The global economic crisis triggered by the spread of COVID-19 has sent many of the world’s developing countries into an economic death spiral. At the first signs of panic in early March, investors fled to the ‘safety’ of deeper financial markets and the US dollar in particular. Capital flight, rising spreads, falling export revenues and collapsing exchange rates compounded an already precarious debt position in many countries, tipping a number into default and leaving many more in a high state of stress.
While the panic has subsided, thanks in part to a large dollop of dollars from the Federal Reserve, the IMF predicts the contraction in developing countries could, on average, be as much as 3% in 2020 – but with some countries and regions hit much harder. Another lost decade is on the cards.
Once again, the international regimes for trade and finance have revealed their inability to prepare for such shocks and to mobilise a rapid and commensurate response for vulnerable countries and communities. With an estimated $2 to $3 trillion payments shortfall facing developing countries over the next eighteen months, the liquidity support, debt relief and development finance they need to help navigate the crisis and begin to recover has been woefully inadequate.
