Covid-19: Impact on developing economies
The coronavirus pandemic has not only affected the global health scenario but also plagued other aspects of day to day life. The global economy has been one of the worst victims of the pandemic. Economists have predicted the current economic downturns to morph into a worldwide recession which is supposed to surpass the impacts of The Great Depression (1929-1939). Countries in the world are expected to endure the second wave of Coronavirus with a new spike of cases after the first wave of the pandemic rampaged through almost all the countries of the world.
Developing economies have undergone massive downturns due to the lack of proper infrastructure and the economic spectrum being less diversified and unidimensional in a lot of ways. Most of the developing economies lean on primary sector roles which consist of activities thriving on the utilization of natural resources like agriculture. The reliance on a fewer industries which have been largely impacted by the Covid-19 crisis has put the economies in shambles.
As per information provided by the UNDP in June 2020, developing countries could see income losses which might exceed 220 billion. On a strict macroeconomic level, developing economies don't have much space for fiscal and monetary policy intervention, that's why Keynesian economics is not supposed to be very successful in this regard. The limited amount of cash flow in the market has been hugely detrimental for the developing economies whereas the recovery for developed economies would be easier.
Economists have predicted the impact of the second wave to be more horrendous on the countries which have experienced a steady growth of GDP recently after experiencing decades of relative poverty. It has been predicted that after the 1930's, this will be the first time in global economy where a perpetual shift from market oriented economics might take place which will incur a huge paradigm shift for the developing economies.
India is a country which was experiencing levels of constant growth for a long time. It's economy shrank by almost 23.9 per cent in April-June period which has been the country's worst scenario since 1996. Although India has taken measures to rejuvenate the economy by gradually withdrawing the lockdown measures, the second wave is expected to dwindle the already receded economy. Other developing countries like Mexico, Brazil and Turkey has withstood economic contractions by 18.9,11 and 9.5 per cent respectively and in the upcoming second wave, the situation might be worse.
Whereas most of the European countries have started to recover from the economic fallout when the restrictions were lifted this summer, the cases of death have continued to gallop in most of the developing countries of the world which is compelling them to extend travel and other restrictions resulting in an overall negative impact for the market scenario. Bangladesh itself has been experiencing unprecedented economic fallout after decades as the growth is expected to fall to a range of 1.8-2.8 per cent in 2020 as per a report made by South Asia Economic Focus. It will be the country's worst economic slump in the last 40 years.
The situation is predicted to persist in 2021 as well where the growth is estimated to stay between 3.1 and 4.0 percent. Bangladesh's economy heavily relied on the export of garment products. But the pandemic has made it virtually impossible to resort to the production which had been possible previously. The low income people of Bangladesh have been hit very hard by the pandemic as day workers and people belonging to other professions of that sort have found it very hard to make ends meet.
The second wave of the pandemic is predicted to have even a more dreadful impact on the economy of the country as a whole. Many measures have been suggested by the economists to tackle the second wave, especially for the developing economies. One of them is to widen the economic horizon and to add more and more sectors in the economy. This will be a very difficult thing to execute for the developing economies as the economy in those countries revolve around one or two sectors.
Other than this, short term inflation after the pandemic can help to cope up with the overall levels of unemployment as the inverse relation between the two phenomena. However the problem in this case might arise if the rate of inflation gets extremely high as we can see in the case of Germany in the 40's where the economy faced massive downturns due to the high levels of inflation ensued after the World War Two. As the global economy has gone through a series of fallouts which may turn into an unprecedented recession during the first wave of the Coronavirus crisis, the second wave would pull the economy further down.
The developing countries which have enjoyed decades of GDP growth are in the most precarious situation. Because their hindrance to their growing economy will impact a huge number of people as the developing countries are home to about 74 per cent of the world population as per UNDP. Therefore, not taking adequate measures would have an adverse effect on the global economy as a whole.
Rassiq Aziz Kabir is a student of Economics & A R Tahseen Jahan is a student of Development Studies at the University of Dhaka