According to the latest UN trade report this year the world will go through a predicted loss of trillions of dollars of global income due to the coronavirus pandemic. India and China will be an exception who may withstand this downturn.
The United Nations is calling for a USD 2.5 trillion rescue package for the nations that will confront this critical stage as around two-thirds of the world's population living in developing countries will face unprecedented economic damage from the COVID-19.
According to the new analysis from United Nations Conference on Trade and Development (UNCTAD), the UN trade and development body titled 'The COVID-19 Shock to Developing Countries: Towards a 'whatever it takes' program for the two-thirds of the world's population is left behind', commodity-rich exporting countries will face a USD 2 trillion to USD 3 trillion drops in investments from overseas in the next two years.
UNCTAD said that in recent days, advanced economies and China have put together massive government packages which, according to the Group of 20 leading economies (G20), will extend a USD 5 trillion lifeline to their economies.
"This represents an unprecedented response to an unprecedented crisis, which will attenuate the extent of the shock physically, economically and psychologically," it said.
Further, it added that while the full details of these stimulus packages are yet to be unpacked, an initial assessment by the UNCTAD estimates that they will translate to a USD 1 trillion to USD 2 trillion injection of demand into the major G20 economies and a two percentage point turnaround in global output.
The report did not give a detailed explanation as to why and how India and China will be the exceptions as the world faces a recession and loss in global income that will impact developing countries.
Further, given the deteriorating global conditions, fiscal and foreign exchange constraints are bound to tighten further over the course of the year.
The UNCTAD estimates a USD 2 trillion to USD 3 trillion financing gap facing developing countries over the next two years.
In the face of a looming financial tsunami this year, UNCTAD proposes a four-pronged strategy that could begin to translate expressions of international solidarity into concrete action.
This includes a USD 1 trillion liquidity injection for those being left behind through reallocating existing special drawing rights at the International Monetary Fund; a debt jubilee for distressed economies under which another one trillion dollars of debts owed by developing countries should be canceled this year and a 500 billion dollars Marshall Plan for a health recovery funded from some of the missing official development assistance (ODA) long-promised but not delivered by development partners.
The speed at which the economic shockwaves from the pandemic has hit developing countries is dramatic, even in comparison to the 2008 global financial crisis, the UNCTAD said.
UNCTAD Secretary-General Mukhisa Kituyi said the economic fallout from the shock is ongoing and increasingly difficult to predict, but there are clear indications that things will get much worse for developing economies before they get better.
The report shows that in two months since the virus began spreading beyond China, developing countries have taken an enormous hit in terms of capital outflows, growing bond spreads, currency depreciation, and lost export earnings, including from falling commodity prices and declining tourist revenues.
Lacking the monetary, fiscal and administrative capacity to respond to this crisis, the consequences of a combined health pandemic and a global recession will be catastrophic for many developing countries and halt their progress towards the Sustainable Development Goals.
Even as advanced economies are discovering the challenges of dealing with a growing informal workforce, this remains the norm for developing countries, amplifying their difficulties in responding to the crisis.
"Advanced economies have promised to do 'whatever it takes' to stop their firms and households from taking a heavy loss of income," said Richard Kozul-Wright, UNCTAD's director of globalization and development strategies.
He further added, "But if G20 leaders are to stick to their commitment of 'a global response in the spirit of solidarity', there must be commensurate action for the six billion people living outside the core G20 economies".
According to reports, the death toll from the coronavirus pandemic has soared past 35,000 while the number of confirmed cases topped 750,000 globally.
(inputs from PTI)