Several months after COVID-19 first appeared in Wuhan, the virus has now reached the most vulnerable regions of the world, and the consequences could be devastating.

The lack of resources in the developing world is complicating local fights against the social and economic damage of the health crisis. So too do the living conditions of many low-income countries, which make prevention, testing, and treatment more difficult and, hence, accelerate the outbreak of the virus.

As national governments impose measures and prepare emergency plans, the United Nations has called for international solidarity to help face and overcome the social and economic crisis that can emerge in developing countries in the aftermath of the pandemic. Here are some of the most pressing issues and economic challenges; we believe that the developing world is facing and will likely face in the future.

“Whatever it takes” is not and will not be feasible for many countries of the world

In contrast to more advanced economies, the lack of monetary, fiscal, and administrative capacity restricts the ability of many governments in less developed countries to approach the current COVID-crisis with a “what-ever-it-takes-strategy” similar to the one countries in Europe, or even China are taking.

In a trade and development update report, the UNCTAD states that given the distinct pressures and constraints of developing countries, it is significantly harder for them to enact an effective economic stimulus without facing binding foreign exchange constraints. Caused by currency devaluations, the drastic decrease in commodity prices, etc.

Getting back on their feet will be harder for developing economies

The speed at which the economic shock of this health crisis is hitting less developed economies is worrying. Even though it is too early to predict the economic outcome of the crisis for developing countries, international organizations expect it to be worse than it was after the global financial crisis of 2008.

Measured by different macroeconomic and financial statistics, many developing economies are already performing worse than they were after the financial crisis one decade ago. Recent statistics show, for instance, that the net portfolio outflows both of equity and dept from main emerging markets ($ 59 billion by the end of March 2020) are double the portfolio outflows experienced in the immediate aftermath of the crisis in 2008. Currency devaluations against the dollar are also significantly higher for many less developed economies. For example, the Mexican peso and the South African rand have devalued around 15 percent more than after the financial crisis.

Too, commodity prices have reached new lows, which has rapidly increased the risk to national economies, already reflected in the rising spreads of national bonds. Additionally, the accumulation of debt over the last decade in low- and middle-income countries, increases their vulnerability and amplifies the impact of the shock.

They will need international support

To mitigate the damage, national governments are seeking international help. By the end of March, the United Nations had already called for a $2.5 trillion package to help face the crisis. It will be available through the expanded use of special drawing rights, the cancellation of debt owed by developing countries, the creation of a Marshall Plan for health recovery, and dispersed grants.

The IMF has also announced that the institution is ready to mobilize $1 trillion in lending capacity, to countervail short- and long-term economic effects, especially in less developed countries. The institution has also approved a reform of the Catastrophe Containment and Relief Trust (CCRT), allowing low-income countries to invest in crisis response instead of repaying the Fund.

Their post-corona outlook is uncertain

Although mobilizing these funds might alleviate the pressure on national governments, as weeks go by, the situation in many parts of the world is getting out of hand. One of the main reasons: the distribution of resources within the economy. High levels of inequality, poverty, low infrastructure, lack of the rule of law and government accountability increase the vulnerabilities of these countries and lead to a series of problems that impede a rapid response to the crisis and exacerbate its negative effects.

Given that the pandemic reached developing countries only a couple of weeks ago, the worse phase is still to come, making the social and economic future of many of these developing countries even more uncertain than it already is. Looking to the future, national governments and international institutions will have to make sure that the help, in fact, reaches the most vulnerable in developing countries to avoid even more extreme disparities between rich and poor, cities and urban areas, as well as between old and young. National governments and international institutions will have to work together to achieve a more rapid and flexible response to the economic and social outcomes that will gradually emerge as COVID-crisis develops.

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