BY WOSSENSEGED ASSEFA
Besides to the adverse health effects of the Covid-19 global pandemic, the world economic performance has been hit by the dire consequences the virus has brought with it. Particularly, the Least Developed Countries (LDCs) do suffer the ruinous economic downturn resulted from the so-called “Great Lockdown” of the global economy.
The global economic downturn in addition to the restrictive and lockdown measures taken by the governments of LDCs has worsened the negative economic impacts. Least Developed Countries are now witnessing the worst recession in three decades.
While the pandemic had (at least initially) a less than catastrophic health impact, its economic repercussions have been disastrous. In 2020, the COVID-19 pandemic led to LDC economies experiencing their strongest economic shock in several decades; this, in turn, resulted in a sharp economic downturn, brought about by the combined effects of a deep world economic recession, and the consequences of the domestic containment measures adopted by LDC governments.
Worse still, these consequences are likely to linger in the medium term. The impact of the world economic recession on LDC economies has probably been stronger than the domestic demand shock. This, in turn, brought about a sharp downturn in the external demand for LDC goods and services; depressed the prices of their main exports, and caused a slump in inflows of external resources (e.g. remittances, capital).
The LDCs most dependent on the export of a few products are the most vulnerable to foreign trade shocks, and were strongly affected by the sharp fall in the volume and prices of exported products on which their economies are most reliant.
In dealing with remittances, the lockdown measures introduced in those countries where migrants frequently go to, have reduced the international migration rate. This in turn has significantly affected the flow of remittances into the LDCs.
In addition to the decrement in the rate of international migration, the economic recession in those countries has caused a decline in the incomes of the migrants who were already working in developed countries. Reports indicate that total remittances to low-and middle-income countries (LMICs) are forecast to fall by one fifth in 2020, with an even sharper contraction expected in South Asian and sub-Saharan African countries.
The ILO (2020) report, in addition, shows that the international migration and the remittances flow it generates were severely affected by the “Great Lockdown” and the ensuing worldwide recession. Thousands of immigrants originating in LDCs lost their jobs, had their working hours reduced and/or suffered wages cuts or even non-payment of wages in their host countries. Many of these foreign workers were expelled by host countries and had to return to their country of origin.
The contraction of remittances and the widening trade deficit in goods and services would lead to a further widening of current account deficit of LDCs, as current account comprises of trade account, service account and unilateral transfers. The deficit in the current account worsens the existing negative Balance of Payments (BoP) LDCs are suffering from. The lack of foreign capital investments is also widening the BoP which further makes the economic crisis direr.
On the other hand, there are many LDCs that haven’t fully recovered from the 2008/09 global financial crisis. Several reports indicate that the economic performance of LDCs has been adversely affected by the “new normal” of sluggish growth in the global economy, persistently low international commodity prices, growing trade and current account deficits leading to rising external debt, and an exhaustion of the fiscal space available before the outbreak of the global financial crisis.
LDCs – already having low economic performance, the wave of the Covid-19 global pandemic would in no doubt result in more severe economic crisis unless structural solutions are forwarded by the First World. Challenges facing economic development in LDCs do indeed predate the current socio-economic crisis caused by the Covid-19 pandemic. It is unfortunate that the coming of the pandemic further strengthened the adversity of the already existing crises.
Their already low standards of living are falling. Their stubbornly high poverty rates are rising further, reversing the slow improvement they had achieved prior to the pandemic. Progress towards achievements on nutrition, health and education are also being undone by the ambush of the crisis.
If it is not curbed, a protracted recession could cause adverse economic impacts such as a permanent job loss, decrease in production, and business shut-down. As it can be widely observed, business and economic activities in LDCs are predominantly led by informal activities.
This even makes it harder to provide institutional support like access to credit for the businesses involved in informal business activities.
Historically, the incidence of extreme poverty in the LDCs had remained stubbornly high even prior to the coronavirus pandemic, and the pace of poverty reduction, which was moderately encouraging in the early and mid-2000s has slowed down markedly in the aftermath of the global financial and economic crisis.
As a result, the share of people living in extreme poverty has virtually stalled at about 35 per cent of the population for most of the past decade. Due to the combined effect of persistently widespread poverty and rapid demographic growth, this implies that the number of LDC inhabitants living in extreme poverty had been rising prior to the pandemic, and the LDCs were already accounting for a rising proportion of the world’s extreme poor (UNCTAD 2020).
Using three criteria; Per Capita Income (PCI), human development index (HDI) and economic and environmental vulnerability index to designate nations as developed, developing and least developed countries, Ethiopia along with her neighbors (Sudan, South Sudan, Somalia and Eritrea) is among the 47 Least Developed Countries (LDCs) listed in the UNCTAD 2020 report.
The Covid-19 pandemic is therefore among the major challenges we are facing as a nation along with the domestic political instability we are currently dealing with. Lucky us that the law enforcement operation in Tigray region has come to an end which otherwise would have been costlier both in lives and (financial) resources. Now, Ethiopia can turn its face to fight the economic challenges that resulted from this global pandemic.
Be it as it is, one thing that should be noted by the international community is that LDCs have almost exhausted their limited resources in the fight against the Coronavirus. Just like the adversity of the climate change that LDCs are paying huge health and environmental prices, this is a virus they are not responsible to and there shouldn’t be a reason why LDCs couldn’t get a wide range of support from the developed world.
This is an injustice which needs to be redressed. The international community needs to show its resolve to assist its weakest members by giving them the tools to tackle the root causes of the vulnerabilities that have left them so exposed to the economic impacts of the pandemic.
If left unchecked and the Covid-19 crisis got protracted, it threatens to worsen the already weak economic base of LDCS as it has already reconfigured the global value chain in the disadvantage of LDCs. Therefore, it is time to act. It has, of course, been a while since the international community gathered to discuss and come up with a comprehensive plan of action for the LDCs for the decade to come.
To treat the “pre-existing economic conditions” that have left them disproportionately vulnerable to the effects of the global pandemic, the least developed countries deserve a plan of action focused on developing productive capacities for their successful structural transformation.
This is among the ways to ensure sustainable development and overcome the long-term development challenges of the least developed countries.
The Ethiopian Herald December 10/2020
