Understanding the impacts of COVID-19 on global poverty
One early question of the COVID-19 pandemic was whether the economic impact would be as significant for poverty as the health-related aspects of the pandemic. Although developing countries generally have a lower proportion of people at higher risk due to old age, health systems in developing countries tend to be much weaker than those in advanced countries. Furthermore, higher COVID19 morbidity and mortality rates have been linked to hypertension and diabetes as well as to poverty, pollution, and malnutrition, which can make populations of developing countries more vulnerable. In fact, it has been estimated that approximately 470m people globally are at higher risk of contracting COVID-19 as a result of pre-existing conditions of poverty – notably malnutrition, and lack of access to safe drinking water.
In addition, lockdowns have been the primary policy to contain the virus but usually entail an income loss for those who cannot work from home. The share of jobs that can be performed at home is less than 25 per cent for many developing countries and as low as five per cent in some of the world’s poorest countries. In developed nations, new social safety nets, such as the UK’s furlough, have helped so far halt a tsunami of poverty, but many emerging economies and very poor countries may not have the fiscal space they need to expand schemes sufficiently or introduce new schemes to address the social consequences. There is a clear need for a range of social safety net policies, which already exist in many developing countries but whose coverage and funding need to be expanded more as part of ‘pay-to-stay home’ or ‘pay-totest’ or ‘pay-because-I-just-cant-work’ schemes.
A global leap backwards on poverty eradication
Our new estimates prepared for the United Nations show that, for those living just above the poverty line, every 10 cents of income lost could push another 70m people back into extreme poverty in developing countries.
Further, our earlier estimates published by the UN found that up to 400m people could be at risk of falling into extreme poverty, meaning living on less than $1.90-per-day. And over 500m people could be at risk of falling below the moderate poverty line, meaning living on less than $3.20-per-day. In addition, there is a risk that the worsening in people’s livelihoods due to the crisis may exacerbate both poverty intensity and severity.
The UN has set an ambitious goal of ending poverty by 2030. But can it be met? First and foremost, the coverage and efficacy of vaccination programmes in developing countries will be vital to reducing the impacts on poverty because they will determine the extent of future infections and lockdowns. Vaccination programmes could need to be annual or repeated and are vulnerable to the emergence of variants in terms of both severities of symptoms and infection rates. As Dr Ann Kelly points out in her essay in this series, the vaccine rollout must be global, as we know that no one is safe until everyone is safe. This approach is critical for eradicating disease and poverty.
If we allow for repeated waves of the virus, we will see stop/start economic growth. We know these forms of cyclical economic ups and downs will lead to cyclical poverty which may then become chronic poverty due to disrupted economic activity or sale of assets. People may also be pushed (deeper) into poverty due to additional health costs or lost income during ill-health.
In the absence of widespread vaccination programmes with high coverage and high efficacy, it seems likely that vaccine/ immunity passports will be used to control infection levels alongside national and local lockdowns. This would likely curtail the mobility and thus employment opportunities of those who are un-vaccinated, which may disproportionately be the poorer parts of society.
In short, the poverty impacts of the pandemic and its aftermath are closely related to how widespread vaccination becomes, how effective the specific vaccines used are, who gets the vaccine and who does not (eventually perhaps culminating in the question of who pays for regular vaccination programmes), and the time needed to roll out the vaccines if they are available to all. These factors will play a role in determining levels and patterns of economic growth. Without widespread vaccine coverage, stop/start growth seems likely, which in turn is associated with rising/ falling poverty and people moving out of poverty, falling back, moving out again, falling back in a repetitive pattern. It is thus clear that in absence of widespread vaccination, the pandemic could shape the next years for many developing countries to some degree through multiple and ongoing waves of infection.
What can the G7 do?
The G7 must ask the IMF to end their hawkish approach to austerity. Almost all IMF agreements signed with developing countries during the pandemic have had austerity components in them. This is unbelievable in the current context. And in fact, it goes against the mega-expansionary fiscal policies implemented by G7 nations themselves. The G7 have a vital role in the IMF’s governance on the board and need to steer the IMF to support developing country governments responses with expansionary responses to the crisis.
Developing country governments’ responses to the crisis look promising. However, the question remains whether they will be enough to reduce the ongoing waves of poverty, especially so given that most people work in the informal sector so are likely heavily hit by lockdowns and there are also the new health costs of the pandemic. Social assistance and insurance measures have risen by over 100 per cent and active labour market interventions by over 300 per cent. Social assistance in the form of cash transfers is the most dominant policy measure. There are now over 700 such programmes in 186 countries. Almost 70 per cent of the cash transfer schemes are new programmes. The estimated number of beneficiaries of cash transfers is 1.3bn or 17 per cent of the world’s population. However, spending on social protection per capita varies enormously from almost $850 per person in rich countries to just $30–$160 per person in emerging economies and just $4 per person in the world’s poorest countries.
The G7 could be instrumental in determining the poverty impacts of the pandemic and its aftermath. The approach the G7 take to economic and vaccine policy will decide the chances of meeting the United Nations goal of ending poverty by 2030. If the G7 acts now, it is possible, but the G7 must focus on the global vaccine rollout alongside fiscal expansion to address poverty.