Unlike most other world economies, India and China will be safe from a coronavirus-induced recession, the United Nations Conference on Trade and Development (UNCTAD) has said in a report.
While two-thirds of the world’s population in the developing countries face unprecedented economic damage, India and China are the likely exceptions, the report said, adding that trillions of dollars will be lost due to the COVID-19 crisis. However, it did not explain why these countries are an exception. The UN has called for a $2.5 trillion rescue package for these nations.
According to the report, rich nations face a $2-3 trillion reduction in foreign trade in the next two years despite massive rescue packages to deal with the crisis. It noted that G20 would extend $5 trillion to keep their economies afloat.”This represents an unprecedented response to an unprecedented crisis, which will attenuate the shock physically, economically and psychologically,” it said.
The stimulus would inject a $1-2 trillion demand into the G20 economies, which would create a two percentage point turnaround in global output, the UNCTAD estimates. Also, given the deteriorating global conditions, fiscal and foreign exchange constraints are bound to tighten further.
The UNCTAD has proposed a three-pronged strategy to deal with the financial tsunami. First, a $1-trillion liquidity injection for those in need through the reallocation of special drawing rights from the International Monetary Fund; second, a debt jubilee for distressed economies under which $1 trillion of debts, owed by the developing countries, should be canceled this year; and third, a $500 billion Marshall Plan for health recovery.
“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,” UNCTAD Secretary-General Mukhisa Kituyi said.
The report further said that developing countries have been severely due to capital outflows, bond spreads, currency depreciation, lost export earnings, falling commodity prices, and declining tourist revenues.
The lack of monetary, fiscal, and administrative capacity to respond to this crisis, in addition to the pandemic and a global recession will be catastrophic for many developing countries, it said.
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