Insufficient COVID-19 stimulus plans, job losses add to developing world’s troubles

The developing countries face some tough times as response to COVID-19 pandemic has exposed their inability to cope with the staggering cost of recovery from the economic crisis.

International Lahor Organization‘s latest figures spent on recovery efforts reveal that by the end of May 2020, over 90 countries had introduced or announced fiscal measures totalling over US$10 trillion.

The same number of countries have cut interest rates following the coronavirus outbreak.

“But this has been highly concentrated; 88 per cent of that total has been spent by advanced countries on advanced countries…that’s the equivalent of about five per cent of GDP; the equivalent figure for developing and emerging economies is 2.2 per cent, for the less developed countries, it’s much less,”  Director-General Guy Ryder ILO explained.

The organization sees no “simple or quick recovery.”

The new data also shows that working hours fell 14 per cent during the second quarter of 2020 –  equivalent to the loss of 400 million full-time jobs.

That’s a sharp increase from ILO’s last estimate, issued a month ago, of a 10.7 per cent drop (equivalent to 305 million jobs) from April to June, a UN report says.

The scenario looks particularly hard for the developing countries, many of which got some fiscal reprieve in the form of loan repayments that they make to the industrialization nations.

Still, the uncertainty and the loss of economic opportunity have created more troubles for the developing world as GDP growth slips into negative territory for the majority.

Next week’s Global Summit on COVID-19 and the World of Work, convened by ILO, will look at various issuses and Ryder urged government and social partner participants to build a better future of work for everyone.

“The decisions we adopt now will echo in the years to come and beyond 2030”, he said.

He referred to persistent inequalities and vulnerabilities of women in the workplace.

“Although countries are at different stages of the pandemic and a lot has been done, we need to redouble our efforts if we want to come out of this crisis in a better shape than when it started.”

According to the updated report, the specific policy mix varied across these countries, but a large part of the fiscal response took the form of deferrals and waivers of tax, social security contributions and other payments, along with the provision of grants, credit guarantees and wage subsidies to businesses (including small and mediumsized enterprises) – in some cases, these were conditional on employment retention.

The bulk of discretionary spending in most advanced economies was used to expand existing social protection schemes for workers and vulnerable households (including unemployment benefits, sickness benefits and social assistance). Large-scale conventional and unconventional monetary policy measures were also introduced quickly to avert a liquidity crisis, the report says.

In emerging and developing economies, the reprot points out, policy responses were similarly rapid, but the fiscal packages were much smaller. On average, fiscal stimulus measures amounted to 2.3 per cent of GDP in these countries, which reflects their more constrained fiscal environment.

“On the whole, the measures they adopted account for just 2.5 per cent of the global fiscal stimulus. Their rather limited resources tended to be used to support vulnerable businesses, fund payment deferrals and provide emergency relief for the most vulnerable groups through non-contributory cash transfers (mainly special allowances and grants), in-kind support and public works programmes. Despite these efforts, the limited coverage of unemployment benefits and other forms of social protection schemes have made it more challenging to effectively contain the damage in emerging and developing countries, particularly for workers and households relying on the informal economy.

In many low-income countries, the situation is even more challenging because fiscal space is extremely limited.This fiscal capacity has been further eroded by a sharp decline in commodity prices, export earnings, remittances and foreign investment. Without large-scale international support, stimulating the economy and employment through fiscal measures will be beyond the reach of many of these countries, the report says.

The ILO’s  baseline model – which assumes a rebound in economic activity in line with existing forecasts – projects a decrease in working hours of 4.9 per cent (equivalent to 140 million full-time jobs).

ILO’s most pessimistic scenario assumes a second pandemic wave and the return of restrictions that would significantly slow recovery, resulting in a fall in working hours of 11.9 per cent (340 million full-time jobs).

More than nine in 10 of the world’s workers continue to live in countries with some sort of workplace closures, with the Americas experiencing the greatest restrictions, the Geneva-based UN body said.

Regionally, the Americas have been worst affected by far, with working hours diving 18.3 per cent, according to the latest ILO Monitor report on COVID-19 and the world of work.

Europe and Central Asia saw a 13.9 per cent fall, followed by Asia and the Pacific (13.5 per cent), Arab States (13.2 per cent) and Africa (12.1 per cent). “It is important “to understand what the human realities of these statistics really are”, Ryder said