NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

By Mohammed Soliman and Francisco Campos

The world is facing a simultaneous health and economic crisis that has spared no one. There won’t be winners in this pandemic and the related halt in economic activity, but some countries will suffer more than others. Emerging markets will lose more than the rest.

Emerging markets contribute one-third of global gross domestic product (GDP) and their output was projected to have amounted to half of global GDP between 2026 and 2030. The factors that have traditionally made emerging markets attractive are their demographics and productivity cost of labor. These are also some of the reasons why emerging markets are most vulnerable during the COVID-19 crisis and associated economic fallout.

The magnitude of the COVID-19 crisis on emerging markets pushed Group of Twenty (G20) finance ministers and central bank governors to commit to suspending debt payments through 2020 for poor countries that request forbearance, delivering comprehensive International Monetary Fund (IMF) support packages, and supporting World Bank (WB) and multilateral development banks initiatives amounting to more than $200 billion. Saudi Arabia Finance Minister Mohammed Al-Jadaan stressed that actions to freeze both principal repayments and interest payments will free up more than $20 billion for countries to spend on improving their health systems and fighting the COVID-19 pandemic. These measures are much needed to help poor countries deal with the current emergency, however, the COVID-19 crisis is worse than the 2008 financial crisis, thereby making this response insufficient.

The current suite of actions by G20 finance ministers and international financial organizations is not bold enough to help either the world or emerging markets. There is a need for decisive global action by G20 countries that translates into a global financial rescue effort. A failure to deliver a comprehensive response risks destabilizing political systems, exacerbating social instability, and aggravating migration and refugee flows.

Photo courtesy of Adam Nieścioruk.