Aid for developing nations at a time of pandemic

Pakistan seeks $3.7b from multilateral donors to offset impact of virus

KARACHI: As coronavirus (Covid-19) spreads across the globe and not only the infection rate increases but also the hospitalisation and death rates, the world economy is now at a standstill.

Approximately, over one million cases and 53,000 deaths have been reported by the first week of April.

Unfortunately, with cases now being reported in almost every country across the world, the collection of official statistics has itself become a major challenge due to poor reporting and Covid-19 testing abilities across different countries.

Major economies around the world are in a lockdown, significantly curtailing their economic activities. According to the International Monetary Fund (IMF) managing director, the outlook for global growth is negative for 2020, with a recession as bad as during the global financial crisis, if not worse.

Furthermore, the emerging markets are likely to face a pounding in terms of capital outflows as investors have shifted more than $80 billion out of these markets since the beginning of the crisis.

However, the IMF MD does emphasise the role of the global lender as it steps up support to poorer countries facing the crisis with the Catastrophe Containment and Relief Trust, massively increases emergency financing to such countries and other facilities to ensure that the nations most in need are able to secure financial support.

The World Bank Group president approved a $14-billion package to support countries and companies facing the threat of Covid-19 in order to mitigate the impact on the most vulnerable.

With several poorer countries facing high debt-servicing costs, the possibility to increase expenditures on health and economic packages needed to support the most vulnerable population is often limited. In that case, the support by multilateral organisations can help countries divert their limited funds towards essential health services.

However, it is crucial that such support lasts beyond the crisis as poorer countries harder hit by the pandemic may need to make investments specific to Covid-19 while shifting focus away from other persistent challenges in the health and other sectors.

Confirmed cases in Pakistan are rising and have surpassed 2,700 almost a month after the first case was reported at the end of February. Those individuals who have recently returned from abroad account for a significant proportion of the positive cases in Pakistan.

With borders sealed, there is likely to be an increase in the number of local transmissions. This increase will be worrisome.

Pakistan has contacted IMF and the World Bank to provide it with crucial funds to tackle the economic challenges associated with Covid-19. It seeks more than $3.7 billion from various multilateral donors to offset the impact of the virus.

Health indicators

According to the World Bank’s World Development Indicators, Pakistan spends about 2.8% of gross domestic product (GDP), or $40 per capita, on current health expenditures as compared to 3.6%, or $58 per capita, on average in South Asian countries in 2016.

Pakistan ranks below several sub-Saharan African countries in terms of per capita health expenditures and current health expenditures as a percentage of GDP. Comparatively, China spends $400 per capita and Italy $2,740 per capita on health care.

Hospital beds per 1,000 people and the number of physicians in Pakistan are critically low as health services and facilities were severely constrained even before the current crisis.

Although the shortage of ventilators, doctors and technicians can be addressed in the immediate period through foreign assistance, the overall poor condition of the health sector itself must be uplifted in the longer run.

Countries will be immediately demanding significant amounts of personal protective equipment, medical equipment for coronavirus patients and inputs necessary to build makeshift hospitals.

Export bans

As the world scrambles for extra medical supplies and equipment, several countries considered an important source for such products are applying export curbs.

According to “Tackling Covid-19 Together: The Trade Policy Dimension”, published by Global Trade Alert, the export restrictions imposed by several countries producing critical items such as ventilators will deprive developing countries of this important product at this critical time.

Twenty-five countries exported more than $10 million worth of ventilators in 2018 and none of them were low-income countries. Neither were they in South Asia nor in Africa.

The report highlights the adverse impact of fear-driven policymaking. Export bans on medical supplies are likely to have significant human costs and such policies are labelled as sickening-thy-neighbour.

These restrictions need to be lowered and demand-supply gaps reduced. Furthermore, production of several critical items is often concentrated within a few countries, which intensifies the impact of export measures during the time of a pandemic.

High tariffs

Another major issue that has limited the ability of hospitals and medical facilities to purchase and equip themselves with important medical supplies is the presence of high import tariffs on such products.

According to the report by Global Trade Alert, Pakistan has relatively higher rates of tariffs on the import of Covid-19 test kits and related apparatus, protective garments, disinfectants, soaps and sterilisation products, and medical consumables.

In essence, developing countries that have often adopted policies to promote domestic producers to meet requirements of crucial medical and health-related products may find themselves facing severe shortages due to import restrictions.

Even if tariffs are currently waived on such products, it is critical that policies are adopted to ensure the bridging of demand-supply gap more effectively without compromise on quality and increase in production of low-quality and substandard products.

It is important to not only build capabilities for critical services during normal times but also better manage the expected demand-supply gap during times of crisis.

In summary, the increasing pressure on the meagre health facilities in developing countries will pose a considerable challenge to policymakers. Lack of medical facilities along with distortionary trade policies for the import of medical supplies and equipment is likely to add to the exacerbating challenge.

The writer is the Assistant Professor of Economics and Research Fellow at CBER, IBA

 

Published in The Express Tribune, April 6^th, 2020.

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