COVID-19: IMF states factors that could affect the economic recovery of low-income countries

International Monetary Fund (IMF), in a report issued April 5, 2021, identified several factors that could affect the economic recovery of low-income and developing countries from the impact of Covid-19.

According to the report, many of the poorest countries in the world are having difficulties recovering and facing setbacks in their development progress.

Some of the factors listed by the IMF include access to vaccines and limited policy space to respond to the pandemic. These low-income countries are faced with uneven access to vaccines as many of them mostly rely on the multilateral COVAX facility, a WHO-backed initiative aimed at equal access to vaccines. The initiative will only procure Covid-19 vaccines for just 20% of the population while the governments are expected to cover the rest.

Another major factor that could affect low-income countries’ recovery is the pre-existing issue of high public debt in these countries, as well as weak and negative productivity performance that affects the growth of low-income countries.

The Fund estimates that it would cost low-income countries about $200 billion through 2025 to step up their pandemic response. An additional $100 million may be required if baseline risks materialize. Before the advent of the pandemic, many of these low-income countries were still on the path to creating economic stability, which has only worsened for many of them.

“Given debt levels in many low-income countries, only a portion of this spending could be financed through borrowing. But with this increased financing, low-income countries could resume their pre-COVID convergence path to advanced economies by 2025,” the report stated.

The IMF added that a multifaceted response will be needed to meet this additional financing. It listed three components of this response. First, all low-income countries must recover fully with significant support from the international community. This may include the procurement of adequate vaccines at affordable prices. Also, it will be necessary to deploy comprehensive financial packages to these countries, including grants and concessional funding, and debt relief where necessary. This would be led by the IMF and multilateral banks.

Second, a reform agenda is required for low-income countries to boost their competitiveness and potential growth. This may include improving governance and business climate, enhancing domestic revenue mobilization, developing domestic financial markets, as well as improving economic and financial management.

“These reforms should, in turn, stimulate the third component of the multifaceted response: fostering the domestic private sector and external private financing,” the IMF said.

Although the needs for low-income or poorest countries may be intense, they are not undoable, the IMF said. With a strong, coordinated, and comprehensive package, the organization and supporting organizations will secure a rapid recovery transition for these countries that will enable green, digital, and inclusive growth to accelerate convergence of poorest countries to other advanced economies.

Part of the IMF’s strategies to aid low-income countries include “expanding access to concessional resources under the Power Reduction and Growth Trust” and extending “access to emergency financing.”