Are the Least Developed Countries facing a lost decade of development post-COVID?
COVID-19 could lead to a lost decade for development - one most pronounced in the Least Developed Countries (LDCs). That’s the stark finding of the 2021 Financing for Sustainable Development Report (FSDR) of the UN's Inter-agency Task Force on Financing for Development.
The report highlights the risk of an increasingly unequal world in which some countries lack the financial resources to combat COVID-19 and its socioeconomic impacts, as others already start to recover. It also examines how acute crises are being compounded by growing systemic risks like climate change. These interactions threaten to further derail progress, and the report proposes a series of policy changes to help reverse this trend.
Faced with historic drops in revenues and high pre-existing debt burdens, many developing countries couldn't afford to implement large recovery packages when the pandemic struck. As a result, the size and composition of the global response has been highly uneven.
Developed countries responses accounted for nearly 80 per cent of the global total, while developing country measures in general were modest. The LDCs as a group has increased direct and indirect fiscal support by only 2.6 per cent of GDP, compared to 15.8 per cent of GDP for the developed countries.
At the same time, government revenues fell significantly, further reducing countries’ ability to respond.
COVID-19 spread later in many developing countries, including Africa and the LDCs, and responses were limited given tighter financing constraints. The report recommends immediate actions to prevent this scenario repeating including appeals to mobilise investments in people and infrastructure to rebuild better.
Official Development Assistance (ODA) and transfers can help LDCs that do not have domestic social protection systems. Such systems are affordable in the majority of developing countries (around 2.2 per cent of GDP, on average, according to the International Labor Organisation), but some countries may also need external financial support, especially during crisis periods. Official international financing remains crucial for addressing such temporary financing needs.
Accordingly, the report calls on ODA providers to scale up and meet their commitments of 0.7 per cent of gross national income (GNI). It recommends grants rather than loans for vulnerable countries, such as Least Developed Countries (LDCs) and Small Island Developing States (SIDS), while the decline in ODA to health should be reversed.
It also calls on Governments and development partners to promote digital services to reduce remittance transaction costs and to address any bottlenecks such as digital access gaps that might prevent the widespread use of these technologies.
Before the pandemic, the LDC share of world services exports stood at just 0.8 per cent, compared to 30 per cent for the wider group of developing countries. Similarly, LDC’s exports were hoped to have doubled between 2010 and 2020 - to about 2 per cent of world trade – but before the pandemic struck this hadn’t been achieved.
The failure of sufficient vaccines and other medical supplies to reach the LDCs to help fight the COVID-19 pandemic illustrated how far trade agreements have to go. The report illustrates how vaccine access could be extended by localizing more production in developing countries alongside sharing vaccine-related intellectual property rights and knowledge.
Open markets to ensure equitable flows of essential goods and services are vital in times of crisis and the international community must reject vaccine nationalism and protectionism and facilitate technology transfer so as to encourage research and innovation. This should be done while allowing licensing agreements that help scale up manufacturing.
The 2021 FSDR draws on the expertise, analysis and data from more than 60 agencies and international institutions that make up the Task Force, including UN DESA, the World Bank Group, the International Monetary Fund and the World Trade Organisation, and OHRLLS.
The full report can be read here.