The United Nations has called for a $2.5tn emergency package to help developing countries cope with the crippling impact of the Covid-19 pandemic on their vulnerable economies.
The UN said there was a “looming financial tsunami” and urged rich countries of the west to provide the sort of assistance for emerging economies as they were providing for themselves.
The organisation’s Geneva-based economics arm, the UN conference on trade and development (Unctad), called for drops of money by the International Monetary Fund (IMF), extensive debt relief and a new Marshall plan to strengthen health systems.
It said the $2.5tn (£2tn) cost of the package would be the equivalent of developed countries meeting the target of spending 0.7% of their national income on aid – something only Britain and a handful of other nations have achieved.
Unctad said the speed at which shock waves from the pandemic had affected developing economies was even more dramatic than in the financial crisis of 2008, and expressed pessimism about the chances of a rapid bounceback.
The IMF has been deluged with requests for help from more than 80 countries since the full impact of Covid-19 became evident this month. Both the IMF and the World Bank have expressed concerns about the possibility of a new debt crisis among developing countries.
Unctad said in a new report that in the two months since the coronavirus began spreading beyond China, developing countries had taken an “enormous hit” from the flight of capital, higher interest rates on their debt, a fall in the value of their currencies, and lost export earnings.
“The economic fallout from the shock is ongoing and increasingly difficult to predict but there are clear indications that things will get much worse for developing economies before they get better,” said the Unctad secretary general, Mukhisa Kituyi.
The UN body said that as a result of a darkening global outlook, budgetary and foreign exchange constraints were bound to tighten further over the course of the year, leaving developing countries with a $2-3tn financing gap to fill.
It said the lack of resources and capacity to deal with the consequences of a combined health pandemic and a global recession would be catastrophic for many developing countries and halt their progress towards the sustainable development goals, a series of anti-poverty targets that the international community has pledged to meet by 2030.
In the past few weeks, members of the G20 group of developed and developing countries have announced individual stimulus packages totalling $5tn and pledged to support poorer nations.
Unctad said expressions of international solidarity needed to be turned into concrete action with a four-point plan that would include:
A $1tn liquidity injection provided by the IMF. The fund has the ability to boost the reserves of member countries through special drawing rights and Unctad said these should be supplemented and allocated to help those countries left behind as a “kind of helicopter money drop”.
A debt jubilee for distressed economies, with the immediate suspension of payments followed by significant debt relief. The UN said the template should be the debt relief that was provided for Germany after the second world war, and that $1tn should be cancelled this year.
A Marshall plan for a health recovery funded from some of the missing aid long promised but not delivered by rich countries. Unctad said an additional $500bn – a quarter of the last decade’s missing overseas development assistance – largely in the form of grants, should be earmarked for emergency health services and related social relief programmes.
Capital controls to curtail the surge in capital outflows, to reduce illiquidity driven by selloffs in developing country markets, and to arrest declines in currency and asset prices.
Richard Kozul-Wright, Unctad’s director of globalisation and development strategies, said: “Advanced economies have promised to do ‘whatever it takes’ to stop their firms and households from taking a heavy loss of income. But if G20 leaders are to stick to their commitment of ‘a global response in the spirit of solidarity’, there must be commensurate action for the 6 billion people living outside the core G20 economies.”