Commodity-dependent developing countries face risk of economic crisis even before a direct hit from Covid-19


New York, 15 April—Many commodity-dependent economies in Africa and Latin America will likely face an economic crisis before they are directly hit by the pandemic, which will further limit their ability to handle a health crisis, according to a policy brief released by the UN Department of Economic and Social Affairs today.

The brief warns that action is needed now to avert a full-blown debt crisis, as these economies are in a significantly tighter fiscal position today than in 2009 when they were hit by the global financial crisis, making it very difficult for them to borrow externally and finance large fiscal stimulus.

“A stitch in time can save nine, as a full-blown debt crisis will have significantly higher economic costs,” the brief stated.  “The international community should help highly-indebted commodity-exporters to reduce the likelihood of a debt crisis through forbearance and standstills.”

While Africa and Latin America are home to a quarter of the world’s population, they presently account for less than three per cent of the world’s known COVID-19 infections and deaths. But the pan­demic is already taking a heavy economic toll on these regions as oil and commodity prices have sharply declined—oil prices have declined by more than 50 per cent, while most metal and mineral prices declined by 20 per cent or more during the past month. This occurs as economic lockdowns and job losses in developed economies have sharply contracted travel and demand for consumer goods. Falling manufacturing activities mean less demand for base metals such as copper, iron, zinc, and aluminum.

Sharply reduced commodity prices have weakened external balances of many commodity-dependent economies, triggering massive capital outflows of portfolio capital and exchange rate depreciations. Many currencies, such as the Brazilian real, the Mexican peso and the South Africa rand have depreciated by about a third this year so far. Falling export revenues and deteriorating exchange rates are squeezing their ability to service external debt.

Even if the pandemic is contained, the policy brief states that it is unlikely that commodity prices will rebound very quickly and that commodity-dependent economies need to brace for a long and painful recovery.

Several commodity exporters, especially from Africa, have turned to multilateral organizations such as the IMF for short-term emergency assistance. International entities, including the United Na­tions, the IMF and the World Bank have called for debt relief initiatives, but the development of a comprehensive and meaningful debt-relief package may take months and may be too late for many of these economies.

Multilateral debt from international financial institutions is increasingly the only viable option for many of these economies, the brief underscores. The United Nations system entities, it says, can play a crucial role in identifying, steering and facilitating access to multilat­eral financing instruments to help these economies scale up pandemic preparedness, minimize the risk of an economic crisis, and accelerate their sustainable development.

 Digital technologies critical in facing COVID-19 pandemic

Governments need to make full use of digital technologies to confront the COVID-19 pandemic and address a wide range of pandemic-related issues according to another new policy brief issued today by the UN Department of Economic and Social Affairs.

The pandemic is compelling governments and societies to turn toward digital technologies to respond to the crisis and, increasingly, is requiring governments to adopt an open government approach and to use digi­tal communication channels to provide reliable infor­mation on global and national COVID-19 developments.

With lockdowns and other social distancing measures in effect in many countries, and with more people relying on the internet for information and advice, gov­ernments are being urged to deploy effective digital technolo­gies to contain the outbreak.

According to the brief, a review of the national portals of the 193 United Nations Member States showed that by 25 March 2020, 57 per cent (110 countries) had posted some kind of information on COVID-19, while around 43 per cent (83 countries) had not.  But by 8 April 2020, around 86 per cent (167 countries) have included information and guidance about COVID-19 in their portals.

Government information has focused on information about the outbreak, travel restrictions, practical guidance on protection, and governmental response. Governments, as the first custodian of data re­lated to COVID-19, have also started publishing sta­tistics that include the total number of cases in a country, total fatalities, as well reporting of cases by jurisdictions.

Governments have also designed new apps and services to help in the fight against COVID-19, to facilitate services such as delivering food and other essential items to those most in need by optimizing the entire supply chain via digital government services. Some Member States re­corded an increase in the usage of online services such as digital ID and digital signature, due to the spikes in appli­cations for unemployment and other social benefits.

Some countries, balancing health imperatives and privacy concerns, have found that digital applications can help trace and test people who have come into contact with an infected person.

According to the policy brief, governments, often lacking the financial and human re­source capabilities to quickly and efficiently develop digi­tal tools that can support people during a crisis situation, should  build partnerships with private technology companies, social entrepreneurs or other national and in­ternational organizations to make use of existing technologies to meet the needs of people and soften the impact of the cri­sis on their lives.

“Policymakers should seize the COVID-19 crisis as an opportunity to establish tailor-made digital government tools, strategies and collaborations for the future,” the brief states. “The cri­sis has demonstrated that it is impossible for societies to ignore technological advancements as they are continuing to change business models and people’s everyday lives. Governments should embrace these policy- and techno­logical developments and harvest the digital opportuni­ties that can support the long-term sustainable develop­ment of their countries.”

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The briefs can be found at bit.ly/UNDESACovid

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