While Creating Fiscal Space for COVID-19 in Developing Countries, Be Sure to Consult Civil Society

April 29, 2020


Even as the COVID-19 curve begins to flatten in the Northern Hemisphere, the developing world is just starting to feel its onslaught. Global health experts and others studying the trajectory of the pandemic, including Bill Gates, have emphasized that developing countries, and particularly Africa, face the largest potential loss of life and economic devastation.

Imperial College London estimates there will be more than 900,000 fatalities in Asia, almost 300,000 in sub-Saharan Africa, and more than 150,000 in Latin America. Ashish Jha, director of the Harvard Global Health Institute, predicts “there is no doubt the center will move to places like Mumbai, Rio de Janeiro and Monrovia.”

Just as in the United States, where some of the most effective responses to the global pandemic are generated locally, the success of developing countries will also be determined by the actions of local leaders, citizens, and organizations—including fiscal responses.

Fiscal First

This month, the IMF called the COVID-19 virus “an unprecedented health and economic crisis” for sub-Saharan Africa. In response to this threat, the IMF is advocating a “fiscal first” approach, claiming that “fiscal policy will have to play a leading role in mitigating the shock.” As the G20, IMF, World Bank, and bilateral donors consider options for developing countries, debt relief and tax policy have come to the fore.

They took action to suspend 2020 debt payments from the world’s poorest nations and the G20 stated that this would free $20 billion in fiscal space for low-income counties to fight COVID-19. Bilateral and multilateral development organizations are now considering a multitude of other debt relief and foreign assistance options. 

Deferring or cancelling debt payments creates fiscal space for developing countries to, for example, provide direct emergency cash support to families, purchase personal protective equipment, and reinforce fragile health systems.

Fiscal Action, Global and Local

But even as the leading global financial institutions are reducing developing countries’ debt burdens, there is little discussion of how ministries of finance in these countries can best use the funding generated through debt deferment and disbursement of direct emergency funds.

While international support is an important first step, the OECD and others have stated that developing countries’ absorption capacity is limited and there are structural bottlenecks in health systems that prevent the level of scale-ups seen in the advanced countries. 

Developing countries will also need to weigh their COVID-19 responses in light of their long battles against other infectious diseases, including HIV/AIDS, TB, measles, and malaria. During the 2014-2015 West Africa Ebola outbreak, the health systems of Guinea, Liberia, and Sierra Leone were overwhelmed and became unable to respond to other infectious diseases; it is estimated that the deaths from failure to treat these other diseases equaled or surpassed the 11,000 who perished due to Ebola.

Nevertheless, developing countries are also taking fiscal action. As one of us (Sanjeev) notes in a recent CGD blog post, “virtually all countries in the world have responded to the COVID-19 crisis by implementing fiscal and monetary measures, significantly larger in relation to national output than those employed during the 2008 financial crisis.” For its part, the African Tax Administration Forum has proposed measures including flexible payment plans for taxpayers, the extension of tax deadlines, and the suspension of penalties for late filings.

But the benefits of tax relief must also be weighed against the decreases in government revenue to fight COVID-19. The Overseas Development Institute recommends “targeted support, not broad-based stimulus,” cautioning that “tax stimulus could even be counter-productive if it reduces the effectiveness of efforts to control the spread of coronavirus.”

Listening to Citizens

Tax relief should be implemented so that those most vulnerable to the economic shocks of COVID-19 receive the most help and part of developing country governments’ effective fiscal management—including prudent and accountable use of global funding—should be listening and responding to citizens and local organizations.

There is a precedent for ensuring citizens are included in deciding how funding generated through the actions of the multilateral development banks is used: the Poverty Reduction Strategy Papers (PRSP), which outlined a country’s policies and programs for reducing poverty and promoting growth. This process, led by the IMF and World Bank through the Heavily Indebted Poor Counties Initiative, required indebted governments to include broad civil society engagement in developing the PRSPs in order to be eligible for debt relief.

Examples of the importance of engaging citizens and local networks during epidemics abound. During the 2014-2016 West Africa Ebola outbreak, local community leaders were important in disseminating timely preventative information.

Today in Kenya, grassroots organizations have already emerged—including from the Kibera slum in Nairobi—setting up handwashing stations and combatting misinformation. Researchers, including colleagues at CGD, are also using cellular technology to directly survey the citizens of developing countries regarding the impact of the pandemic on their daily lives.

While now is not the time for onerous foreign assistance conditionality, or drawn-out national consultations; assistance to developing counties should include a commitment to integrate relevant civil society local leaders and networks, to ensure that resources are channeled to those most vulnerable when and where they are needed most.

Citizen Participation and Tax Relief

Engaging citizens to best confront the COVID-19 crisis can extend even to technical issues such as tax policy and administration. As noted above, part of fiscal policy response for developing countries confronting COVID-19 will be easing tax burdens on vulnerable populations and small- and medium-sized businesses who are particularly hard hit.

These decisions should not only be made in the ministries of finance and national revenue authorities of Asia, Africa, and Latin America. Save the Children research, and experience working on citizen participation in tax policy and budgets in developing countries, demonstrates that citizens and local civil society have an important role to play in helping identify local policies that ease the burden on marginal populations, while also being fiscally responsible.

Donors have played an important role in bringing together citizens and local government to develop mutually beneficial tax policy that increased revenue and built social cohesion. Now donor facilitation is particularly relevant as local actors are already stretched in responding to the pandemic.

Consulting with citizens shouldn’t be considered a luxury. In contrast to the positive examples above, we’ve also found that when tax and budget policies are implemented in developing countries without consultation—or transparency—they can lead to violent uprisings and societal disruption.

The Arab Spring, the Yellow Vest revolt in France, and even the American Revolution were all sparked by unpopular taxes imposed without consent—and sometimes with high levels of opacity—during times of socioeconomic tension. As developing countries brace for the impact, and with COVID tensions already causing unrest, governments should harness local expertise, including on fiscal actions, to effectively confront the pandemic.

*Andrew Wainer is Director, Policy Research at Save the Children US where he focuses on development finance and aid effectiveness, among other policy issues.


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.

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