The Global Financial Crisis Across LMICs

The onset of COVID-19 has generated massive uncertainty levels, resulting in the deepest recession since the end of World War II. The scope of this financial crisis is far-reaching, and it is hitting low-to-middle-income countries (LMICs) the hardest. These countries will be experiencing a recession as a group for the first time in over 60 years. According to the World Bank, these markets will collectively shrink 2.5% this year alone. The fact a number of these countries are also experiencing a sudden and sharp currency depreciation furthers this grim outlook. Of the countries reporting the most cases globally, 6 of 7 are middle-income nations. Thus, despite the diversity across LMICs, their populations are equally facing drastic health and financial implications from the pandemic.

Low-income countries contain large populations living on the poverty line, so a subtle shift in economic conditions can throw many below it. These markets are facing unprecedented reversals in capital flows and limited fiscal capacity to provide support. Yet for middle-income countries, the strain is tremendous as well. These countries have worked hard to lift hundreds of millions out of poverty. Despite their influence and regional political power, many can easily lose the progress made, taking years to catch up. In places where infection rates are still rising, such as Latin America, economies are expected to shrink substantially. The International Monetary Fund (IMF) has predicted Brazil and Mexico’s economies to shrink 9.1% and 10.5% in 2020, respectively. Thus, it seems that middle-income countries face similar risks as wealthier nations but have far fewer resources to combat them. Ultimately, the World Bank anticipates that globally up to 60 million people could be pushed to extreme poverty due to the pandemic. It seems that the relative wealth of a country may not matter when compared to the spread of COVID-19.

The IMF released a report reminding the global community that economic projections remain contingent on the infection rates’ status. Given their unpredictability, they state that continued support of health care systems along with preventing the spread of COVID-19 through accessible testing options and injection of financial capital into health systems remain key components of the recovery process. In terms of economic assistance, there is an urgent need for social safety-net programs and providing lower interest rates. Large financial institutions can offer financing and loans to support those in need, such as this 1-trillion-dollar lending capacity deployed by the IMF in support of vulnerable countries, offering rapid-disbursement emergency financing and debt service relief to the institution’s poorest member countries. For LMIC markets, it is becoming clear that the alleviation of public health and economic strain is equally vital. However, getting the infection rate under control is truly the linchpin for improving the economy.

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