Virus Threatens to Set Back Poor Nations by 10 Years, IMF Says

(Bloomberg) -- Low-income countries face long-term scarring that could undo gains in cutting poverty achieved over the past seven to 10 years because of damage from the Covid-19 pandemic, the International Monetary Fund said.

“Absent a sustained international effort to support them, permanent scars are likely to harm development prospects, exacerbate inequality, and threaten to wipe out a decade of progress reducing poverty,” Daniel Gurara, Stefania Fabrizio, and Johannes Wiegand, economists at the Washington-based institution, wrote in a blog Thursday.

The virus and worldwide recession could drag 100 million people into extreme poverty, World Bank David Malpass said last week, raising the institution’s earlier estimate of 60 million. It’s looking at ways to lower the amount of debt owed by poor nations, rather than simply delaying payments until the end of the year, as the Group of 20 agreed in April.

In July, the Commonwealth, which represents 54 nations, called for an urgent moratorium on external debt repayments for all developing countries, saying that many vulnerable states are missing out on support because of outdated eligibility criteria.

The IMF has provided emergency financing to 42 poor countries since April, and is ready to provide more support, as well as help design longer-term economic programs for a sustainable recovery, it said.

Help from the international community is key to enable low-income nations to tackle the pandemic and recover strongly, the fund said. Priorities include guaranteeing essential health supplies, protecting critical supply chains, and avoiding protectionist measures, the fund said.

The focus should also be on restructuring debt to restore sustainability, which may need relief beyond the G-20 Debt Service Suspension Initiative, the IMF said.

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