Information and news about economic crisis

Fuel Shortages in Sri Lanka
Recently, Sri Lanka quite literally ran out of fuel and has since resorted to extreme rationing, negotiating credit for fuel with foreign nations and receiving international aid. The economy is in shambles, with soaring inflation and foreign debt, mostly due to government mismanagement, according to experts. Amidst protests, the previous president fled to Singapore. Fuel shortages in Sri Lanka have prevented mobility across the country and ground the economy to a halt. Cars queued for days for a chance to get fuel. Due to a lack of transportation, food and other essentials have become difficult to access for many. While concerted responses in both the short and long term can help mitigate the consequences of this fuel crisis, Sri Lankans will continue to endure hardships for months if not years to come. Here are four ways that the fuel crisis is affecting the country.

4 Ways that Fuel Shortages in Sri Lanka are Affecting Poverty and Inequality

  1. Reduced Access to Schools. Lacking fuel for transportation, many children have no way to get to school. Sri Lanka had to close down its schools for several weeks at the end of June. Although many schools have since reopened, attendance rates have plummeted as students still face transportation issues. With the subsequent food crisis, many children walk long distances to grocery stores. Poor internet infrastructure prevents the widespread use of virtual learning. As children do not have access to education, their economic futures are likely to suffer. Considering that schools were not open for a year and a half at the beginning of the pandemic, continued closure from fuel shortages could mean that many children might not receive an education at all.
  2. Reduced Access to Employment. As transportation becomes increasingly unavailable, Sri Lanka’s employment crisis deepens. Government employees had to work from home in order to reduce fuel consumption. Most workers have had to travel long distances by foot, and many companies have had to shut down or downsize, further reducing employment. According to Sarala Emmanuel, a Sri Lankan researcher and activist, “There is no fixed salary, no protection, no compensation if there is an accident, no pensions, and no support if a person cannot do their job anymore.”
  3. Food Insecurity. According to a World Food Programme Assessment, in July 2022, nearly 6.3 million Sri Lankans were food insecure. Not only does the lack of fuel exacerbate access to food, but food companies have decreased production in response to dwindling sales. The agricultural sector has also taken a hit, with rice production dropping by 50% as of July.
  4. Inequality. Sri Lanka has received fuel shipments to ease the ongoing crisis. However, fuel is not always evenly distributed, with the wealthy and well-connected having more access than taxi drivers and tractor operators. Unequal access to resources is a particularly important issue to Sri Lankans, as the whole crisis is mainly the result of government corruption, nepotism and mismanagement.

Re-Mobilizing Developments

While fuel and food shortages have battered the people and strained the capacity of the government in Sri Lanka, other countries are pitching in to help with the crisis. India, Sri Lanka’s closest neighbor and largest import partner, has supplied Sri Lanka with $3.5 billion of aid as of May 2022. The World Bank has also funneled $160 million in aid for Sri Lanka to buy more fuel. Meanwhile, the IMF will provide $2.9 billion to mitigate the effects of Sri Lanka’s fuel crisis. In the longer term, the country is working towards a future less reliant on fossil fuels, with Ideal Motos having recently unveiled a domestic electric vehicle that can charge from solar roofs. These developments could help Sri Lanka get back on its feet and mobilize its economy.

– Ashwin Telang
Photo: Flickr

Argentina’s Economic Crisis
Despite being one of the richest countries in South America per capita in 2020, Argentina is currently grappling with poverty and an economic crisis. Argentina’s economy has been dramatically up and down for decades but the COVID-19 pandemic and the war with Ukraine and political instability have recently worsened it. Because of these combined factors, Argentinians are currently dealing with rising energy and food prices, state bankruptcies and reduced wages. Inflation is above 70% and could reach 90% before the end of the year. Today, 40% of Argentines live in poverty and about 10% of them could not afford “a basic basket of only food” in 2021. Here is some information about Argentina’s economic crisis as well as how the U.S. is providing aid.

An Alliance

The United States and Argentina have an alliance based on trade and shared priorities. These priorities include “democracy and human rights, counterterrorism and rule of law, improving citizen security, science, energy and technology infrastructure, people-to-people ties, and education.”

In recent years, the U.S. has been assisting with COVID-19 recovery, renewable energy development and promoting women-led small businesses. These measures aim to address as many factors as possible that led to the economic crisis and tackle them one by one.

