FSG Co-Director and PRCI Director David Tschirley Speaks to the Unprecedented Nature of the Crisis and the Response Needed by the Global Community
COVID-19 presents the world with a bleak choice. Countries can do nothing and face at least 40 million additional deaths over the next year. Or they can take the steps needed to dramatically slow infection and “flatten the curve” – not just hand washing and moderate social distancing but the lockdown of “non-essential” economic activity. This now a standard feature in high income countries and increasingly pursued in middle- and even low-income countries such as South Africa, India, and Rwanda – with potentially devastating and long-lasting economic consequences, especially for the poorest and most vulnerable. But half measures - attempts to gently modify citizens’ behavior while maintaining most economic activity - have failed to flatten the infection curve, leading to exponential growth in infection rates and fatalities.
Yet there is another element of this grim calculus that has been little discussed: the necessity of credible income replacement for affected persons if the economic lockdowns needed to flatten the curve are to be achieved. Put simply, no one will stop working if they believe that doing so will lead to their or their family’s starvation or destitution. Better the risk of death, or of infecting loved ones who could die, than the certainty of deep poverty out of which one may never be able to climb.
It is here that a deep divide emerges between the developed and developing world. In the former, public borrowing capacity and strong institutions allow countries to spend vast sums of money to absorb much of the short-term economic impact into public budget deficits, shield most people from the worst consequences of the lockdowns and, crucially, create at least the possibility that their citizens’ behavior will therefore change enough – that enough of them really will “shelter in place” - for the lockdown to be effective.
Developing countries simply do not have this fiscal space – they do not have access to anywhere near the level of resources needed to provide these kinds of income guarantees, whether through direct fiscal revenue or borrowing. What’s more, they face a greater challenge in delivering assistance due to the predominance of small farming and informal employment – informality dominates the economy in these countries - and they have less institutional capacity to design and implement the needed programs. In this triple combination of challenges these countries face the prospect of no or ineffective lockdowns, rampaging infection rates, the collapse of already weak public health systems, extremely high excess death rates, and the potentially long-lasting social and economic fallout that all this implies.
Let’s first examine the numbers, then look at what needs to be done. Recent modeling of global COVID-19 infection and mortality rates suggests that, with no mitigation, COVID-19 would result in 7 billion infections and at least 40 million excess deaths over the next 12 months. With estimated global deaths of nearly 59 million in 2019 (prior to COVID-19), this would be nearly a 70% increase in global deaths – completely unprecedented since the Spanish flu over a century ago.
Projected excess deaths are actually lower in SSA and LICs in general – only 27% in SSA and 60% in South Asia compared to nearly 100% in North America - but this is because the modeling captures the very large negative effect on mortality of these countries’ young age distribution without modeling the opposing impact of co-morbidity and extreme limitations in health care capacity – both of which afflict LICs - in raising death rates. Deaths in LICs are thus likely to be substantially higher – as the authors explicitly acknowledge – than these figures suggest. Will they be 50% higher? Double? Triple? We do not yet know.
Mitigation can reduce deaths by nearly half, to 23 million, though it gives a lesser reduction in LICs than in high income countries (the model is not clear why this is so). But the most fundamental point takes us back to our triple combination of challenges: it is unlikely, indeed unimaginable, that LICs could put in place the level of mitigation needed without an unprecedented joint effort between these countries’ governments and the global community – rich nations, their treasuries and central banks, and all the multilateral and bilateral lending and development agencies - to create heretofore unimagined fiscal space and put in place programs, in the very short-run, to deliver the income support without which individual behavior simply will not change enough, mitigation will be minimal, deaths will spike, and health systems will be overwhelmed.
This leaves us with three likely scenarios:
- The global community rallies with unprecedented commitment and partners with LIC governments to put in place the needed fiscal resources and rapidly design and deploy income replacement policies. Some of this replacement is happening now, for example in South Africa and India but with local resources and thus at very small scale. Multilateral organizations such as World Bank and IMF are indeed responding, vigorously but still insufficiently, given the enormous speed and size of this pandemic. Can the needed vast expansion of global cooperation happen, and happen quickly enough, when western governments are already spending historically unprecedented (by large margins) resources to reduce the economic devastation in their own countries?
- Countries decide to ride the pandemic out, encouraging hand-washing and social distancing without imposing any restrictions on economic activity. In this scenario, infections and excess deaths will likely rise close to the unmitigated levels that we still do not have a handle on, for the reasons mentioned above. One can make a pragmatic argument why this might be the least costly approach, in an LIC setting and in the absence of an overwhelming global response to the crisis. But what countries will choose to take this stark route? What seems more likely is …
- A muddled middle ground in which lockdowns are announced, income replacement is absent or dramatically inadequate, citizens therefore barely change their behavior (they need to eat and keep a roof over their heads!), and governments take sporadic repressive action to enforce the lockdown but to little effect. This may reduce infections and deaths below scenario 2, but at the likely cost of much greater social unrest and economic disruption.
At this point, scenario three seems to be winning the day, as seen in Kenya, South Africa, and India, among others. Will the global community see the Covid19 pandemic for the unprecedented threat that it is and muster the political will to do what is needed to avoid disastrous outcomes? Will developing country governments welcome the assistance and work together to make best use of it? And will all of this happen soon enough to avoid the explosion in infections and deaths that appears to be on the horizon in the developing world? There is cause for some guarded optimism. As I write this, UN Secretary General Antonio Guterres has called for a coordinated global response amounting to at least 10% of global GDP. This comes none too soon and with luck and courage all around will rise to the challenge.
As such initiatives move forward, development economists and practitioners have a crucial contribution to make, in at least two areas. First, we have deep and detailed knowledge of rural and urban markets and livelihoods in developing countries. We need to deploy this to assess the likely size and variability of effects of COVID-19 and its policy responses across different population groups, and design income replacement programs that provide adequate protection while helping people move steadily back towards self-reliant economic activity as the crisis recedes. Second, we need to deploy our knowledge of food systems to inform the design of emergency programs during the crisis and strategies for market recovery as the crisis gives way. In doing this, we will need to think well beyond our comfort zones, seriously considering options that would have been unthinkable even two months ago but that are necessary now. As the global community rises to the occasion, let’s do the same, with unprecedented commitment, intelligence, and creativity.