The LDCs in Africa are being intensified poverty risks by Covid-19

The number of COVID-19 cases continues to increase in Africa and the global economy entered an unprecedented synchronous recession since World War II; therefore, the world's poorest countries are suffering another shock that threatens to exacerbate global inequalities and aggravate the already challenging situation.

Public health and socioeconomic concerns are closely intertwined around the world, but are even more difficult in contexts such as the least developed countries (LDCs).

Indeed, although two-thirds of people in underdeveloped countries live in rural areas, many of them reside in overcrowded urban settlements lacking basic services. It is difficult for them to cope with severe social distancing, as well as economic shocks that directly affect their income.

Over the past decade, the number of people living in extreme poverty (i.e. under $ 1.90 / day) in LDCs has increased from 340 million in 2010 to an estimated 349 million in 2018. This largely due to the situation in the LDCs in Africa.

Reverse the process

The interaction between the COVID-19 outburst, the decline in demand – worldwide and even more so in the several of the LDCs' main trading markets - and the fall in international commodity prices, may reverse the limited progress made in poverty reduction.

The results of this UNCTAD study are highlighted in Figure 1 below that the deteriorating economic outlook following the emergence of COVID-19 leads to a more than 3 percentage point increase in the number of the poor in LDCs, with more than 33 million people live in extreme poverty.

Figure 1: Impacts of Covid-19 on extreme poverty in the LDCs in Africa (2020) (UNCTAD)

The crisis will worsen this year due to the pandemic

However, there are significant risks that the crisis could deepen or even last until the end of 2020, especially if it causes balance of payments tension and / or debt crisis in developing countries.

It can be expected that some of the poorer segments of the population will be the hardest hit.

For example, with 70% of the LDC workforce being self-employed, severe social exclusion is likely to have a disproportionate impact on informal workers and micro, medium and micro enterprises, with very little resources to overcome limitations without interruption.

Furthermore, the negative effects of the pandemic can be felt through channels other than pure income and even have long-term adverse effects on the living standards of households.

This can happen, if the suspension of the school year permanently degrades the quality of education, or if poor households force their children out of school to cope with lower incomes.

At this stage, it is clear that the consequences of the pandemic risk have undermined much of the socioeconomic performance recorded since the adoption of the Istanbul Action Program, on extreme poverty reduction in the LDCs.

What are LDCs' responses to Covid-19?

According to OECD, Ethiopia initially announced a 300 million Birr package to boost healthcare spending in early March. The plan will be implemented in the coming months and will need 1.64 billion USD in funding (about 1.6% of GDP) to restore the economy.

Senegal: The government has founded an emergency fund of up to 1000 billion CFAF (7% of GDP), financed by a combination of donor, private and state budget contributions, to support troubled households and businesses.

Uganda: The government has approved an additional $ 80 million to support key areas such as health and security at the frontline of the pandemic. The government is working closely with the private sector and other stakeholders to speed up the post-pandemic COVID-19 economy.

Essential four-way approach

Minimizing this adverse impact hinges according to a four-way approach:

First, the international community must support LDC governments to mobilize sufficient resources to enable their health systems to respond to emergencies, while at the same time supporting vulnerable segments of the population. This requires provision of emergency funding- preferably on an aid basis- and technical assistance, as well as safe access to critical medical supplies.

Second, the containment of the social costs of the pandemic, which is required to avert balance-of-payments crises, would put further strain on LDCs and risk food shortages. as most of the countries in this group are net food importers. Crucial to this effort, given the decline in current commodity prices, the structural nature of the LDC current account deficits and the recent accumulation in their external debt stock, is the provision of sufficient liquidity. international, a debt repayment ban and in some cases an extension of write-offs to secure essential foreign exchange.

Third, it is essential to avoid disrupting the value chain of agricultural and food products in the country and the region. With the immediate socio-economic impacts of the pandemic predominantly affecting urban populations, the viability of agriculture is fundamental to maintaining livelihoods in rural areas, preventing a spike in main food prices and limit food bills when foreign exchange is scarce.

Finally, in the long-run, there are some priority policy actions that FDI and the government should do:

• Adopt coordinated expansion policies to minimize the impact of the crisis and recover the global economy.

• Invest double in sustainable development, thus accelerating the transition to a low-carbon economy.

• Keep important value chains (such as food and medical devices) viable, thus avoiding major mistakes after the 2007-2008 food crisis.

• Promote production capacity development and structural transformation in underdeveloped countries as key elements of the policy package to build resilience and provide a strong foundation for job creation.

• Target fiscal and monetary measures to transfer liquidity to strategic regions, SMEs and households.

#Africa #LDCs #Covid19

References

https://unctad.org/news/when-it-rains-it-pours-covid-19-exacerbates-poverty-risks-poorest-countries

https://www.oecd.org/coronavirus/policy-responses/covid-19-and-africa-socio-economic-implications-and-policy-responses-96e1b282/

Phuong Dung