Since the pandemic broke out in 2020 up until April 2021, the U.S. military has given $3.5 million in recovery aid to Argentina. According to U.S. Southern Command Admiral Craig S. Faller, this aid includes “protective equipment, medical supplies, and monitoring and screening tools.”

National Security

Another way the United States is improving Argentina’s economic crisis is by improving national security. In 2020, the U.S. Department of State gave $3.1 million to Argentina for counterterrorism efforts, including military education and training, improved worker’s rights, reduced child labor and job creation. The U.S. also helped develop the Western Hemisphere Counterterrorism Ministerial (WHCM), an alliance dedicated to reducing terrorism in western hemisphere countries and Argentina has been “a leading participant” and hosted a second ministerial in 2019. In the same year, Argentina became the first country in Latin America to declare Hizballah a terrorist group. In 2020, the U.S. made plans to strengthen security in Argentina through “legal, financial and law enforcement tools,” the U.S. Department of State reported.

Women in Business

Having more women entrepreneurs is critical to the well-being of the economy. In 2019, a “high-level U.S. interagency delegation” came to Argentina to support and grow women-owned businesses, which are “essential for creating economic growth and security,” the U.S. Department of State reported. This visit sparked the launch of the Academy of Women Entrepreneurs in 2021, an online and in-person program that focused on helping 30 Argentine women expand their businesses.

Through poverty, pandemic and inflation, the United States is improving Argentina’s economic crisis by extending COVID-19 relief, improving national security, expanding job opportunities and training and empowering women. In fact, Argentina’s poverty rate dropped by about three percentage points from the first half of 2021 to the latter half of the year. There is still a long way to go, but this alliance has been making progress.

– Ava Ronning
Photo: Unsplash

Economic Crisis in Sri Lanka
Surrounded by the Indian Ocean in Southern Asia, the island nation of Sri Lanka is currently facing its worst economic crisis in history. While the country once held great promise with the Sri Lankan Ministry of Foreign Affairs hailing it as “Asia’s fastest growing economy” in recent years, the country has faced a great economic decline. A combination of extreme corruption, political instability and deficit borrowing has led to an economic downtrend that the ongoing Russo-Ukrainian war recently heightened. As a result of this political and economic unrest, poverty rates are rising. This is how the economic crisis in Sri Lanka is exacerbating poverty within the country. 

Poverty in Sri Lanka

Compared to other countries in the region, poverty rates in Sri Lanka are not as bad. For example, pre-pandemic poverty rates in surrounding countries such as Bangladesh and India were more than 20%, but Sri Lanka’s rates never passed the 10% mark. However, the most recent data regarding the state of poverty in Sri Lanka from the World Bank reveals that there are more than 847,100 people in Sri Lanka living below the poverty line. This means that there are currently more than 847,100 people without access to education, food, water and shelter in Sri Lanka.

The Impact of the COVID-19 Pandemic on Poverty

Historically, Sri Lanka has been especially dependent on government-guided market investments and tourism to keep its economy afloat. Most recently, with the onset of the COVID-19 pandemic, the latter industry felt the greatest impact. Losing a great percentage of tourism meant the country had to exhaust its foreign currency reserves, leading to further disaster in May 2022 as the country began to default on public debt payments. This led to a rise in inflation and as a result, more Sri Lankan families were borderline in poverty.

Russo-Ukrainian War Exacerbating the Issue

Economic conditions were already poor pre-war, but the greatest rise in poverty rates happened recently as Putin enforced a blockade of wheat exports. Several impoverished Sri Lankan families relied on wheat to provide stable, relatively affordable food to their loved ones, but with the removal of this option, families had to either consistently go hungry or abandon their children.

 The Current State of Sri Lanka

According to the U.N., an estimated 10,000 children already rely on some form of institutional care due to poverty. The number of these children requiring assistance from these institutions is rapidly increasing as a consequence of increasing poverty rates due to the economic crisis. Unfortunately, these institutions lack the resources necessary to provide for these children. Additionally, this has caused student enrollment to decrease and, conversely, caused child abuse rates to increase. Both factors have contributed to increased rates of general poverty over time.

What Does This Mean?

