World Bank and IMF leaders urged to take inclusive fiscal approach to building resilience in developing countries
Press release from the Institute of Development Studies
New Research on the impact of Covid-19, spanning 42 low- and middle-income counties, has identified macroeconomic and social policies required to build resilience against future health shocks and environmental emergencies. As world leaders meet at the International Monetary Fund (IMF) and World Bank Group Annual Meetings in Washington DC this week, a body of evidence from the Covid Research for Equity Programme (CORE), synthesised by the Institute of Development Studies, provides a clear case for coordinated fiscal measures that target the most vulnerable.
The findings of 21 studies in low- and medium-income countries (LMICS) spanning Africa, Latin America, Asia and South Asia and the Middle East, supported by the International. Development Research Centre (IDRC), have profound implications for the IMF and World Bank’s commitment to inclusive global development. The pandemic has had impacts on people’s lives across the dimensions of livelihoods and food security, social protection, fiscal policy, gender, governance and public health. It has dramatically exposed weaknesses and inequities in social protection systems, food production and distribution, job security, tax and poverty alleviation.
James Georgalakis, from the Institute of Development Studies, said:
“There is much that global financial institutions can learn from governments and macro-economists in low- and middle-income counties, who responded urgently to mitigate the impacts of Covid-19 – especially for their most vulnerable citizens. Close collaborations between macroeconomists and policy makers in some LMICS have produced solutions that directly address the social injustices that remain untouched by biomedical responses to the pandemic.”
The IMF and the World Bank’s common goal of raising living standards in their member countries focuses on macroeconomic and financial stability and on long-term economic development and poverty reduction. The new research published this week suggests much can be learned from governments in LMICS responding to Covid-19 who have produced a range of monetary and fiscal policy recommendations for longer-term recovery and future resilience.
These include more coordinated fiscal interventions that target the most marginalised: from interest rate policies, and quantitative easing, to progressive taxation and trade policy, to macroeconomic policy that explicitly focuses on gender.
In Uganda for example, reductions in the market interest rate boosted private sector investment and household consumption. The government also moderated the financial market against liquidity risk, capital adequacy risk and credit risk, which supported stability. Fiscal policy provided a temporary liquidity shield through tax relief for small businesses.
Source: Okumu, I.M.; Kavuma, S.N. and Bogere, Uganda and COVID-19: Macroeconomic Policy Responses to the Pandemic, CoMPRA
Research on Bangladesh suggests that increased government transfers to low-income households reap greater benefits for real consumption in poor households. And an increase in spending on health and education will have a positive impact on real gross domestic production and exports.
Source: Bhattacharya, D.; Khan, T.I. and Rabbi, M.H, Covid-19 and Bangladesh Macroeconomic Impact and Policy Choices, Centre for Policy Dialogue
Erin Tansey, Program Director, Sustainable Inclusive Economies, at IDRC said:
“Policy responses to the economic impacts of the pandemic are still underway and evolving to address other crises. Of direct relevance to deliberations in Washington, this body of Southern-led research provides evidence for coordinated fiscal measures to protect the most vulnerable against future shocks and promote gender equality. The recommendations are grounded in the lived experiences of hard-to-reach communities in low- and middle-income countries and in rigorous modelling and analysis.”
Other key findings include:
- Food system reforms and protection of livelihoods must target women and young people: Covid-19 is having a major impact on households’ production and access to quality, nutritious food. This is due to losses of income combined with increasing food prices, and restrictions on the movement of people and produce. CORE research is also highlighting the predicament of those working in the informal sector, particularly women, including migrant workers, waste-pickers, sex workers and street vendors. Recommendations for addressing the impacts of Covid-19 on marginalised groups include food system reforms and adaptive social protection measures that target women and young people in the informal sectors. This evidence is pertinent to longer-term recovery and to building resilience to future shocks.
- Social protection systems must become more inclusive and flexible: Across much of the research published so far from CORE, there are observations around the impact of Covid-19 on groups who are excluded from social protection schemes. The pandemic has exacerbated pre-existing weaknesses in social protection in all regions. Many studies include recommendations for a more inclusive and adaptive approaches to social protection as being central to preparing for future health and economic emergencies.
- Collaborative governance needed respond to health emergencies: The pandemic has both mobilised citizens to support others in need and generated a violent backlash against marginalised groups. CORE research finds examples of effective collaborations between civil society groups and different levels of government to support a more effective response to the pandemic in areas such as contact tracing and access to food. However, some studies have also highlighted securitised and militarised state responses, underpinned by panic and long-standing political disputes. Stronger public communication strategies are needed along with better coordination and collaboration between governments, local authorities and communities that harnesses citizens’ response.
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