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The impact of the covid-19 pandemic on low- and middle-income countries

Our Chief Economist, Mark Henstridge, outlines the impact of the COVID-19 pandemic on low- and middle-income countries.

Summary & key messages:
  • There is a global pandemic. The data tracking infection and death are unreliable. But even allowing for that, in contrast to the impact of the coronavirus ‘covid-19’ in Europe, a number of countries in Asia and sub-Saharan Africa have so far recorded remarkably few cases or deaths.
  • Yet there has been an extraordinarily uniform policy response: a ‘lockdown’ – despite the pandemic being different in different countries. Lockdowns limit infection by limiting social interactions, and they stop economic activity.
  • In many countries the direct impact of covid-19 is much smaller than the impact of the lockdowns – this is an economic and social crisis, not just a health crisis.
  • The impact of both virus and lockdown are on people in their households, and on their lives as part of the economy. That framing also allows us to set out some dimensions of the challenges to public policy and public finances. In the short-term, revenue is down because the economy has been hit, mainly by lockdown; at the same time the pressures to spend to strengthen health and social protection systems has sharply increased to ameliorate the impact of the pandemic and the lockdown.
  • In the short-term: the big question for public policy is to navigate the trade-off between the risks of an infectious and potentially lethal virus, and the widely borne economic and social costs of lockdown.
  • In the medium-term: the big questions will be on an emerging agenda for reform. The need to restart economies will be accompanied by the need to resuscitate domestic revenue mobilisation and secure the financial system. This may come with shifts in the political economy of taxation that could offer space for reform for a more efficient and fairer tax system.
  • This could then be part of a new social contract for which the other part would be strengthened systems for the delivery of public services: social protection and also health and education systems.
  • It will not be possible to go back to business as usual. At the same time there is a potential opportunity for reforms that are not only necessitated by the crisis but enabled by it as well.