Act Now to Preserve Development Gains in a Post-COVID World

Even as COVID-19 rages on, it is important to think about how the world will look after the crisis subsides—especially in the poorest countries. But policy choices in international development—amidst a litany of competing priorities—will be much harder after the pandemic. A few targeted actions now, backed up with commensurate resources, can help ensure the developing world gets back on a path to shared prosperity sooner rather than later.

First, the COVID-19 crisis has painfully brought home the consequence of decades of underinvestment in global health security. Fixing this will require additional resources, both human and financial, in every developing country. But pandemics are just one example of a “global public bad”—a shared problem that requires action by all countries for an effective solution. Containing climate change is another under-resourced priority and one where the path of global carbon emissions will be decisively influenced by the policy choices made in developing countries.  Tackling these and other “global bads” must become a higher priority for the international development agenda.  

Second, important as these shared problems are, they will come on top of the need to sustain support for the traditional development programs that have all been set back by the economic recession accompanying the pandemic. Reversing a decade of steady progress, as many as 100 million more people have fallen into extreme poverty, those who live on less than $1.90 a day. And many more will live precarious lives just above this line, ready to vent their frustration and despair in ways that can destabilize whole societies. Catching up the 1.5 billion children who have missed out on school this year is not just about learning—it is also ensuring that their childhood is not cut short by starvation, early marriage for girls or child labor forced by poverty.

And beyond preventing bad outcomes, development policymakers must also keep an eye open for new opportunities that offer hope for the future. The pandemic has shown that distance need not be a barrier where digital technology enables teleworking or telemedicine. Similarly, the move to reduce the concentration of global supply chains and manufacturing offers potential opportunities for developing countries that have so far been on the outside of the global economy. But to take advantage of these opportunities they will need to invest urgently in upgrading their digital and physical infrastructure and improving the business environment. That too will require additional resources.    

Third, while the development agenda will be larger, funding for development will be more constrained after the pandemic. The run up in debt to tackle the immediate impact of the crisis will leave most developing countries with little fiscal space for increased investment. A few, where debt has become unsustainably large, will also be mired in complicated processes to restructure or write down part of their debt. Development aid from rich countries will be constrained by their own fiscal problems and economic slowdown. Strikingly, in this year of crisis, funding commitments from the world’s aid donors so far are down by one-third! The multilateral development banks (MDBs) also risk reverting to a period of lower activity after using up much of their lending capacity in the immediate response to the crisis. Finally, mobilizing private funding for long term development proved harder than expected even before the COVID-19 crisis and this will only worsen as country risk profiles deteriorate and private financiers become more risk averse in the aftermath.

The development challenge is clearly daunting, but there are actions that the international community can and should take now to ease the burden for recovery in developing countries.

• Enable the timely launch of necessary but complex initiatives in 2021 by preparing now. It is virtually certain that in 2021-22 a substantial number of developing countries will need to restructure their debt.  Organizing debt restructuring for one country is a long and complicated process; it will be much more so when the process needs to cover many countries and includes private and official creditors with varying interests and constraints. Starting the necessary preparatory work now will save on the many months it will take to develop and agree on the relevant operating framework. Another area where preparatory work should start now are proposals to ensure that the IMF and the MDBs have the financial capacity to provide the necessary support to emerging market and low- income countries beyond the immediate crisis phase. If these agencies do their job right, their current financial capacity should be mostly used up by the immediate crisis response. However, the recovery in developing countries will be a multi-year affair and depend on continued financial support and safety nets from these agencies for at least the decade to come. The G20 finance ministers should give political direction on these more difficult initiatives.    
• Shift the development conversation from advocacy of specific programs to how to expand the overall resource menu while still being prepared to make tradeoffs. The upcoming gatherings of world leaders at the UN this month, World Bank/IMF in October and G20 in November will likely all be presented with papers on the importance of protecting or increasing spending on programs in health, education, nutrition and food security, infrastructure, combatting climate change, supporting SMEs, fostering digital technology and a host of other important and valuable initiatives. While each of them will make a compelling case, the task facing the beleaguered policymaker in most developing countries is how to allocate very limited resources to advance progress across the development spectrum. The conversation in the international community could usefully focus more on helping her to make these difficult choices.
• Spending money now to contain the crisis is the best investment in reducing the need for funding later. Common sense dictates that the worse the health and economic impacts of COVID-19 are in developing countries, the bill for reconstruction will be disproportionately higher. Thus, any international agency that is holding its support back now to ‘keep its powder dry’ for later has not only got it wrong but is making the job harder. Similarly, holding back lending to these countries now because of worries about how sustainable their debt will be after the crisis is only likely to worsen their economic situation and future capacity to service loans. Cutting back bilateral assistance this year—as the UK, Australia and other leading donors are planning to do - is equally short-sighted. This is the time for all funders to stretch their balance sheets and help to contain the damage.

While the COVID-19 crisis requires an immediate critical response, we cannot be short-sighted. The vital first step is to invest and act now. If we neglect development issues as they only grow more severe before our very eyes, the crisis could lead to a lost decade for development and untold misery for billions of people.