Developing countries struggling to cope with COVID-19

  • Notice by Jomo Kwame Sundaram, Anis Chowdhury (sydney and kuala lumpur)
  • Inter Press Service

Less taxes

Four decades of “ neoliberal ” political influence resulted in arace down” to reduce direct taxes, in particular corporate tax rate, apparently to promote investment and stimulate growth.

But most LDCs and LICs have been left high and dry thanks to foreign direct investment (FDI) search for profitable locations by considering various relevant criteria in addition tax rates. So, tax cuts did not induce the investments promised, but also resulted net income losses.

The loss of income due to such tax competition could be five times that due to illicit financial flows seeking to evade taxes. Low and middle income countries lose 167 ~ 200 billion dollars per year, about 1.2 to 1.5% of their national income, to corporate tax competition.

The tax bases of poor countries shrunk since the 1990s, with countries in sub-Saharan Africa experiencing the highest income losses as a proportion of national income. More indirect taxes have not offset a decrease in direct tax revenue.

Less public spending

With the tax system becoming less progressive, tax cuts have also depleted public coffers in most developing countries. Pressure on governments to pursue fiscal consolidation and austerity has increased, devastating impacts for public health.

Implementation of IMF-World Bank structural adjustment program conditionalities in most countries of sub-Saharan Africa drastically reduced their health budgets. Public health expenditure per capita in LICs tear down between 2004 and 2012, while their share of national income declined between 2004 and 2015.

Years of underinvestment in the public sector have severely compromised public health systems in most developing countries, particularly LDCs and LICs. The government supply has been deliberately reduced to promote private for-profit health care, harm quality, efficiency, costs and access of the public service.

Unsurprisingly, these economies not only lacked fiscal resources to deal with the pandemic, but their tax systems had also been rendered incapable of meeting the challenge. Thus, these insufficiently funded and inadequate health systems were completely unprepared for the pandemic.

Unequal impacts

United Nations Secretary-General António Guterres warned last July that COVID-19 was achieving the Sustainable Development Goals (SDGs).even more difficult“Because many developing countries were already“ off track ”in 2019, before the pandemic.

On April 3, the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, warned that the worst recession since the Great Depression would hit developing countries harder, as they did.less resources to protect yourself “. World Bank President David Malpass also acknowledged that “hurt the poorest in the world most countries ”.

The pandemic has already set back decades of modest and uneven progress in developing countries. The World Bank recently valued those who fell into extreme poverty in the world in 2020 between 119 and 124 million people, or about 15%.

And the situation is getting worse. Resistance from rich countries to demand from developing countries TRIPS waiver, vaccine imperialism and the Defective COVAX the arrangements are deepen the crisis in poor countries because most remain far behind in the vaccine queue.

To increase their profits, vaccine developers are limiting more production. Although they have received various generous government grants, they refuse to share the results of the research needed to massively scale up generic production. Meanwhile, rich countries have gotten far more vaccines than they need.

Limited tax space

Before the COVID-19 pandemic, low-income countries already had larger deficits, higher borrowing costs and higher debt to government revenue than high income countries. So they devote an ever-increasing portion of their modest income to paying interest.

The pandemic has undoubtedly worsened public finances. Increase in average deficits in LICs from -4.0% of GDP in 2019 to -5.7% in 2020, the debt falling from 43.3% to 48.5% of GDP.

Budget responses have been influenced by access to finance. Global tax support reached nearly US $ 14 trillion in 2020, including US $ 7.8 trillion in additional spending or lost income, and US $ 6 trillion in equity injections, loans and guarantees.

Almost US $ 12 trillion (about one fifth of GDP) has been deployed in advanced economies to deal with the pandemic and its economic fallout. Meanwhile, LICs could only afford US $ 26.6 billion (1.2% of GDP), with emerging market economies deploying around 5%.

Decrease in fiscal space

Countries that depend on commodity production, tourism or manufacturing for transnational supply chains have been most disrupted by the pandemic. More open to the outside world, their public revenues and fiscal space has been more severe affected.

Income deficits due to declining production, simultaneous declines in commodity prices and debt demands have limited the fiscal capacities of many LICs. The pandemic is therefore more likely to leave lasting impacts, including more severe poverty and malnutrition.

The IMF chief urged countries not to hesitate to “spend, but keep receiptsSuggesting a major shift in the IMF’s fiscal policy advice. Likewise, despite her earlier reputation as a “debt hawk,” World Bank chief economist Carmen Reinhart said: “Start by fighting the war, then find out how to pay for it“.

But most LICs have little choice but to rely heavily on foreign aid. Even before the pandemic, aid from OECD countries reached only 0.31% of their gross national income (GNI), less than half of the target of 0.7% of national income agreed more than half a century ago.

If donors had met their target of assisting LDCs of 0.15-0.20% of national income, LDCs would have received at least $ 32 billion more per year. The donor government is reducing bilateral aid commitments of nearly 30%, from 23.9 billion US dollars in the first five months of 2019 to 16.9 billion US dollars in January-May 2020, only made matters worse.

Meanwhile, despite Boris Johnson’s rhetoric about rekindling Commonwealth, i.e. colonial relations, now that Britain has ‘Brexated’ he plans to cut bilateral aid by 50 to 70% following the £ 2.9 billion reduction in July 2020!

Britain is now paying “Covid bills on the backs of the poor”, Even breaking UK law! Still smart on the go, BoJo can still give the excess vaccines he ordered to the “ most deserving ” in another typically spectacular and bombastic move, while continuing to block much wider access by denying the request for exemption of the TRIPS vaccine from developing countries.

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© Inter Press Service (2021) – All rights reservedOriginal source: Inter Press Service

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