A new study released today by the United Nations Conference on Trade and Development (UNCTAD) has found that Least Developed Counties (LDCs) have been the hardest hit by COVID- 19.
The Least Developed Countries Report 2020 found, “initial fears that the global coronavirus disease (COVID-19) pandemic would have catastrophic health impacts on LDCs have not materialised. However, some LDCs (e.g. Sao Tome and Principe, Djibouti, Gambia, Afghanistan and Nepal) have experienced more wide-ranging and stronger health impacts from the pandemic.”
The report contended that further significant expansion of the pandemic in some LDCs in the closing months of 2020 cannot be excluded, “and would have dire consequences for these countries, due to the weak health systems of most LDCs.” UNCTAD also found that LDCs were able to weather the health aspects of the pandemic better than initially predicted due to country-specific factors.
Country-specific factors mitigating COVID-19
These factors include previous experience with epidemics, the policy and technological innovations adopted in reaction to COVID-19 as well as favourable demographics such as young populations and in most cases, low population density.
According to the report, “LDCs that have better weathered the COVID-19 pandemic from a health policy perspective are those with a broader and more sophisticated base of productive capacities in their economy.”
The report cited that in 2020, the COVID-19 pandemic led to LDC economies experiencing their strongest economic shock in several decades, which in turn resulted in a sharp economic downturn.
This was brought about by the combined effects of a deep world economic recession and the consequences of the domestic containment measures adopted by LDC governments.
At worst, the UNCTAD report stated that these consequences are likely to linger in the medium term. Between October 2019 and October 2020, the economic growth forecast for LDCs was revised sharply downwards from five to -0.4 per cent.
This revision is expected to lead to a 2.6 per cent reduction in per capita income in LDCs in 2020 with 43 out of 47 LDCs experiencing a fall in their average income levels.
Worst economic outcome in 30 years
“This is the worst economic outcome in 30 years for this group of countries, and represents a significant reversal of the economic and social progress achieved in recent years, including in terms of poverty and social outcomes,” the report noted.
The report argued that these circumstances make LDCs reaching the Sustainable Development Goals by 2030 a more distant prospect pointing out that a protracted recession could lead to permanent job destruction whilst threatening enterprise survival.
UNCTAD in its report mentioned that a prolonged crisis would further deteriorate an already weak LDC entrepreneurial landscape as currently characterized by a plethora of mainly informal traditional and non-innovative businesses, a structure of firms largely skewed towards micro, small and medium-sized enterprises and a private sector with limited access to credit.
The report highlighted that the impact of the world economic recession on LDC economies has probably been stronger than the domestic demand shock.
This, in turn, brought about a sharp downturn in the external demand for LDC goods and services, depressed the prices of their main exports and caused a slump in inflows of external resources (e.g. remittances, capital).
Similarly, LDC exports of services have suffered a sharp blow from the virtual standstill of their main export sector – tourism. International migration and remittances flows have also suffered a major blow from the lockdowns that were introduced, and the ensuing worldwide recession.
Fall projected in remittances
Total remittances to low- and middle-income countries (LMICs), the report said is forecasted to fall by one fifth in 2020, with an even sharper contraction expected in South Asian and sub-Saharan African countries. According to the report, “the LDCs most vulnerable to falling remittances are those that rely the most on them as a source of external financing, and include: Haiti, South Sudan, Nepal, Lesotho, Gambia, Yemen, Comoros, Kiribati and Senegal.”
It said the widening trade deficit in goods and services and the contraction in remittance receipts in 2020 are expected to lead to a further expansion of the total current account deficit of LDCs as a group. It has been forecasted to deepen sharply from 4.6 per cent of their combined GDP in 2019 to 6.8 per cent in 2020.
This will be the highest ever (or second highest) collective current account deficit for LDCs, and will continue the sequence of swelling current account deficits experienced by the LDCs since the last global financial crisis.
The report underscored that widening current account deficits represent a major challenge for LDCs, as they will need to be financed by higher capital inflows. However, increasing financing needs come at a time when LDCs are seeing diminished levels of capital inflows.
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