The aftermath of the Corona disaster. essay
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Answer:
Introduction
Prior to the COVID-19 crisis, levels and trends in domestic revenues and external flows to developing economies were already considered insufficient to support the Sustainable Development Goals (SDG). With high levels of public debt and additional pressures induced by the pandemic on all major sources of development finance, low- and middle-income countries may struggle to finance their public health, social and economic responses to COVID-19. Early observations point to massive debt and equity outflows from developing economies that accompany a drop in remittances, and ripple effects on domestic finance already solicited by the unfolding public health and economic crises. In this challenging context, how can we avoid a development finance collapse that would send millions back into poverty, and compromise our capacity to reach the SDGs, our common blueprint for a stronger, fairer, and more sustainable world?
Key messages
The COVID-19 crisis is hitting developing economies at a critical moment. Prior to the crisis, financing had already fallen short of the spending needs to achieve the SDGs by 2030, and fiscal space was limited by rising public debt levels and servicing costs.
The COVID-19 crisis risks creating major setbacks in financing for sustainable development. Domestic resource mobilisation will suffer as economic activity is reduced. Inflows of external private finance are projected to drop by USD 700 billion compared to 2019 levels, exceeding the impact of the 2008 Global Financial Crisis by 60%. Fiscal space is likely to narrow further with rising domestic spending and exchange rate movements against the USD.
In the short term, official development finance should be leveraged to contain the drop in other sources of financing. Already scarce resources coupled with the economic impact of the crisis imply that developing economies might struggle to finance adequate public health and social and economic responses. No single source of financing will be enough to close the COVID-19 financing gap.
Explanation:
The COVID-19 crisis is hitting developing economies at a critical moment. Prior to the crisis, financing had already fallen short of the spending needs to achieve the SDGs by 2030, and fiscal space was limited by rising public debt levels and servicing costs.