Giving Compass' Take:
- Kaushik Basu discusses the need to continue focusing on COVID-related economic problems, which could still plague poor countries long after the pandemic is over.
- How can donors help prevent the “Great Divergence,” where rich countries recover strongly while poor countries struggle, from playing out as predicted?
- Read about redistributing surplus COVID-19 vaccines to poor countries.
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The world is currently transfixed by the second wave of the COVID-19 pandemic sweeping through many regions, especially Asia, Africa, and South America. But, focused as we are on the public-health crisis, we risk overlooking pandemic-related economic problems that could plague developing countries long after the wave has receded.
At the global level, the International Monetary Fund has warned of a “Great Divergence,” whereby rich countries recover strongly while others flounder. Recent evidence suggests that several advanced economies, notably the United States, and a few developing countries, like Vietnam, Thailand, and Bangladesh, seem to be pulling out of the crisis and could grow faster than they did before the pandemic. But many emerging economies and low-income countries are likely to languish for a long time.
A Great Divergence is visible even within economies. The pandemic has punished sectors such as hospitality, travel, and tourism, and boosted others like pharmaceuticals, digital platforms, and networking technology. It is therefore not surprising that many rich people, including those who are good at navigating equity markets, have actually emerged from the crisis better off, while the poor have borne the brunt of its impact.
Therein lies the real danger. Unlike a pandemic that puts rich and poor alike at risk, the kind of economic crisis currently simmering in much of the developing world does not affect the rich as much and therefore does not generate headlines and is easy to disregard—that is, until it can no longer be ignored.
Sure enough, evidence of trouble is beginning to mount. Emerging economies everywhere face rising debts, and some, like Zambia and Argentina, have already defaulted. In 2020, Latin America’s economy contracted by 7.7 percent; the Philippines and India took even bigger hits, registering growth rates of -9.5 percent and -9.6 percent, respectively. And the World Bank estimates that the pandemic may have pushed up to 40 million people in Africa into extreme poverty.
Read the full article about post-pandemic economic whiplash by Kaushik Basu at Brookings.