IGC Response to International Development Committee inquiry into impact of coronavirus on developing countries  

About IGC

The International Growth Centre (IGC) aims to promote sustainable growth in developing countries by providing demand-led policy advice based on frontier research.

The IGC directs a global network of world-leading researchers and in-country teams in Africa and South Asia and works closely with partner governments to generate high-quality research and policy advice on key growth challenges. Based at LSE and in partnership with the University of Oxford, the IGC is majority funded by the UK Department for International Development (DFID).

We have resident teams of economists based in 11 countries in Africa and South Asia, with very close and senior relationships at the heart of government, making us well placed to understand the economic challenges posed by coronavirus. We have been invited by DFID to convene and co-chair the IGC-DFID COVID-19 Economic Advisory Group on the economic implications of coronavirus. The first Advisory Group meeting took place on 16th April.

We can forward the policy guidance paper prepared by the group shortly.

The COVID health crisis is also an economic crisis

As a result of the COVID crisis, countries are experiencing both a health shock and an economic shock arising from both external and internal factors. The combined effects of the containment measures being put in place to control the spread of the virus and the multiple external shocks caused by the international crisis are having devastating effects on incomes in developing countries, and risk driving large numbers of households into extreme poverty and even extreme hunger. Mass unemployment, both formal and informal, and measures such as school closures may cause long-term economic damage.

Developing countries have been subject to multiple external shocks as the impact of the crisis in developed countries has led to sharp drops in natural resource prices, tourism and trade, disrupted international supply chains and triggered massive capital flight. Immediate and large-scale international assistance is needed to help developing countries to manage the impact of these shocks, including direct support to governments as well as humanitarian assistance to vulnerable populations.

At the same time, developing countries are experiencing internal economic shocks arising primarily from the impact of containment measures that are disrupting markets, trade and supply chains. Many developing countries have imposed full lockdowns, resulting in sudden mass unemployment, the disappearance of markets, food insecurity, and panic.

Developing country governments’ approach to lockdown must therefore weigh health risks and deprivation. Where fiscal capacity and social safety nets are limited, there is a strong case for a targeted approach to containment that:

• ensures continued access to food, critical health care and other essential items;
• maintains a higher level of employment and economic activity to support incomes and consumption, and
• imposes (and lifts) restrictions locally, in accordance with regional and local prevalence of the coronavirus, rather than imposing a uniform national policy. 

IGC is tracking the economic policy responses of selected developing countries on a tracker here.

1