in: Kevin P. Gallagher / Gao Haihong (eds.), Building back a better global financial safety net, Boston, MA: Boston University, 88-95
The COVID-19 crisis has been a significant setback for global development. In October 2020, the World Bank estimated that the pandemic “could push up to 40 million people into extreme poverty” in Africa alone in 2020, “erasing at least five years of progress in fighting poverty” (Zeufack et al., 2020: 1). Public debt — which was already unsustainable in many developing countries before COVID-19 — is increasing rapidly and constraining government responses to the health, social, and economic crises caused by the pandemic. The ability of many developing nations to mobilize resources has been hampered due to severe economic contractions,. Many are using 30 percent to 70 percent of what little government revenue to service debt payments (Bárcena, 2020). Indicative of a looming debt crisis, there have been more credit rating downgrades for emerging markets and developing countries in 2020 than in all previous crises over the past 40 years. According to the International Monetary Fund (IMF), almost half of low-income developing countries were at high risk of debt distress or in debt distress at the end of September 2020 (IMF, 2020a). This analysis does not comprise middle-income countries, many of which are also under severe strain. Many emerging markets and developing economies are facing serious obstacles in obtaining the fiscal space to combat the virus, protect the vulnerable, and mount a green and inclusive recovery. While developed countries have been able to respond forcefully to the crisis — through fiscal policy, loans and loan guarantees to businesses, and quantitative easing policies — the responses of emerging markets and developing countries have been on average much smaller. For many of them, calls for “building back better” ring hollow unless they receive international support to do so. Without a resolute global debt relief effort, the goals set out by the international community in the 2030 Agenda for Sustainable Development and the Paris Agreement on climate change will not only be missed, but the progress made to date will be lost.