COVID-19’s global economic fallout is widely acknowledged and least developed countries (LDCs) have limited capacity and preparedness to handle the economic fallout of the COVID-19 crisis, which means they will most likely face significant hardships.
Initial estimates suggest that these disruptions could potentially contribute to increased global poverty, with the number of poor and hungry people rising by 2%.
However, with appropriate support measures and policies, and coordinated efforts, the world’s poorest countries can navigate this crisis.
According to the World Trade Organization, 87.5% of goods exported from LDCs are sold in 10 major markets, all of which are either severely or moderately affected by the COVID-19 outbreak. Due to a fall in demand in these markets, LDCs are certain to lose a significant portion of their export revenues.
This decline will make it impossible for LDCs to achieve Target 11 of the Sustainable Development Goal (SDG) 17 to double their share of exports.
LDCs are equally affected by declining orders or the cancellation of ready-to-ship orders by Western clothing brands, some of which have already closed outlets. As a result of these closures, Bangladesh alone has seen garment orders worth US$1.5 billion being cancelled, affecting more than 1,000 garment factories.
To address these likely negative impacts, countries are being urged to refrain from imposing trade restrictions when other policy options are available. It is important to keep trade open, not only for medical supplies but also other goods such as food, raw materials and energy supplies.
Also, the United Nations Conference on Trade and Development’s (UNCTAD) latest projection shows that the overall flow of foreign direct investment could fall by up to 15% depending on when COVID-19 is contained.
This decline will surely hit LDCs where significant investments have been made in fuels, minerals and manufacturing – all sectors that are experiencing demand and supply shocks.
Several developed and a few developing countries have already announced stimulus packages through monetary policy, such as quantitative easing, or fiscal policy, such as resource transfer, to help prop up their economies and provide safety nets during the COVID-19 crisis and in its aftermath.
In order to ensure LDCs do not increase their debt burden, we should fully explore and make use of any support extended by international financial institutions – including a recent Call to Action to suspend debt payments from the so-called IDA countries, which are home to two-thirds of the world’s population living in extreme poverty.