Many commodity-dependent economies in Africa and Latin America will likely face an economic crisis before they are directly hit by the pandemic, which will further limit their ability to handle a health crisis, according to a policy brief released by the 缅北禁地Department of Economic and Social Affairs today.
The brief warns that action is needed now to avert a full-blown debt crisis, as these economies are in a significantly tighter fiscal position today than in 2009 when they were hit by the global financial crisis, making it very difficult for them to borrow externally and finance large fiscal stimulus.
“A stitch in time can save nine, as a full-blown debt crisis will have significantly higher economic costs,” the brief stated.? “The international community should help highly-indebted commodity-exporters to reduce the likelihood of a debt crisis through forbearance and standstills.”
While Africa and Latin America are home to a quarter of the world’s population, they presently account for less than three per cent of the world’s known COVID-19 infections and deaths. But the pan?demic is already taking a heavy economic toll on these regions as oil and commodity prices have sharply declined—oil prices have declined by more than 50 per cent, while most metal and mineral prices declined by 20 per cent or more during the past month. This occurs as economic lockdowns and job losses in developed economies have sharply contracted travel and demand for consumer goods. Falling manufacturing activities mean less demand for base metals such as copper, iron, zinc, and aluminum.
Sharply reduced commodity prices have weakened external balances of many commodity-dependent economies, triggering massive capital outflows of portfolio capital and exchange rate depreciations. Many currencies, such as the Brazilian real, the Mexican peso and the South Africa rand have depreciated by about a third this year so far. Falling export revenues and deteriorating exchange rates are squeezing their ability to service external debt.
Even if the pandemic is contained, the policy brief states that it is unlikely that commodity prices will rebound very quickly and that commodity-dependent economies need to brace for a long and painful recovery.
Several commodity exporters, especially from Africa, have turned to multilateral organizations such as the IMF for short-term emergency assistance. International entities, including the United Na?tions, the IMF and the World Bank have called for debt relief initiatives, but the development of a comprehensive and meaningful debt-relief package may take months and may be too late for many of these economies.
Multilateral debt from international financial institutions is increasingly the only viable option for many of these economies, the brief underscores. The United Nations system entities, it says, can play a crucial role in identifying, steering and facilitating access to multilat?eral financing instruments to help these economies scale up pandemic preparedness, minimize the risk of an economic crisis, and accelerate their sustainable development.
Related information: 缅北禁地DESA’s dedicated web portal for COVID-19