The cost of a fair and sustainable COVID-19 grant for the world’s poorest economies

Abstract

The emerging-market and developing economies face a multitude of grave challenges as they confront the COVID-19 pandemic, including a critical lack of budgetary space. In this context, many policymakers and economic analysts have highlighted the need to bolster the lending capacity of international financial institutions. But for most of the world’s poorest economies, further borrowing would push their debt to unsustainable levels. Accordingly, the latest projections of the International Monetary Fund (IMF) show the advanced economies widening their budget deficits by 11.1% of gross domestic product (GDP) in 2020 to provide fiscal stimulus and help combat the pandemic. By contrast, the lowest-income economies are expected to expand their deficits by a mere 2.2%. What many of these countries require is not more lending but greater assistance in the form of grants. Providing additional grants makes sense from an ethical perspective and would lead to more sustainable economic development, while also benefitting the advanced economies by boosting global economic growth. In this policy brief, we estimate the cost of providing the world’s poorest economies with grants sufficient to allow them to undertake just half the fiscal expansion being implemented in the advanced economies. Our results indicate that this comes out to a very manageable US$308 billion, or 0.6% of the combined GDP of the advanced economies.

Keywords

• covid-19
• pandemic
• grants
• fiscal deficits