Advanced economies are, understandably, dealing with their own problems first and have showed an impressive response to save their own economies. So far, however, multilateral financial support to restart and rebuild developing economies has been piecemeal at best, which will not get them very far.
Responses from governments to mitigate the pandemic in emerging and developing economies have been mixed, which suggest that the recovery will be differentiated across countries.
Managing our portfolio will be challenging in these difficult times. Thorough individual country risk assessments monitored on a daily basis and our close contacts with our partners will support our investment decisions.
At the same time, the dimension of this global crisis should be a wake-up call: the only way forward, especially for emerging and developing countries in a post-corona world, is to redesign and rebuild our economies together as international community.
Triodos Investment Management with its proven track record in impact investing, plays a role in supporting the right choices to transform these economies. The impact themes remain at the forefront of our investment strategy, focusing on building a more sustainable and resilient economy in the long-term. Visit the COVID-19 page on our website for more information.
Recovery shows increasing divergence across developing countries
Emerging and developing economies have been growing at a faster pace than advanced ones for many years. But this strong growth has, in some regions, been driven by population growth, hiding the fragile economic structures, the deep inequalities, and the unbalanced relations between people and nature. Vulnerabilities have been the source of recurrent political and economic shocks and they are also the reason why the current pandemic will have severe and long-lasting socio-economic impacts.
Many governments in these countries have provided significant fiscal stimulus, but much less than advanced economies. Initially governments reprioritised expenditures and then support from multilateral institutions and foreign governments followed. Centrals banks also came to the rescue. As a result of this stimulus, economic activity is slowly resuming, and capital markets are reopening gradually for some countries. However, for other countries lockdowns in different forms are still in place and it will remain difficult to rebuild foreign reserves and strengthen external positions. This means that international creditors will be more cautious in lending to them.
Meanwhile, the setbacks in the case of low-income countries will often be permanent given that there is no safety net or compensation for foregone income. As a result of the global lockdown, economies dependent on remittances will likely see a temporary, but sharp drop in private consumption. Initiatives providing continuity to financial support, for instance, in the area of financial inclusion of low-income households can increase access to buffers in this challenging period.
Sustainable Development Goals deviating from targets
There is the risk that COVID-19 will derail the Sustainable Development Goals. The pandemic is likely to cause the first increase in global poverty since 1998 as economies fall into recession. Lost incomes, disruptions in food chains and higher food prices could push an additional 130 million people to the brink of starvation by the end of 2020. The disruption of health systems due to COVID-19 threatens to unwind decades of progress in reducing maternal and child mortality and the most urgent health threats. And the list goes on. How fast countries can get back on track, will depend on government actions, reviving financial support and resuming collaborative approaches that were in place before the crisis.
The post-pandemic era
Governments have been pushed to take the lead in fighting this crisis. The impact of COVID-19 will be manageable in those countries where there is more awareness and trust in the government to develop strategies and reforms for a more balanced restart. This will provide a positive foundation for a deeper transformation. In many other countries, however, the crisis is still far from over, making it more difficult to propose any fundamental reform.
It is likely that where poverty is more acute, the challenges will be enormous, while the capacity to meet them is limited. For instance, people who have lost their job and income opportunities due to the lockdowns are now forced to return to their rural homes, increasing the pressure on natural resources. There are reports of increased deforestation in Asia, Africa and Latin America. Governments need to be aware of these implications and bring about actions to protect and increase the economic well-being of their citizens.
If the COVID-19 pandemic makes one thing clear, it is our interdependency – for our health systems, our food systems, our entire economy. Now is the time to rise to the challenge and under collaborative leadership work together to emerge from this crisis with a more resilient and inclusive economy that is in balance with our environment.
Mixed impact and common goal after COVID-19
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Reset the Economy
Read our vision paper Reset the Economy for concrete policy, business, and finance agenda to prevent a future pandemic from holding the world in such a grip as corona has, to intensify our efforts to combat the climate emergency and other eco-crises, and to work on a more socially inclusive society.