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Safety in numbers

Developing countries have been particularly vulnerable to both the economic and public health effects of Covid-19. With millions of people plunging back into poverty, a global effort to ensure universal vaccine distribution is vital to save lives and livelihoods.

Three billion Covid-19 vaccine doses had been administered around the world as of the start of this week, according to Our World in Data. The first half billion took 114 days to roll out; the most recent half billion just 13 days. These are promising numbers and represent staggering progress in both medical technology and public health infrastructure.

But the virus continues to threaten lives and livelihoods globally. Here in the UK, as cases are back on the rise, debate has returned about whether social distancing measures should be fully lifted on 19 July – the delayed ‘freedom day’. Indeed, the UK’s new health secretary, Sajid Javid has been bullish in his vision for ending restrictions, telling colleagues he sees ‘no reason’ to extend measures beyond the proposed date.

For many people who would ordinarily be working at live events, such as musical festivals or nightclubs, lifting the rules is critical. But others fear that re-opening too early will come back to haunt us, and the country will again be forced to batten down the hatches come the autumn.

While the global vaccine data certainly offer a reason to be cautiously optimistic, it is important that UK policy-makers continue to look beyond our borders before declaring the pandemic over. A recent statement by the United Nations High Commission for Refugees (UNHCR) reiterated that ‘no-one is safe until we are all safe’. For the Commission, vaccinating everyone everywhere is a ‘humanitarian imperative’ and the global recovery – both in terms of public health and the economy – depends critically on doing so.

Lockdown vulnerability

With this in mind, here at the Economics Observatory we have focused on the impact of Covid-19 in developing countries. On Tuesday, Vimal Balasubramaniam (Queen Mary, University of London), Louiza Bartzoka, Tarun Ramadorai (both Imperial College London) and Cristian Badarinza (National University of Singapore) explored the effects of the pandemic on household finances in emerging economies.

They explain that since the cost of government borrowing is substantially higher in developing economies, the state has less capacity to offer income support to people unable to work during lockdown. Germany, Switzerland and the UK can all borrow at virtually zero cost, whereas the rates on debt are 6% in India, 7% in Mexico and 9% in Brazil.

There are large shares of financially vulnerable households in these countries, which also makes their resilience to shocks such as Covid-19 all the more precarious. The authors highlight that without state support or the buffer of savings to fall back on, income loss could push two-thirds of households in developing economies into significant hardship. Ensuring vaccines are rolled out effectively around the world is one way to help combat this issue, as it could help these regions to re-open their economies sooner.

Figure 1: Financial vulnerability in the face of income shocks

Source: Badarinza et al, 2021

Covid-19 in India

In spring 2021, the second wave of Covid-19 tore through India. Reports of oxygen shortages in the country’s hospitals, as well as doubts about the true death toll, contributed to a grim picture. The Delta variant, first detected in India and now spreading rapidly across Europe and the United States, reminds us of the global nature of this crisis. All this has taken place as India’s prime minister, Narendra Modi, has downplayed the threat of the virus and urged state ministers to only lock down as a ‘last resort’.

Amid this public health crisis, how has India’s economy fared? On Wednesday, Swati Dhingra and Maitreesh Ghatak (both London School of Economics) explored this question. India’s GDP fell more than 7% in the 2020/21 financial year – the largest contraction in the country’s history (see Figure 2). This compares with a 3.3% drop for the rest of the world and 2.2% for other emerging and developing economies.

Figure 2: Economic contraction in India and the world during Covid-19

Source: World Economic Outlook, International Monetary Fund, April 2021

The authors show how the crisis has magnified existing economic fragilities in India, increasing both income and wealth inequality. In 2020, it is estimated that the top 1% of the population held 42.5% of the total wealth, while the bottom 50% had only 2.5%. Following the outbreak of Covid-19, the number of poor is projected to have more than doubled.

While India’s policy response was fairly strong in terms of lockdown stringency, the measures were ineffective in dealing with both the public health and economic aspects of the crisis. Crucially, they failed to protect the most vulnerable sections of the population.

Coping mechanisms

Against this backdrop of existing fragilities in developing economies, Ahmed Pirzada (University of Bristol) investigates how governments are coping with the Covid-19 crisis in another new piece this week.

He highlights how countries that export commodities, such as timber, fuels or minerals, were hit particularly hard at the onset of the crisis. For example, Brazil, Colombia, Mexico, Russia and South Africa each lost more than 20% of their currency values during the first quarter of 2020.

For many countries, access to credit has been a substantial constraint on responding to the crisis . Short-term borrowing requirements for emerging economies increased from around 8% of GDP in 2008 to 11% on the eve of the pandemic. Being able to finance emergency policy responses is vital if countries are to mitigate the worst of its effects. If support schemes are untenable due to the future burden of sovereign debt, the recovery itself will not be sustainable.

Aside from the economic challenges facing developing economies, the healthcare shock in these countries has also been substantial. In terms of global performance, India and Brazil have seen the highest number of Covid-19 cases and deaths since the pandemic started (behind only the United States). At the time of writing, the overall reported deaths per million people are highest in Peru, 10th highest in Brazil, 16th in Colombia, 21st in Mexico and 27th in Chile.

Ahmed concludes his piece with a warning. He highlights how many developing countries are caught in a cruel trade-off: the longer the public health crisis persists, the more infectious the virus becomes and the greater the need for social and economic restrictions. But at the same time, the longer these stringent lockdown measures are in place, the more unsustainable they become because of their effects on people’s livelihoods.

A global effort to ensure equitable and universal vaccine distribution, as well as support for developing countries as they seek to rebuild their economies is vital. In Ahmed’s closing words ‘we are only as strong as the weakest link in the chain’.

Author: Charlie Meyrick
Photo by Miguel Á. Padriñán from Pexels
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