Millions more to slip into extreme poverty due to covid-19

Jun 09, 2020 News

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– worst  recession since World War II Looms – World Bank

According to the latest World Bank forecasts, documented in its June 2020 Global Economic Prospects report, the effects of the coronavirus pandemic along with shutdown measures to contain its spread have plunged the global economy into a severe contraction. In this regard, the financial institution noted that the global economy is expected to shrink by 5.2% this year. It said that this would represent the deepest recession since the Second World War, with the largest fraction of economies experiencing declines in per capita output since 1870.
The bank said that economic activity among advanced economies is anticipated to shrink 7% in 2020 as domestic demand and supply, trade, and finance have been severely disrupted. It was noted that Emerging Market and Developing Economies (EMDEs) are expected to shrink by 2.5% this year, and would represent that group’s first contraction in at least sixty years. With respect to per capita incomes, the bank said that these are expected to decline by 3.6% and will tip millions of people into extreme poverty this year.
Further to this, the World Bank said that the blow is hitting hardest in countries where the pandemic has been the most severe and where there is heavy reliance on global trade, tourism, commodity exports, and external financing. While the magnitude of disruption will vary from region to region, the World Bank said that all EMDEs have vulnerabilities that are magnified by external shocks. Moreover, it noted that interruptions in schooling and primary healthcare access are likely to have lasting impacts on human capital development.
Under the baseline forecast—which assumes that the pandemic recedes sufficiently to allow the lifting of domestic mitigation measures by mid-year in advanced economies and a bit later in EMDEs, the World Bank said that adverse global spillovers ease during the second half of the year, and that dislocations in financial markets are not long-lasting. In fact, global growth is forecast to rebound to 4.2% in 2021, as advanced economies grow 3.9% and EMDEs bounce back by 4.6%. However, the World Bank said that the outlook is highly uncertain and downside risks are predominant, including the possibility of a more protracted pandemic, financial upheaval, and retreat from global trade and supply linkages. The financial institution was keen to note that a downside scenario could lead the global economy to shrink by as much as 8% this year, followed by a sluggish recovery in 2021 of just over 1%, with output in EMDEs contracting by almost 5% this year.
Further to this, the World Bank said that the pandemic highlights the urgent need for health and economic policy action, including global cooperation, to cushion its consequences, protect vulnerable populations, and strengthen countries’ capacities to prevent and deal with similar events in the future. The bank said too that it is important for emerging market and developing economies, which are particularly vulnerable, to strengthen public health systems, address challenges posed by informality and limited safety nets, and enact reforms to generate strong and sustainable growth once the crisis passes.
The bank said that emerging market and developing economies with available fiscal space and affordable financing conditions could consider additional stimulus if the effects of the pandemic persist. It said that this should be accompanied by measures to help credibly restore medium-term fiscal sustainability, including those that strengthen fiscal frameworks, increase domestic revenue mobilization and spending efficiency, and raise fiscal and debt transparency. The financial institution was keen to remind that the transparency of all government financial commitments, debt-like instruments and investments is a essential while reminding that it is a key step in creating an attractive investment climate.
The World Bank Group which is one of the largest sources of funding and knowledge for developing countries has been taking broad, fast action to help developing countries strengthen their pandemic response. It is supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs. The bank disclosed a few weeks ago that it will be deploying up to US$160 billion in financial support over 15 months to help more than 100 countries protect the poor and vulnerable, support businesses, and bolster economic recovery. This includes US $50 billion of new resources through grants and highly concessional loans. Last month, the Bank provided Guyana with US $1 million to assist in the country’s fight against COVID-19, a fifth of the money the government had requested some months ago.

 

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