UNCTAD Project: – Mobilizing financial resources for development in the time of COVID-19

The COVID-19COVID-19 is an infectious disease caused by the strain of coronavirus SARS-CoV-2 discovered in December 2019. Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes coronavirus disease COVID-19 -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-. pandemicCommonly described by the WHO as ‘the worldwide spread of a new disease’, no strict definition is provided. In 2009, they set out the basic requirements for a pandemic: • New virus emerges in humans
• Minimal or no population immunity
• Causes serious illness; high morbidity/mortality
• Spreads easily from person to person
• Global outbreak of disease.
The US Centre for Disease Control uses a similar approach, but with a reduced set of criteria. It is very difficult to gauge whether the spread of a disease should be termed an outbreak, epidemic or pandemic. In other words, when to declare a pandemic isn’t a black and white decision -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-. has created a series of simultaneous and reinforcing shocks that has exposed and exacerbated economic, financial and debt vulnerabilities of LICsLow-income developing countries and MICsMiddle-income developing countries. Mobilizing financial resources for recovering from the pandemic is essential to achieving the SDGsSustainable Development Goal.

Rising to this challenge, a United Nations Development Account project "Response and Recovery: Mobilizing financial resources for development in the time of COVID-19" led by UNCTAD, in partnership with UNECAUnited Nations Economic Commission for Africa, ECLACUnited Nations Economic Commission for Latin America and the Caribbean and ESCAPUnited Nations Economic and Social Commission for Asia and the Pacific, was conceived in response to the pandemic. It aims to strengthen the capacity of LICs and MICs from Africa, Asia and the Pacific, and Latin America and the Caribbean to:

• diagnose their macro-financial, fiscal, external financial and debt fragilities in the global context, and
• design appropriate and innovative policy responses to the COVID-19 pandemic leading toward recoveries aligned with the achievement of the SDGs.

The web-based virtual knowledge platform MobilizingDevFinance.org gathers and disseminates the project’s outputs, and makes them accessible to member countries, CSOsCivil society organizations (CSOs), scholars, researchers and the general public.

Mobilizing financial resources is crucial for sustainable development

The project is primarily linked with the following targets of SDGSustainable Development Goal 17 (partnership for the goals):

• 17.1: Strengthen domestic resource mobilization, including through international support to developing countries, to improve domestic capacity for tax and other revenue collection.
• 17.3: Mobilize additional financial resources for developing countries from multiple sources
• 17.4: Assist developing countries in attaining long-term debt sustainabilityA country’s capacity to finance its policy objectives through debt instruments and service the ensuing debt -—
  – ‒
  - –
  —--—
  – ‒
  - –
  —--—
  – ‒
  - –
  —--—
  – ‒
  - –
  —-. through coordinated policies aimed at fostering debt financing, debt relief and debt restructuring, as appropriate, and address the external debtExternal debt is understood as outstanding amount of those actual current, and not contingent, liabilities that require payment(s) of principal and/or interest by the debtor at some point(s) in the future and that are owed to nonresidents by residents of an economy -—
  – ‒
  - –
  —--—
  – ‒
  - –
  —--—
  – ‒
  - –
  —--—
  – ‒
  - –
  —-. of highly indebted poor countries to reduce debt distress.

A successful response to and recovery from the COVID-19 pandemic is required for attaining economic growth with decent work and simultaneously reducing inequalities. For this reason, the project is also linked to SDG 8 (decent work and economic growth) and 10 (reduced inequalities). Moreover, since the achievement of SDG 8 increases fiscal revenues and governments’ capacity to scale up social policies and infrastructure investment without jeopardizing debt sustainability, the project could have spillovers on SDGs 1 (no poverty), 2 (zero hunger), 3 (good health and well-being), 4 (quality education) and 5 (gender equality).

MobilizingDevFinance aims to enable developing countries to respond and recover better

The project produced research papers, policy tools and sessions to support policy makers. The latter were, due to COVID-19 pandemic, delivered on-line or in a hybrid format. Sessions mostly actively engage stakeholders through Groups of Experts Meetings. As table 1 shows, female participation was slightly higher in on-line than in hybrid events.

The project is divided into three clusters:

I. Macro-financial needs assessments following the COVID-19 disruptions, focusing on macro-financial dimension issues assessing both global macroeconomic developments and financial and economic conditions likely to affect developing countries.

II. Making debt work for development focusing on external finance as well as external and public debt issues, including a SDFASustainable Development Finance Assessment Framework that will estimate development needs of selected developing countries to achieve the SDGs 1 to 4 without jeopardizing debt sustainability.

III. Macroprudential and fiscal policies to restore development drawing on policy recommendations for recovery on macroeconomic aspects that have been strongly impacted by the COVID-19 crisis: management of capital flows, macroprudential measures, and fiscal policies.

Figure 1. Three clusters of the MobilizingDevFinance project

Source: UNCTAD MobilizingDevFinance project.

Clusters 1 and 2 provide four policy tools: the Financial Conditions Indicator, the Sustainable Development Finance Assessment, the Global Policy Model, and the Global Financial Safety Net Tracker.

1. Financial Conditions Indicator
   
   Figure 2. FCIFinancial conditions indicator coverage within MobilizingDevFinance project

   

   Source: UNCTAD MobilizingDevFinance project.

