COVID-19 has become the biggest stress test in decades for international cooperation. Will donors be able to deliver effective, sustainable development for the world’s poor while also scrambling to support health systems cope with this crisis? The sad reality is that too many development gains achieved in the last half century are at risk of being obliterated. The global scale of this crisis presents an unprecedented challenge for development agencies, which are facing tough decisions about how to reprioritise aid budgets and respond to the crisis across all partner countries simultaneously. In this blog, we summarise the current challenges and responses, and offer some considerations for development agencies as they continue to respond to the crisis.
How are official development agencies responding? It is no longer business-as-usual for donors responding to the dual health and economic emergencies that COVID-19 is bringing to developing countries any more than it is on donors’ own home turf. While there is a chance that some funding might not be spent effectively or that some actions are ultimately unnecessary, the dangers of an insufficient, delayed, and uncoordinated response are much higher. Speed is of the essence. Getting the money out to where it is needed now using all available instruments will be critical. But so is international coordination, cooperation, and complementarity. This is as true, if not truer, for assistance to developing countries as it is for collaboration among advanced countries to fight the virus at home.
The scale of the challenge in developing countries is unprecedented
The current near-universal blanket response (lockdown) will likely be much costlier than the disease itself in developing countries, very probably in terms of lives lost, and certainly in terms of financial/economic impact and added poverty. And, as our colleagues have pointed out, countries don’t seem to have a clear exit strategy in place yet. Policymakers seem to assume that some form of widespread immunity will, eventually, be acquired either progressively through further, painful but probably smaller episodes of infection (a second wave hit Singapore, previously heralded as a containment success story, late last week) and/or with an effective vaccine, available perhaps in a year or so. Policymakers also seem to assume that this immunity will be efficiently detected and tracked, then used administratively to fast-track return to “normality” for at least some segments of the workforce, with mass testing technology that has not yet been proven to work.
Leaders of low-income countries therefore face a very tough choice of how to balance the costs of fighting COVID-19 directly with its vast indirect costs—both in terms of health and economics. Staying at “home” is no real option for inhabitants of densely packed slums with abject water and sanitation access, and the vast majority of workers in the informal sector, with no employment rights let alone access to adequate social benefits. Critical care beds in hospitals are a tiny fraction of the numbers in advanced countries the same size, so will be overrun much sooner than in developed countries. The prevalence of other infectious diseases, including HIV, TB, and malaria, is much higher in low-income countries, as is, therefore, the human toll of diverting scarce staff and other resources away from them.
As rich countries proclaim “we will do what it takes” at home, they have a moral duty to offer the same option to those countries most damaged not just by the virus itself but also by the aftershocks of rich countries’ own deliberate actions. In addition, they have a clear self-interest in successful global containment: national border controls have not proven to be an effective barrier against the pandemic’s spread.
The costs of gearing up health systems, ramping up testing capacity, and other actions on which we tend to focus now will soon crystallise in developing countries through high-profile humanitarian operations on a much bigger scale than the Ebola response. But these interventions will be dwarfed by the massive economic damage of lockdowns, whether the latter are flawlessly executed or hopelessly botched. This inevitable damage will also hit many poor countries just as their debt sustainability is at its weakest. So, this requires a BIG ramp-up of support (including a postponement of all official debt service obligations), not just warm words. The additional $150 billion already requested by the Ethiopian prime minister just for Africa (roughly equivalent to 10 percent of sub-Saharan GDP) may turn out to be no more than a down payment, even for just this one region. Nevertheless, it already equals total annual international aid (ODA) from traditional donor countries.
Official development agencies are responding, using existing tools where possible
In the weeks following the onset of the crisis, official development agency managers have used a number of tools and instruments to respond quickly to the needs of their partners. Below, we’ve compiled a list of the most common responses so far. Note that these are over and above actions being considered by G20 finance ministers and central banks, in collaboration with the IMF and World Bank, on a possible debt moratorium and creation of emergency facilities and additional global liquidity.
- Channelling additional funding through the World Health Organization (WHO): Perhaps some of the earliest responses came as new funding to the WHO in support of its COVID-19 appeal. In February, the WHO released its preparedness and response plan for COVID-19, with an estimated cost of $675 million between February and April 2020. Donors and contributors have since committed around $320 million to the WHO appeal (figures includes pledged and received contributions as of April 3, 2020), some of which was provided specifically for the WHO’s Contingency Fund for Emergencies to support COVID-19 preparedness in the most vulnerable countries with weak health systems.
- Releasing funds as budget support: Some development agencies are planning to bring forward budget support disbursements ahead of schedule to offset potential funding gaps caused by the current crisis. This type of funding can create fiscal space in government budgets and allows countries to maintain public spending in key sectors, including social sectors, throughout the economic crisis. The EU used a similar instrument—the Vulnerability FLEX mechanism—to ease the impact of projected fiscal losses in developing countries in response to the 2008 financial crisis. Frontloading was, however, managed by shifting existing payment priorities for programmes in less vulnerable countries to the most vulnerable countries.
- Cash transfers: To limit the impact of the economic crisis on poor and vulnerable households, the World Bank has been adding targeted cash transfer programmes to some of its COVID-19 responses. For instance, a recently announced package for Tajikistan includes funds for emergency cash transfers that will target food-insecure families with young children to mitigate the risks of malnutrition amidst rising food prices. Such initiatives are additional to those undertaken by governments worldwide, which have scaled-up income-boosting measures including new cash transfer programmes, to support the livelihoods of citizens affected by the crisis.
- Working with others to utilise best channels for rapid responses: In cases where donors do not have pre-existing channels to facilitate rapid disbursements to partner countries, development agencies are increasingly using the established instruments and channels run by other development actors–including donors, multilateral agencies, NGOs, and research institutes–that are best placed to ensure that funding reaches countries in a timely manner. For instance, the French Development Agency (AFD) announced plans to initiate a joint programme with the National Research Institute for Health and Medical Research (Inserm) to support health systems and responses to the coronavirus in Francophone Africa.
- Coordinating in-country through international financial institutions (IFIs) and the European Union: Donors are coordinating responses in-country by working with and through actors with a strong field presence, such as the IFIs, to support coherent approaches and maximise the impact of the resources available across agencies. European donors in particular are coordinating development efforts via the EU as part of a “Team Europe” approach to actions both in recipient countries and in international arenas.
- Reorienting projects to address COVID-19 and the corresponding economic crisis: As part of the crisis response, donors have started to reprioritise projects and programmes across their portfolios to focus on both health and economic responses to the COVID-19 crisis. For instance, the UK’s Department for International Development (DFID) is working to reorient its programming to focus on COVID-19 response programmes and those related to girls’ education, a key priority for the current administration.
Coordination, complementarity, and cooperation
As development agencies set out their immediate action plans to address the crisis in developing countries, including coordinating responses, sharing country analyses and programming jointly, it will also be important to factor in the voices of those governments (China, South Korea) who have so far arguably acted most effectively (and as first in and first out of the first wave, have the most spare capacity to offer). Pooling resources for treatment and vaccine development, including working through more established programmes where they exist, will be important. However, consideration also needs to be given to a division of labour based on expertise and capacity.
The cost of public services, especially health and social protection including cash benefits, but also education, which need protecting is a key part of the necessary fiscal space. Decisions must not be arrived at recursively based on perceived international aid availability and concessional lending constraints. They should be based on settlements also reached in developed countries, and funding should be sought commensurately. Very long-term and soft lending terms may need to be improvised to preserve human capital across generations.
With thanks to Mark Plant for his comments.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.