Post-war playbook for COVID-19 recovery

Rome — The pandemic’s impact on major economies has so far been four times worse than that of the 2008 global financial crisis. In the second quarter of 2020, US GDP fell by 9.1 percent compared to the previous three months, dwarfing the 2 percent quarterly contraction in the same period in 2009. The eurozone economy fared even worse, shrinking by 11.8 percent. Many developing countries, meanwhile, have had entire sections of their economies wiped out, as if in a war. Planning, investing, and rebuilding, therefore, require a post-war mindset. To be sure, G20 governments have spent a whopping $7.6 trillion (and counting) on fiscal stimulus, and leading central banks are pumping out money to revive the global economy. Less discussed, however, is how fiscal and monetary stimulus in wealthier countries has made things worse for low-income countries. Even before the pandemic, much of the developing world was struggling with record-high debt, weak growth, and climate-related challenges. As a result, citizens had few safety nets when times got tough. Today, policy loosening in advanced economies is causing developing-country currencies to appreciate, resulting in a loss of export competitiveness and foreign investment, inflation, and economic destabilization. Poor countries largely rely on informal economies, commodity exports, tourism, and remittances, all of which have been hit hard by the pandemic. Together with the collapse of oil prices, advanced economies’ stimulus packages have left countries like Ecuador and Nigeria scrambling for economic survival.

Rich countries’ policies also contribute to rising food prices in poor countries. While supermarket shelves in the developed world are fully stocked with affordable food, nearly 700 million people globally were already chronically hungry before the pandemic—and more than 130 million could now join their ranks as a result of COVID-19. In countries such as Uganda, the price of basic foods has jumped by 15 percent since March.

Poor people in low-income countries typically cannot work from home; and if they don’t work, they don’t eat. The not-so-secret headline from large swaths of the developing world is that the coronavirus’ economic impact is far more devastating than the virus itself.

Consider that in just six months, the pandemic has erased a decade of progress in poverty reduction. Between 1990 and 2017, the number of extremely poor people globally fell from nearly 2 billion to 689 million. But because of COVID-19, the total is rising again for the first time since 1998. Over 140 million people could fall into extreme poverty this year, with South Asia and Africa the hardest-hit regions.

A mere 3 percent of what G20 countries have spent to date on their COVID-19 stimulus packages would be enough to stop these grim scenarios. A one-off voluntary humanitarian tax paid by G20 countries that raised $230 billion could improve infrastructure and communications technology in order to feed the rural hungry. For example, an annual investment of $10 billion over 10 years to build better roads and storage facilities could reduce food loss for 34 million people. Similarly, a $26 billion investment could increase access to cell phones for nearly 30 million rural residents, enabling them to bolster their income by accessing information on crop prices and weather forecasts.

The global economy flourished after World War II because the United States revived war-ravaged Western Europe with the Marshall Plan. We face a comparable scenario today. Any policy intervention should treat the fight against COVID-19 like a war and the hardest-hit economies like conflict zones. The world needs to grasp the full scale of the wreckage and the challenge of reconstruction. Project Syndicate

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Maximo Torero is chief economist of the Food and Agriculture Organization of the United Nations.