Wealthy Countries Only Patched Developing Countries’ Threadbare Economy

The Coronavirus pandemic revealed the worst form of inequality between wealthy countries and the poorest countries in the world.

Consider the case of Pakistan. Like the rest of the developing countries, the shortage of health professionals, functional and equipped medical facilities in Pakistan was evident long before COVID-19 sent a death wave throughout most of the world. For a country with 220 million citizens, Pakistan only has a meager 230,000 doctors, 145,000 nurses, and 24,000 dentists.

When the pandemic hit, the deficit in Pakistan became glaring. The country needs 1.6 million nurses, 400,000 doctors, and 200,000 dentists to meet the World Health Organization (WHO) standards.

Sierra Leone, a country devasted by civil war during which medical facilities were looted and destroyed – and later the Ebola outbreak – was slowly rebuilding itself again when the pandemic hit.

The country’s health system now fares even worse. Sierra Leone scores 0.00 on the WHO health systems performance index. Despite a population of almost 8 million people, there are only about 22 physicians for every million people, according to World Bank data. Simply put, there are less than 200 physicians in a country roughly the size of South Dakota.  

During the pandemic, developing countries faced desperation like never before. For instance, Pakistan’s revenue shrunk by 33%, and exports dropped by 50% due to the COVID-19 outbreak and lockdown. The global lockdown measures also plunged developing countries into recession.

Economists project economic and social recovery from one epidemic (Ebola), and COVID-19 will plunge Sierra Leone into recession. Two outbreaks following a civil war have impacted the life trajectory of many people in the country very badly, almost irreparably even. Adolescent girls in Sierra Leone have dropped out of school permanently, and many have been victims of unfair circumstances that pushed them to early marriage and childbearing. There is little hope for the young male population either, and many families rely on money sent by relatives working abroad.

Developing countries largely depend on foreign direct remittance by migrant workers, according to the World Bank. The pandemic clamped this vital artery of finance. The shutdown of international travel punished many developing countries not only because tourist visits dwindled but because demand for oil, which many of these countries produce and export, plunged.

Extreme poverty is on the increase again as the pandemic undid twenty years of work. The World Bank says 150 million people – most of whom are in developing countries in Sub-Saharan Africa – will face extreme poverty in the coming years.

Extreme poverty is defined as living on less than $1.90 a day. As of 2020, 9.1% and 9.4% of the world’s population are classified as extremely poor, per the Poverty and Shared Prosperity Report.

Barraged with petitions for debt relief, wealthy countries, the World Bank, and the International Monetary Fund finally vowed to spare developing countries the desperation they faced if they must respond to the lockdown.

However, neither organization made meaningful support since the pledge, according to economists closely watching the situation. Consequently, developing countries continue to struggle with limited resources and buckle under the weight of untenable debts. These countries have had to reduce spending and repay debt, leaving barely enough to bolster health care systems and provide relief to citizens who no longer have a sustainable source of livelihood.

This situation has already undone a decade of growth in developing countries.

On the other side of the world, wealthier nations have had a safe landing from the vicious snag of the pandemic. The wealth of credit unleashed by central banks printing gave wealthy countries more than $8 trillion – more than they knew what to do with and ended up in the pockets of private corporations.

Developing countries have not received help on such a scale from their central banks or deep-pocketed organizations.  

For one, the IMF only lent out $280 billion, including $31 billion in emergency loans to 76 member states. $11 billion of this emergency loan went to low-income countries.

On the other hand, the World Bank more than doubled its lending over H1 of 2020, but a report from the Center for Global Development revealed this was merely lip-syncing. While the organization doubled lending, it has been slow to distribute the money. Only a third of the loans reached borrowers.

Experts say the World Bank and the International Monetary Fund may have delayed desperately need help because of fears of mismanagement and the spendthrift tendency of leaders of developing countries.

Others say the IMF and the World Bank may have held off disbursement after foreign creditors agreed to participate in an initiative to provide debt relief to developing nations at the virtual G20 summit in April 2020.

World leaders agreed to pause debt payments for 46 developing countries through the first half of 2021.

However, the initiative largely failed because the relief from world leaders was only about 1.66 percent of total outstanding international debt payments due from all developing countries, according to a shadow report by the European Network on Debt and Development. 

World leaders failed to get private entities, who make up the largest group of creditors to developing countries, to come on board. Global financial services corporations, including banks, asset managers, and hedge funds, did not provide debt relief to developing countries during the pandemic.

“The private sector has done zilch,” said Adnan Mazarei, who was a deputy director at the IMF and now senior fellow at the Peterson Institute for International Economics. 

Private creditors did not offer debt suspension partly because they believe the benefits will go to another lender.

Many developing countries are heavily indebted to Chinese institutions via a clandestine and uncoordinated borrowing process. Thus, a private creditor that suspends debt collection will lose out because, in a bid to maintain their credit rating, the leaders of developing countries will pay a Chinese lender rather than spend on crumbling infrastructure.

Given this fact, experts say financial institutions’ bid for debt restructuring, where the loan terms are renegotiated and creditors absorb losses on loans, will only torture borrowers and private lenders.

“Financial institutions are going to leave [developing] countries in much worse shape than they were before the pandemic,” said Lidy Nacpil, who is an economic activist and the coordinator of the Asian Peoples’ Movement on Debt and Development.

It is the second half of 2021, and the world faces highly infectious variants of SARS-Cov-2 despite global vaccination efforts. Worries about the fiscal health of developing countries have intensified, given how devasting another economy shutdown would be.

World leaders have issued elaborate promises for help once again, and the world watches to see if they will put the boot on the other foot this time.

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