The impact of the COVID-19 pandemic on the structure of global aid and development finance | Experts’ Opinions

ByCatalina Russu

The impact of the COVID-19 pandemic on the structure of global aid and development finance | Experts’ Opinions

The coronavirus pandemic had put development plans on hold and delayed progress worldwide especially in developing countries that were struggling with economic challenges even before COVID-19. For these countries, external financing – particularly development assistance – has been a source of support for social and economic transformation as well as progress towards achieving the UN Sustainable Development Goals. However, the reshaping of the world’s economy triggered by the pandemic has apparently caused a change in aid flows. To find out more, we asked several financial experts on how the structure of global aid and development finance is changing in the context of the ongoing pandemic.

Key Takeaways

  • The pandemic is expected to severely affect economic growth, especially in developing and least developed countries, mainly because of their vulnerabilities to external factors such as a drop in external demand, lower commodity prices, and a sharp decline in tourism activities.
  • The World Bank estimates that the pandemic will cause an increase in the number of people falling into extreme poverty – perhaps as many as 150 million individuals.
  • In the wake of the novel coronavirus pandemic, a huge proportion of funding has been channeled to the global and regional procurement of public goods.
  • Some experts believe that richer nations need to put aside political conflicts and increase aid to the least-developed countries.
  • The rise in global interest rates has dramatically increased the costs of debt servicing for developing countries.

How is the structure of global aid and development finance changing?

David Yates, consultant in transition economies

“Developing countries, particularly in the Global South have relied on development aid for decades. COVID-19 has caused reductions in the levels of aid as rich countries have prioritized their own efforts to stem the economic impact of the lockdowns and travel restrictions. According to World Bank estimates, the pandemic will cause up to 150 million more people to fall into extreme poverty. Aid funding sources have dropped as domestic revenues in rich nations have fallen, investments have dried up, international trade has slowed down and remittances have reduced. To combat this trend, aid is required to provide care for those people directly and indirectly affected by COVID-19. Also, with domestic economies slowing there will be an inability to repay debt. The Global South has also lost out due to the rich countries shifting their focus more globally to combat the wider problems caused by the pandemic. Of course, the usual problems of drought, famine, climate change, corruption, and organizational problems in the developing world continue as before, if not increasing because of the fall in aid levels. Priorities need initially to focus on the short term, with investment in health and the control of COVID-19 in the developing world. Debt restructuring will need to be negotiated. Emphasis on controlling climate change remains a global priority. These are generic issues that apply to most of the developing world as well as the rich North. In tandem, increased development aid is necessary to combat the specifics for individual countries. The developed world needs to increase its aid budgets to meet these demands, hopefully putting aside the political issues that exist between different political ideologies.”

Mary Munjua, financial management specialist

“There is a notable growth in global aid in the developing countries. Many developing countries have made strides towards achieving the Sustainable Development Goals and have demonstrated their commitment to these goals. In the wake of the COVID-19 pandemic, a huge proportion of funding has been channeled to global and regional public goods. Global public health has been at the center of interest for many nations, leading to a change in financing trends from both public and private financing institutions. These institutions have been challenged to ensure that they are all coordinated in order to preserve global public goods that benefit everyone. Information sharing and monitoring the impact of global aid is key. The recipients of this funding, mainly governments, are put to task to ensure they are accountable and can demonstrate a common benefit of the public good to citizens.”

Bilal Ahmad, development finance professional

“The consequences of the COVID-19 pandemic will be seen for decades or even longer. The lockdowns and the travel restrictions severely affected the economic growth in developing and least developed countries, mainly because of their vulnerabilities to external factors such as a drop in external demand, lower commodity prices, and a sharp decline in tourism activities. Aid financing that targets the poorest and most vulnerable people and places, including international assistance in the form of aid, is vital to address the immediate consequences of the pandemic and the longer-term setbacks to progress towards meeting the Sustainable Development Goals. At the same time, donors are heading into recession, leading to significant cuts to aid budgets already being announced by key donors such as the Foreign, Commonwealth and Development Office, for example. The global health and economic crises have generated a steep contraction in all private financial flows to developing economies. Estimates for the decline in foreign direct investments are even steeper at around 12%. At the same time, we can notice the shift of foreign aid to the health sector which is logical in the aim to fight the corona pandemic and the structural inefficiencies of the systems in poor states. For example, UNICEF invited contributions to support its ACT-A Supplies financing facility (ACT-A SFF), focusing exclusively on securing access by low-and middle-income countries to three categories of crucial COVID-19 health supplies: Immunization-related supplies, COVID-19 diagnostics, and COVID-19 therapeutics. UNICEF also took the incentive to introduce ACT-A (Access to COVID-19 Tools Accelerator) which mainly provides a platform for global collaboration to accelerate the development, production, and equitable access to COVID-19 tests, treatments, and vaccines. These efforts by UNICEF to combat the COVID-19 pandemic aim at supporting and strengthening primary health systems worldwide.”

See also: Will the war in Ukraine pull international aid from the rest of the world? | Experts’ Opinions

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