COVID-19 and developing countries: grim predictions of a significant increase in global poverty threaten the attainment of the SDGs

Source: New York Times, April 30, 2020

The fight against COVID-19 has entailed a sharp, but one hopes transitional,  decrease in economic and social activities across the world through a combination of containment and mitigation measures. The result is a predicted steep recession in both developed and developing countries.

There are fears that the scale and scope of this global recession will be the worst since the Great Depression. Such a development was not, of course, anticipated by any of the major international institutions that track developments in the global economy. Thus, the IMF’s World Economic Outlook of January 2020 observes that:

‘Global growth is projected to rise from an estimated 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent for 2021…’ It noted a series of ‘downside risks’ that could drag down global growth, such as ‘…rising geopolitical tensions, notably between the United States and Iran, intensifying social unrest, further worsening of relations between the United States and its trading partners, and deepening economic frictions between other countries.’

Any reference to the possibility of the coronavirus pandemic stemming from a specific country was conspicuously absent in the January 2020 global assessment, although publicly available reports were already alerting readers to a potential public health crisis in China and beyond. The World Economic Outlook of April has completely overturned its January forecasts and now predicts a 3 percent contraction in global output in 2020, although it expects a strong recovery in 2021.

The World Bank’s January 2020 Global Economic Prospects (GEP) was a bit subdued (2.5% global growth in 2020 rising gradually over the forecast horizon), but the assessment of downside risks was oblivious about a public health crisis brewing in China. GEP noted ‘… the possibility of a re-escalation of global trade tensions, sharp downturns in major economies, and financial disruptions in emerging market and developing economies.’

Thus, the major international institutions have been caught by surprise by the emergence of COVID-19 and its dire economic consequences. There is now understandably a rush to assess the extent of the economic damage, primarily in terms of forecasts of a global recession. Given that sustained economic growth is a necessary, but not a sufficient, condition for a sustained reduction in poverty, a severe global recession will invariably have an adverse impact on global poverty. As a recent New York Times report puts it: ‘Millions Had Risen Out of Poverty. Coronavirus Is Pulling Them Back’.

What is the likely magnitude of this reversal in progress in reducing global poverty? A UNU-WIDER paper is one of the few early, but much-needed, attempt to provide some estimates – and they appear rather grim. This is shown in Table 1.

Depending upon the magnitude of the contraction in per capita consumption/income that is assumed, and depending upon the specific international poverty line used, the estimated increase in global poverty above the status quo ranges from 1.1% to nearly 8%. In absolute terms, they range from approximately 85 million to 581 million. If these numbers are borne out in reality, they represent a major reversal in the global progress in poverty reduction and threaten the attainment of a core goal of the SDGs pertaining to the elimination of extreme poverty and hunger.

These numbers led the leading author of the paper to express

…’ (surprise) at the sheer scale of the potential poverty tsunami that could follow COVID-19 in developing countries. Our findings point towards the importance of a dramatic expansion of social safety nets in developing countries as soon as possible and – more broadly – much greater attention to the impact of COVID in developing countries and what the international community can do to help‘.

The Director of UN-WIDER concurs noting that:

‘This study shows that the achievement of the 2030 Agenda, and in particular, the SDGs on no poverty and zero hunger, is under considerable threat. The need of the hour is to bring together development agencies, national governments, civil society and the private sector in a global effort to protect the livelihoods and lives of the poorest of the poor in the Global South.’