Dire warnings of virus’s economic impact must be heeded
The heads of three major international organizations sounded the alarm last week about the far-reaching repercussions of the coronavirus disease (COVID-19) pandemic beyond its catastrophic health effects. They have sent alarming messages that need to be heeded quickly.
While the media focus has been trained on the devastation the disease has wreaked on the US, Europe and other wealthy nations that probably have the means to overcome the disease eventually and to mitigate its effects on other aspects of life, the heads of the UN, World Bank and International Monetary Fund (IMF) raised serious concerns about less developed countries.
The rapid spread of coronavirus highlights the world’s interconnectedness, which means that, if the disease becomes endemic in poor countries, it could remain a constant source of outbreaks that would affect the rest of the world. Similarly, the devastation of poor countries’ economies would have spillovers on to their wealthier neighbors through the weathering of trade and investment opportunities. The coronavirus recession could deprive developing countries of the ability to realize their economic potential and fulfill their sustainable development and climate change goals, affecting the health and well-being of everyone on the planet.
Last Tuesday, UN Secretary-General Antonio Guterres launched a plan to counter the disease, calling on everyone to “act together to lessen the blow to people.” Earlier, on March 23, he called — in vain so far — for a cease-fire in all conflicts around the world in order to help affected areas deal with this health emergency. Guterres called the pandemic “a defining moment for modern society.” He added: “History will judge the efficacy of the response not by the actions of any single set of government actors in isolation, but by the degree to which the response is coordinated globally across all sectors for the benefit of our human family.”
A UN report on the pandemic response listed some alarming statistics: Up to 25 million jobs will be eradicated, obliterating between $860 billion and $3.4 trillion in labor income; a reduction of between 30 and 40 percent in foreign investment flows; and a 20 to 30 percent decline in tourism around the world this year. In addition, the UN forecasts that 1.5 billion students will be out of school and 3.6 billion people will be offline.
The report calls for a “large-scale, coordinated and comprehensive multilateral” response of at least 10 percent of global gross domestic product (GDP) and warns that “there is no time to lose in mounting the most robust, cooperative health response the world has ever seen.”
On Friday, World Bank President David Malpass issued a statement expecting that “the poorest and most vulnerable countries will likely be hit the hardest, and our teams around the world remain focused on country-level and regional solutions to address the ongoing crisis.”
Kristalina Georgieva, managing director of the IMF, added last week that the coronavirus pandemic has created an economic crisis “like no other.” She said: “Never in the history of the IMF have we witnessed the world economy come to a standstill… It is way worse than the (2008-09) global financial crisis.”
In the US, there are dire predictions that coronavirus could lead to the highest unemployment levels since the Great Depression of the 1930s. Miguel Faria-e-Castro, of the Federal Reserve Bank of St. Louis, evoked great alarm in a paper he published on March 24 that projected a 32.1 percent unemployment rate for the second quarter of 2020. That would exceed the peak of 24.9 percent reached in 1933 during the height of the Great Depression.
These dire predictions may come to pass if stimulus packages are not implemented. Or, in the case of poor countries, if no stimulus measures are adopted. The US recently approved $2.2 trillion of economic measures to mitigate the socioeconomic impact of the virus. It is the largest such scheme, representing more than 10 percent of US GDP. However, there could be a lengthy time lag between legislating these measures and actually realizing them. For example, the US package includes more than $300 billion of financial incentives for small businesses if they retain or re-hire their workers, but business owners complain that banks’ procedures are delaying their access to those funds.
The three global organizations called for regional blocs to supplement national and international efforts to mitigate the disease’s effects. Some of those groupings moved quite quickly to shoulder that responsibility. In their March 26 virtual summit, the G20 leaders pledged to work together to shore up the world economy and help poorer nations. They committed to spending $5 trillion to stimulate their economies, representing more than 6 percent of their collective GDP.
The challenge now is to turn those commitments into economic policy. The G20 demonstrated its value in dealing with the 2008-09 crisis and it can do so again. Saudi Arabia has an opportunity to use its convening power to drive this forward.
There could be a lengthy time lag between legislating stimulus measures and actually realizing them.
Abdel Aziz Aluwaisheg
Another example is the Gulf Cooperation Council (GCC). Since the onset of this epidemic, it has convened regular meetings of the ministers of health from the GCC member states, as well as meetings of finance and trade, central bank governors and other officials, and experts in those fields from our member states. These meetings have resulted in very effective joint action to contain the spread of the disease across our region and lessen the socioeconomic impacts on citizens and residents. GCC member states have also extended humanitarian assistance to other countries to help them fight the disease.
There is also a silver lining: While dealing with the epidemic, GCC countries and others are revisiting the way business is done and implementing better governance and more efficient management. This is being done in all areas, including sanitary measures and labor practices. Business and municipal procedures are scrutinized. Most importantly, governments and citizens are realizing the importance of digitalizing commerce, official business and education.
- Abdel Aziz Aluwaisheg is the Gulf Cooperation Council’s assistant secretary-general for political affairs and negotiation, and a columnist for Arab News. The views expressed in this piece are personal and do not necessarily represent those of the GCC. Twitter: @abuhamad1