The year 2020 has witnessed an unprecedented COVID-19 crisis where many human lives have been lost. We have also witnessed the tremendous magnitude and speed of collapse in economic activity– something unseen in our lifetime. This is certainly not good for achieving the Sustainable Development Goals (SDGs) where prior to this crisis, the world was already falling behind in efforts to achieve them.
The pandemic has led the global economy to a new conundrum. Just in the first three months, investors moved around US$90 billion out of emerging markets, the largest outflow ever recorded. Global growth is projected by the International Monetary Fund (IMF) to fall to -3 per cent this year, making it the worst recession since the great depression and much worse than during the 2008-09 financial crisis.
In Asia and the Pacific alone, the drop in global demand will cost an estimated US$172 billion from trade alone, equivalent to 0.8 per cent drop of the gross domestic product (GDP) of the region. Of more immediate concern is the COVID-19 crisis impact on fiscal position, which exacerbates the risk of a new debt crisis in the region.
The region still has fiscal space to mitigate the costs imposed by COVID-19, with the median fiscal balance still less than -1 per cent and debt to GDP ratio well below 40 per cent. But even before the pandemic, the Asia-Pacific region has experienced weakening private investment and falling tax revenues. The response to COVID-19 by large fiscal, monetary, and financial policy stimulus to solve the crisis will, therefore, drain domestic resources from financing the SDGs. To avoid this scenario, it is critical that policy makers take appropriate immediate and medium-term measures for post-pandemic recovery.
The United Nations system and partner international organizations have recently outlined measures to address the impact of the unfolding global recession and financial turmoil in the recent 2020 Financing for Sustainable Development Report. The report urges policy makers to take immediate steps and coordinated response to address the economic and financial havoc wrought by the COVID-19 pandemic, which threatens to destabilize poor countries’ finances.
There are at least three immediate actions and medium-term policy responses required in handling the COVID-19 crisis and to ensure that adequate finance is channeled to support progress on the SDGs and those most in need. First, countries need a coordinated stimulus package, which includes reversing the decline in aid and increasing concessional finance. Additionally, to prevent a debt crisis, poor countries must be allowed immediately to suspend debt payments and reassess debt sustainability beyond the crisis. Risk pooling mechanisms also need to be considered at the regional level by establishing a regional response fund or exploring the possibility of multi-country social bonds in financing the SDGs post-pandemic.
Second, governments and monetary authorities must continue to stabilize financial markets by continuing to inject much-needed liquidity. Furthermore, governments must partner with private financial institutions to roll over debt to SMEs and individuals. At a later stage, we need to continue promoting sustainable investment, for example by requesting mandatory disclosures, minimum standards for investment products, and requirements for advisors to ask about sustainability preferences for investment.
Lastly, policy response must be about rebuilding better towards sustainable development in several aspects. These include: (a) public and private investment in sustainable development such as building resilient infrastructure; (b) strengthening social protection systems; (c) additional investment in crisis prevention, risk reduction and planning; and (d) eliminating trade barriers and restrictions that affect supply chains.
In addition to the above policy responses, financing sustainable development policy should reap the potential benefit of transformative digital technologies and countries should invest more in this area. The digital technologies have unique properties that enable inclusion and efficiency. It is much cheaper, for example, to gather, process and search for information. Digital goods and services can be reproduced at zero cost and have almost zero transportation cost. But digital technologies also create inequities, uncertainty and new risks. The rise of automation and Artificial Intelligence (AI) threatens jobs and increases wage inequality. In this context, it is necessary to put people and decent jobs first. The public sector, for their part, should not only aim to accelerate technological progress, but also address exclusion and risks of discrimination, and ensure that the benefits reach the society at large.
This year marks the start of the Decade of Action. Although the COVID-19 crisis undoubtedly brings extraordinary challenges to the achievement of the SDGs, it also brings extraordinary opportunities for solidarity. Multilateral actors and countries should come together to rebuild a better world and ensure healthy economic, social and financial well-being for all.