The COVID-19 pandemic and the subsequent economic crisis have hit most of the countries in the world hard. To counter the effects of the crisis on health and livelihoods, governments are implementing exceptional policies, which require unprecedented volumes of financial resources. The cost of these socio-economic measures, combined with the sharp drop in government revenue, capital outflows and trade, puts a tremendous strain on public finance and is undermining debt sustainability in many countries.
The international community rallies to support the urgent needs of countries during COVID-19
The United Nations (UN) and its agencies, the international financing institutions (IFI) along with other development partners have implemented rapid intervention initiatives to address urgent needs of countries. In particular, in line with its wide range of policy areas, the UN aims to facilitate a coordinated effort, through its UN Framework for the Immediate Socio-Economic Response to COVID-19, to address the challenges in three different areas: global health, coordinated by the WHO, emergency humanitarian relief with the OCHA and social and economic response and recovery coordinated by the UNDP.
The International Monetary Fund (IMF) is providing rapid financial assistance and debt service relief to its member countries at an unprecedented scale. Over 100 countries have requested assistance, and over 70 have been already approved under the Rapid Credit Facility, which can meet financing demands for emergency funding of up to USD 100 billion globally. About 30 countries have also asked to access the Catastrophe Containment and Relief Trust, which cancels debt repayments on IMF lending for the poorest countries for a period of six months. Other financing instruments have been put in place, bringing the estimated total lending volume available for the COVID-19 emergency to about USD 1 trillion.
In April 2020, the World Bank deployed fast-track lending for countries to rebuild their economic system after the health and economic crisis following the COVID-19 outbreak.
The G20 have established the Debt Service Suspension Initiative (DSSI), which suspends debt service payments on bilateral debt for 73 low-income and least developed countries until the end of 2020. As of July, it has temporarily freed around USD 5 billion for the COVID-19 response.
At the bilateral level, the European Union (EU) launched its ‘Team Europe” initiative in June
2020. The initiative focuses on supporting
emergency responses to the immediate health crisis; strengthening health, water
and sanitation systems and research capacities to deal with the pandemic; and
addresses the immediate social and economic consequences of the pandemic.
So far, the initiative has mobilised over EUR 36 billion to support countries
around the world.
INFFs are an important tool for shaping the response to COVID-19
While emergency intervention is paramount for all governments in the very short-term, it is still essential to align these emergency responses with medium- to long-term priorities. Large-scale fiscal stimulus packages have more than a macroeconomic impact – they can set economies on new growth and development pathways.
INFFs can be an important tool in shaping the immediate response and in maintaining progress on the long-term goals of the 2030 Agenda and the Paris Agreement, which address precisely the failures that are being exposed by the COVID-19 pandemic. Indeed, COVID-19 has highlighted how delays in SDG implementation (and lack of integrated approaches to sustainable development and financing) can make countries and certain population groups vulnerable to crisis. This pandemic could, therefore, be an opportunity to get back on a more sustainable trajectory guided by the 2030 Agenda, with financial and non-financial resources aligned through INFF initiatives.
In the emergency phase, certain elements of INFFs could help policymakers in their response. As part of INFF scoping and inception phase work, the international community could help governments to:
- Conduct a rapid assessment of how financing flows are being impacted by the pandemic, contributing to socio-economic impact assessments and response plans;
- Scan financing options, particularly international support, to allow government and private sector access to liquidity and financing;
- Use INFF coordination mechanisms, if already established, to bring together public and private financing actors around the COVID-19 response;
- Strengthen transparency and accountability for financing the response and bolstering public confidence; and
- Build synergies between different international COVID-19 response efforts at the country level, including the implementation of the UN Framework for the Immediate Socio-Economic Response to COVID-19 and the “Team Europe” support package.
INFFs can play a key role in enhancing medium-term SDG planning as countries revisit their objectives and strategies in light of a new baseline. In the spirit of ‘building back better’, INFFs can take into account the impact of the pandemic, by: (i) assessing and mapping the consequences of external risks; (ii) reconciling financing needs and costs while weighting the sustainability of the country’s debt; (iii) defining financing strategies and policies that will increase resilience and mitigate risks; (iv) improving monitoring and oversight over financing flows to better evaluate their effectiveness and (re)orient resources where needed; (v) strengthening coordination within government and across public and private sectors; and (vi) facilitating partnerships among public and private players to mobilise all financial resources for the SDGs.
UNDP, UN-DESA and the EU, along with other key institutions, such as the IMF, have intensified their actions and cooperation to advance implementation of INFFs. These efforts have resulted in support being provided to 16 pioneer countries in designing INFFs, the approval of funding for 62 governments and partner institutions by the SDG Joint Fund and the finalisation of the INFF methodology and amendments in the light of the emergencies and financing constraints caused by the COVID-19 pandemic.