   The purpose of monitoring financial conditions in developing countries is to provide an early warning of financial stress before it causes adverse effects on the real economy. The new generation of the UNCTAD FCI, developed under this project, enables the assessment of the financial conditions for clusters of developing countries based on a single indicator that synthetizes a wide range of financial variables from various sources (for instance, real interest rates, stock and bond market indices, commodity and market prices, volatility indices, exchange rates, residential real price index, debt servicePayments made to satisfy a debt obligation, including principal, interest and any late payment fees -—
   – ‒
   - –
   —--—
   – ‒
   - –
   —--—
   – ‒
   - –
   —--—
   – ‒
   - –
   —-. ratios and capital flows). The new generation UNCTAD FCI is built on updated data with higher-frequency (monthly) and offers a useful diagnostic tool for countries in which data inadequacies preclude country-specific analysis.

2. Sustainable Development Finance Assessment

   The UNCTAD SDFA framework identifies the development finance needs of makers in developing countries to achieve the most significant SDGs and provides insight on how to make this compatible with external financial sustainability and with external and public debt sustainability. Taking as point of departure UNCTAD’s Gap-Analysis Tool, which estimated the impact of achieving the SDGs 1 to 4 on public debt sustainability in selected developing countries, this framework goes beyond standard Debt Sustainability Analysis by focusing on the development finance requirements for sustainable development and considering all sources of external financing.

   At a time of rapid change, I encourage societies to discuss what are the most essential and valued public goods and the best means of ensuring their delivery, bearing in mind the roles of both the public and private sectors and building on the Sustainable Development Goals. I would also urge investment in public systems and ensuring quality public servants, as the main point of contact between the State and people. The international system needs to better support countries that lack the capacity and funding to make such investments.United Nations Secretary General, 2021

   The SDFA framework enhances the capability of developing countries to design debt strategies to overcome external and public overhangs and to attain the SDGs as quickly as possible. In the scope of the project, in-depth country analysis was conducted for Pakistan and Sri Lanka.

3. Global Policy Model

Global macroeconomic developments affect developing countries in their options for effective domestic policy design. The UNCTAD Global Policy Model provides a coherent and up-to-date global macroeconomic model for an evolving analysis of the world economic situation in the light of the COVID-19 pandemic, and, in particular, of its impact on developing countries. The global crisis triggered by the COVID-19 shock is placed into the historical context of weak and fragile recoveries since the global financial crisis and, as a consequence, of climate change challenges. The Global Policy Model is expanded to include the macroeconomic and financial conditions of 40 countries, of which 30 are developing countries.

Map 1. Global Policy Model of MobilizingDevFinance project
Source: UNCTAD MobilizingDevFinance project
4. The Global Financial Safety Net Tracker

   The GFSNGlobal Financial Safety Net tracker (gfsntracker.com), built in collaboration with the Boston University and the Institute for Latin American Studies at the Free University of Berlin, is an innovative tool that provides comprehensive information on short-term external liquidity provision at the global, regional and the bilateral level, such as IMFInternational Monetary Fund lending lines, RFARegional Financial Agreements and central bank currency swaps for all UN member countries. It provides regularly updated information on both potential lending capacity and actual utilization of liquidity sources, which together make up the GFSN.

   Figure 3. GFSN tracker

   

   Source: UNCTAD MobilizingDevFinance project.

   The GFSN tracker reveals that the current GFSN does not allow support for all income country groups to adequately respond to a global liquidity crisis, as caused by the COVID-19 pandemic. As figure 4 shows, the poorer nations are systematically excluded from the most voluminous crisis finance elements, such as new regional funds or central bank currency swaps. This jeopardizes their recovery efforts. Moreover, adequate access to the GFSN depends on the development categorization and economic size of countries. The data shows that HIDs (mostly SIDSSmall island developing states (SIDS) were recognized as a distinct group of developing countries at the Earth Summit in Rio de Janeiro in June 1992. More information on UNCTAD official page.) have low access to the GFSN because they do not have access to swap agreements as they are not systemically considered by countries that offer the swaps.¹

   Uneven resilience. Uneven capacities to deal with crisis. This is the biggest lesson this pandemic has given us. The fact that inequality breeds fragility. That the higher the inequality, the greater the impact, and the slower and weaker the recovery.(UNCTAD, 2022)
   Figure 4. GFSN liquidity provision of the GFSN by income level, 2018–2021,

   (left scale: million US$; right scale: per cent to GDPGross domestic product (GDP) is an aggregate measure of production, income and expenditure of an economy. As a production measure, it represents the gross value added, i.e., the output net of intermediate consumption, achieved by all resident units engaged in production, plus any taxes less subsidies on products not included in the value of output. As an income measure, it represents the sum of primary incomes (gross wages and entrepreneurial income) distributed by resident producers, plus taxes less subsidies on production and imports. As an expenditure measure, it depicts the sum of expenditure on final consumption, gross capital formation (i.e., investment, changes in inventories, and acquisitions less disposals of valuables) and exports after deduction of imports -—
   – ‒
   - –
   —--—
   – ‒
   - –
   —--—
   – ‒
   - –
   —--—
   – ‒
   - –
   —-.; (Weighted GDP averages per country group))
   

   Source: -—
   – ‒
   - –
   —--—
   – ‒
   - –
   —--—
   – ‒
   - –
   —--—
   – ‒
   - –
   —-.

Notes

1. For further detail, see -—
   – ‒
   - –
   —--—
   – ‒
   - –
   —--—
   – ‒
   - –
   —--—
   – ‒
   - –
   —-.

References

Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.