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Evidence to address the economic and social impacts of COVID-19

January 28, 2021

World Bank analysis indicates that the pandemic may have pushed an additional 88 million to 115 million people into extreme poverty in 2020. Governments are struggling to respond to the pandemic in a way that preserves economic stability, protects vulnerable populations, and prepares for recovery.

In the world’s lower-income economies, there is a wide gap between need and ability to respond. Governments are under pressure to implement robust policies that address both immediate impacts and medium- to long-term aspirations for an inclusive and sustainable recovery, but they lack the financial means. In many cases they also lack evidence to make the best use of limited resources.

IDRC aims to generate this evidence through a three-year, CA$25-million COVID-19 Responses for Equity initiative. Six of the 21 projects in this initiative seek to identify effective macroeconomic policies to mitigate impact and enhance recovery in 24 countries.  

Research in 24 countries focuses on economic policy responses to COVID-19

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Disparity in the world’s macroeconomic pandemic responses 

The Overseas Development Institute (ODI), a research partner in this effort, has documented the disparity between spending on economic stimulus packages in G20 countries and in sub-Saharan Africa.

In the initial months of the pandemic, many governments focused on short-term interventions such as bolstering domestic health systems, extending aid to the most vulnerable populations, and financially supporting workers and firms.

As reported in an ODI brief, by mid-August 2020, the spending of G20 governments on COVID-19 response packages represented 27% of their GDP on average, while spending in sub-Saharan African countries averaged only 3% of GDP. These percentages amount to approximately US$3,900 per person in G20 countries, compared to US$52 per person in sub-Saharan Africa. Limited fiscal resources, uncertainty about the stimulus effects that could be achieved by controlling the monetary supply and interest rates, and insufficient donor support leave countries in sub-Saharan Africa with few options to finance pandemic responses (as illustrated in the graph below).

    Spending on economic stimulus in response to COVID-19 varies greatly among countries and is low in sub-Saharan Africa

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    Notes: Economic stimulus packages announced in 2020 in response to COVID-19. Includes fiscal and monetary stimulus, expressed as % of 2018 GDP.
    Source: ODI-SET (2020)

    Evidence for the best use of limited resources

    Government policies are nonetheless essential for economies to recover, resume production and trade, achieve the Sustainable Development Goals (SDGs), address the possible growing inequalities caused by lockdown measures, and meet commitments to limit global warming under the Paris Agreement.

    Evidence is needed to support low- and middle-income countries in using the full range of policy instruments available to them to respond to the pandemic. IDRC-supported researchers generate evidence on how policymakers can balance immediate needs with the longer-term imperative of a more inclusive, gender-equal, and sustainable global economy.

    Working with partners in Bangladesh, Kenya, Peru, Tanzania, and Sri Lanka, ODI leads IDRC-supported research to provide credible data, analysis, and policy options that can support these responses. The research will identify the likely long-term impacts of the disruptions caused by the pandemic and how much emphasis governments should place on short versus long-term responses. The researchers will recommend policies to reduce these impacts and pursue opportunities for green and gender-balanced recovery.

    Four more research projects are underway to address economic policy needs in low-income countries:

    These research teams are generating evidence and analysis on the pandemic’s impacts on households; micro, small, and medium enterprises; and workers, particularly women. Several of these teams are feeding directly into ongoing policy development. The research is helping to identify effective financial, monetary, and fiscal policies and is monitoring governments’ ability to reach their policy goals.

    The planned research will help to assess the efficiency and sustainability of COVID-19 macroeconomic policy responses, paying special attention to low-carbon development and gender equality issues. It will also build capacity for macroeconomic policy analysis among Southern-based think tanks.

    The initiative also supports the Partnership for Economic Policy’s use of simulation models to determine the effectiveness of current and potential policies in 11 countries. This network will apply advanced economic analysis tools to assess the impact of the pandemic and lockdown on production, trade, and inequality, and support governments in policy design.

    Growth and recovery with public debt

    Several research teams are paying particular attention to the growing public debt levels that constrain government responses to the health, social, and economic crises. While the need for public finance is increasing, the ability to borrow is decreasing in many low- and lower-middle-income countries. Sound and transparent debt management are critical to support populations during the pandemic and stimulate recovery. The research will explore how debt relief can support countries’ commitments to the SDGs and climate action, as discussed in a recent webinar (listen to the recording, available in English only).

    As the world continues to adapt and respond to the shifting realities of the pandemic, IDRC’s research partners are developing the urgent analysis and advice needed to rebuild fragile economies, address inequalities, and promote long-term, sustainable economic growth.

    Research highlights

    • The economic impact of the COVID-19 pandemic on the world’s lower-income countries is likely to be deep and long-lasting.
    • Public spending in response to the pandemic amounted to US$3,900 per person in G20 countries, and only US$52 per person in sub-Saharan Africa.
    • Growing public debt further constrains the ability of developing economies to implement policies needed to restart economies, while addressing inequalities and the growing climate crisis.
    • IDRC-supported research is identifying effective policies that can ensure a sustainable inclusive recovery from the pandemic.