF share.
The IMF could issue trillions of dollars’ worth of SDRs to support a truly robust COVID-19 response. And the beauty of SDR allocations is that countries do not pay them back. With even a $1 trillion global SDR issuance, Angola, for example, could access a non-repayable $1.6 billion, or triple the amount it has borrowed from the IMF during the pandemic.
While there is almost complete consensus on the need for a new SDR allocation now, as was done in response to the 2008 financial crisis, the decision requires 85% approval of the IMF’s Board. The U.S. government’s 17% voting share gives the Trump administration an effective veto, which it has used to block the issuance, despite SDRs not costing anything to the U.S. or any other rich nation.
Instead, the IMF is providing loans — it has so far provided $100 billion to 81 countries out of the $1 trillion firepower it says it’s ready to deploy to help countries respond to COVID-19.
Meanwhile, the World Bank has committed $160 billion, one-third of which is intended for the poorest countries. And while about $12 billion will be offered in non-repayable grant form, the rest of the IMF and World Bank money on offer will have to be repaid, a fair amount of it with interest. The risk of increasing debt distress is real and severe. Some 64 countries, including Kenya, Pakistan and Zambia, were spending more on debt repayments than on health care even before the pandemic hit.
Releasing countries of their debt burdens is the quickest and surest way to free up resources and help countries cope with the pandemic. The G20’s temporary suspension of debt payments in April, while welcome then, is woefully inadequate. The world’s poorest 73 countries will still pay up to $34 billion in debt repayments through the end of the year, to some of the largest and richest banks and investment funds, and also to the international financial institutions. While the IMF has offered some degree of debt relief, the World Bank still declines to cancel the $3.77 billion in debt payments owed to it by these countries this year.
And while many of the IMF’s COVID-19 loans come with no policy strings attached, a shocking 84% encourage or require low- and middle-income countries to adopt austerity measures in the aftermath of the pandemic. This will translate to wage freezes and cuts for public sector workers, cuts to social protection and health spending, and spikes in regressive taxation that disproportionately hurt women and low-income households. The IMF must take a different path.
I refuse to imagine a post-pandemic world where countries are saddled with even more debt, while being locked into decades of austerity. International financial institutions and rich governments should urgently cancel all debt payments due during this pandemic, approve a significant allocation of SDRs, and step up on aid. Approving meaningful international tax reform that prevents the siphoning of corporate revenues to tax havens would further build sustainable revenues to help countries invest in quality and universal public services and social protection.
This pandemic has shown us that when faced with a crisis, all governments can take actions we never before thought possible. But it takes political will. And so, let’s collectively push for the political will to guarantee a better future for all people in all countries, and not just the privileged few.
Nadia Daar is head of Oxfam’s Washington, D.C., office.
