The IMF representative had recently stated that the world economy will suffer a massive
recession expected to be worse than the 2009 economic crisis. UN Secretary-General Antonio Guterres too mentioned the adverse effects of the pandemic on the economy and challenges that would be faced by developing countries in the latest report of the UN
In light of the economic downfall to follow, the UN has called for a relief package of USD 2.5 Trillion to provide aid to the developing countries. This is in addition to the IMF emergency fund increase that was earlier mentioned by the IMF Chief Kristalina Georgieva.
A study was conducted by United Nations Conference on Trade and Development titled The COVID-19 Shock to Developing Countries: Towards a ‘whatever it takes’ program for the two-thirds of the world’s population is left behind’.
This study analyzed the economic status of the countries and stated that the export-dependent counties will witness a sharp fall in investments valued USD 2 trillion to USD 3 trillion from overseas over the course of the next two years.
UN Secretary-General had pleaded states to form comprehensive packages and developed nations which will allocate almost USD 5 trillion. While the actual working of this stimulus package is yet to be determined, it seeks to allocate USD 1 trillion to USD 2 trillion to G20 economies and a two percentage point turnaround in global output.
It proposed a four-pronged approach to tackle the economic recession through international cooperation and aid, which includes USD 1 trillion liquidity injection for developing countries by reallocating the special drawing right of the IMF, a debt jubilee under which the debt of USD 1 trillion owed by developing countries would be canceled.
And a USD 500 billion Marshall Plan for health recovery from the missing official development assistance. “The economic fallout from the shock is ongoing and increasingly difficult to predict, but there are clear indications that things will get much worse for developing economies before they get better,” UNCTAD Secretary-General Mukhisa Kituyi said.
The report states that even the largest developed countries such as the US have taken a major hit to the economy within only a few months of the beginning of the pandemic. This hit has been in terms of exports, capital outflows, growing bond spreads, and currency depreciation. It highlighted the economic stagnation and health crisis for the developing nations as they would face a severe drawback in the achievement of the Sustainable Development Goals.
“Advanced economies have promised to do ‘whatever it takes’ to stop their firms and
households from taking a heavy loss of income,” said Richard Kozul-Wright, UNCTAD’s director of globalization and development strategies.
It also mentioned that the gloal fiscal and foregn exchange “restraints shall tighetn’ further. “Even so, the world economy will go into recession this year with a predicted loss of global income in trillions of dollars. This will spell serious trouble for developing countries, with the likely exception of China and the possible exception of India,” the UNCTAD said.
It did not give further explanation as to why China and India would not be amongst the suffering nations in light of the global recession, many theorists have drawn parallels to the survival of the Indian economy during the 2009 crisis.
Why Would India Survive
Many economists speculate that the survival of the Indian economy during the 2008- 2009 economic crisis was because of the existence of a parallel economy prevalent in India which helped it to survive. As demonetization had very little effect on black money in the country and most of the money flowed back to the government, economists believe that it shall once again be the reason for survival during the global economic recession that is to follow in the period of recovery of the pandemic. Though the pandemic hasn’t slowed down and Niti Ayog vice-chairperson had recently stated that the GDP shall fall to zero or negative but shall regain momentum after June.