Response and Recovery: Mobilising financial resources for development in the time of Covid-19

The COVID-19 pandemic has created a series of simultaneous and reinforcing shocks that has exposed and exacerbated economic, financial and debt vulnerabilities of low- and middle-income developing countries (LICs and MICs). Mobilizing financial resources for response and recovery is essential so that progress towards the Sustainable Development Goals (SDGs) is not undone.
This platform is a resource where member states can learn from the experience of others, access global and regional diagnostic tools, and evaluate the policy responses designed to ensure a recovery aligned with a sustainable development path.   
Our partners are the United Nations Economic Commission for Africa, the Economic Commission for Latin America and the Caribbean , and the Economic and Social Commission for Asia and the Pacific.

 

Locating our Work

Global

Asia Pacific

Latin America and the Caribbean

Global

Comprehensive assessment of global macroeconomic development and regional financial conditions which affect developing countries is necessary for the design of effective domestic policy responses to recover from the COVID-19 crisis and simultaneously achieve the Agenda 2030. The two target country groups of this project – MICs and LICs – has made them exceptionally vulnerable to the negative outcomes of COVID-19. This cluster will have three workstreams based on toolkits that are not country-specific but global and regional in character.
  • UNCTAD’s Global Policy Model (GPM) will be extended to an expanded range of developing countries, in particular focusing on the macroeconomic and financial conditions of selected developing countries in Africa, Asia and Latin America. The analysis will include up to 40 countries by Phase 3, and applied to sub-groups of developing countries with similar macroeconomic features. In this way, the ‘flexible geographical disaggregation’ capability of the GPM will be leveraged.
  • Global Financial Safety Net Tracker (GFSN tracker) will provide a real-time tracking of the GFSN that currently includes a large number of increasingly big Regional Financial Agreement (RFAs) in all continents, bilateral currency swaps between central banks, crisis lending by multilateral development banks, bilateral short-term loans, repo agreements, and hedging instruments by central banks. Effectively, the GFSN tracker will identify all relevant sources of liquidity for the most vulnerable countries.
  • Regional Financial Conditions Indicators (FCIs) will provide an assessment of the financial conditions in selected developing country regions, starting with LICs in sub-Saharan Africa. From a technical perspective, these indicators have the advantage of being computable at high-frequency (monthly) as well as in real time. The regional FCIs tackle the complexity of increasing financial uncertainty and instability by harnessing the richness of information flows in the era of big data. They synthetize into one single indicator a wide range of financial variables from various sources and of mixed frequencies. These include, for instance, real interest rates, stock and bond market indices, commodity and market prices, volatility indices, exchange rates, as well as set of macro-financial indicators, such as residential real price index, debt service ratios and capital flows. Taken to a meaningful regional level, the FCI analysis will provide a useful diagnostic tool for countries whose data inadequacies preclude country-specific analysis.
  • Best practice and developing soft-law frameworks will provide capacity building on the use of an updated version of UNCTAD’s soft-law frameworks for both lenders and sovereign borrowers, including UNCTAD Principles of Promoting Responsible Sovereign Lending and Borrowing (2012) and UNCTAD Guide and Roadmap for Sovereign Debt Workouts (2015).

Africa

  • Regional Financial Conditions Indicators (FCIs) will provide an assessment of the financial conditions in selected developing country regions, starting with LICs in sub-Saharan Africa. This will help countries understand regional conditions and their impact. Taken to a meaningful regional level, the FCIs analysis will provide a useful diagnostic tool for countries whose data inadequacies preclude country-specific analysis.
  • Tax Policy Framework for African Countries will undertake analytical work on a Tax Policy Framework to guide countries in strengthening tax policy for increased domestic resource mobilization. African countries’ debt-to-GDP ratios grew by about 50 per cent, from 39.5 per cent of GDP in 2011 to 61.3 per cent of GDP in 2019. The surge in debt was due to a number of factors, including rising access to commercial finance by some of the most vulnerable LICs associated with massive global liquidity push factors and the commodity price shocks of 2014 that saw revenues from commodity exports decline significantly. Consequently, Debt-to-GDP ratios were of concern even before the pandemic. Quick and commendable policy responses to combat the COVID-19 crisis have meant that governments increased spending, as revenues declined significantly. This workstream will examine direct and indirect taxation gaps and how these can be exploited to formulate and implement policies to expand fiscal space and domestic resource mobilisation

Asia Pacific

  • Long-term debt sustainability assessments will adapt, extend and enhance UNCTAD’s existing gap analysis tool to estimate the impact of meeting Agenda 2030 on developing countries’ debt sustainability. This will include the impact of the COVID-19 crisis on the longer-term debt sustainability of these countries. This workstream will present country-specific debt sustainability assessments that move away from sequential prioritization of meeting short-run external debt obligations - which have been made increasingly stressful by the economic fallout of COVID-19 - to a longer-term debt framework that emphasizes strategic and sustainable development, which enable developing countries to both meet their debt obligations in the long-run and to attain Agenda 2030, starting with Pakistan and Sri Lanka.
  • Balanced and inclusive fiscal policy packages to address the needs of the most vulnerable will assist Asian Pacific countries to undertake rapid assessments of the impact of the pandemic to estimate their fiscal needs, including by using the tools developed by UNCTAD GPM model. Next, the policy options will be provided with an analysis of their trade-offs and impacts, particularly to ensure that economic recovery measures are in line with the social and environmental goals of the 2030 Agenda.

Latin America and the Caribbean

  • Innovative financing instruments and initiatives for highly indebted ECLAC countries will explore policy options to alleviate the debt burden facing member States in Latin America and the Caribbean. UN-led proposals and initiatives to free resources for SDG and climate investments are a point of departure to analyse the opportunities and challenges that must be surmounted to achieve more sustainable financing for development in the wake of the COVID-19 pandemic. Regional instruments and initiatives, such as ECLAC’s proposal to swap Caribbean external debt for annual payments into a resilience fund, can support the reduction of debt burdens in the sub-region, which is home to some of the most indebted economies in the world. Public debt in the Caribbean is widespread enough to make it a sub-regional issue that needs to be urgently addressed. • Developing country capital account management: Massive capital flight from developing economies in the aftermath of the COVID-19 outbreak poses one of the most serious obstacles to speedy and sustainable economic recovery in these economies. Capital controls are a key element to stem the negative impact of volatile capital flows and to prevent sharp declines in currency and domestic asset prices. Such controls solve the contradiction between internal expansion (through lower interest rates) and external stability (which requires higher interest rates). Moreover, their implementation requires regional coordination to avoid stigma and prevent disruptive race-to-the-bottom market signaling dynamics. The use of measures to regulate capital flows in selected developing countries are studied and analysis of the type of capital controls needed to confront the disruptive effects of the COVID-19 will be analysed. This research builds on ECLAC’s several studies on capital controls in Latin America and the Caribbean and could also be useful for the formulation of capital management measures strategies by LICs and MICs irrespective of their region.
  • Macroprudential agenda for middle-income countries in Latin America and the Caribbean will develop a macroprudential regulatory agenda for MICs in Latin America and the Caribbean. Many MICs in the region that lack the fiscal space to effectively respond to the exigencies of the COVID-19 pandemic, have also limited access to concessional financing. In addition, many of them that until the COVID-19 outbreak enjoyed access to international capital markets have been unable to refinance maturing loans or raise new funds as financial conditions have worsened. Home to 75% of the world’s population and 62% of the world’s poor, MICs are highly vulnerable to a debt crisis, lost market access and capital outflows.