The economic crisis in Sri Lanka is especially troubling and not only raises concerns about malnutrition, disease and death in the country but also extends to other areas of the world as similar patterns are present in other Asian and African countries. There is hope, however, as Sri Lanka has the potential to serve as a cautionary tale for other countries to prepare their economies for potential, post-pandemic deficiency. Additionally, financial aid from bordering countries, such as India, promises Sri Lanka a degree of stability as they work through this trying time. India has provided Sri Lanka with $5 billion in assistance throughout the crisis along with food and fuel supplies. Furthermore, India has opened the Tamil Nadu borders to Sri Lankan refugees seeking additional support.

– Aarika Sharma
Photo: Flickr

Inflation in Turkey
Turkey is one of many countries that the consecutive crises the world is facing, from the COVID-19 pandemic to the Russian invasion of Ukraine, have affected. Each crisis has its consequences on Turkey’s economy. The Turkish government has also taken actions that have led to the devaluation of the lira, which has contributed to rising inflation rates in Turkey. In fact, Turkey’s inflation rate for the month of May 2022 reached 73.5%, the highest rate in 24 years. Similar to other countries, inflation in Turkey sparked an increase in the prices of basic resources, leading to a significant impact on the impoverished. These circumstances force the government to implement reforms to protect Turkey’s most vulnerable people.

Causes of the Inflation in Turkey

Even before the coronavirus outbreak and the war in Europe, inflation in Turkey was slowly taking place as the state grappled with significant debt amid the Turkish lira progressively losing its value. The citizens of Turkey consider the Turkish president responsible for the degradation of the nation’s economic situation, given that he insists on keeping interest rates low, according to the New York Times.

The onset of COVID-19 led to further degradation of the economic situation in Turkey due to the disruption in the supply chain. However, Turkey successfully managed this crisis and stood among the few countries noting a positive growth rate for the year 2020.

On the other hand, the recent war between Russia and Ukraine had a serious impact on the Turkish economy. Turkey has important economic ties with both countries and sees its economy affected not only by the increase in the price of energy products but also by the impact this crisis has on agricultural trade, tourism and construction projects in which Turkey is involved.

Poverty and Inflation

The unconventional strategies that the Turkish president adopted, in addition to the two major crises the world now faces, strongly impact inflation in Turkey. Unfortunately, the rise in the prices of food and energy affects low-income households most, according to the World Bank.

A poll indicates that in May 2021, just 53.6% of the Turkish population could meet their basic needs. High inflation and the devaluation of the Turkish lira are “fast eroding the purchasing power of the minimum wage, public-sector salaries and pensions.” In fact, prices are skyrocketing. Electricity bills are reaching unprecedented cost levels and the price of a kilogram of flour has doubled in less than four months, dramatically rising from 110 lira in January 2022 to 220 lira in April 2022, The Guardian reported. Inflation also harshly impacts farmers as they struggle to keep up with large industrial corporations, “with the prices of agricultural producers falling well behind those of industrial producers,” leading to decreased revenues.

Solutions

The methods of the Turkish President Erdoğan, in the form of lowering interest rates, have not been effective in reducing inflation in Turkey. In fact, economic experts consider Erdoğan’s strategy economically unorthodox.

Nevertheless, to ease the economic situation for citizens, in February 2022, the Turkish government decided to address rising inflation by reducing the value-added tax (VAT) on basic food items from 8% to 1%. In March 2022, the government reduced the VAT on a number of other essential products too. In agriculture, the government reduced VAT “on all kinds of certified seed, seedling and sapling deliveries” to 1%. The government also reduced the VAT on certain hygiene products from 18% to 8%.

In addition, in 2021, the government provided the most impoverished with energy bill subsidies to the value of $12.2 billion. The government is thus aiming to support 50% of the price of natural gas and 25% of the price of electricity. In December 2021, the government also rose the minimum wage by 50% to help struggling citizens enduring the impacts of high inflation rates.

Looking Ahead

With a government following unusual economic policies and global crises affecting the proper functioning of the economy, inflation in Turkey continues increasing, exacerbating situations of poverty. Despite all that, Turkey has a strong economy capable of exporting large quantities of diverse products, which helped the nation surpass many challenges in the past. With the gradual lifting of COVID-19 restrictions, the country can fully reopen its doors to tourists, which will also give the nation an economic boost during this crisis.

– Youssef Yazbek
Photo: Flickr

COVID-19 in Thailand
COVID-19 and the economic consequences of its spread have caused greater levels of poverty in Thailand since 2020. Reports determined that the COVID-19 pandemic plunged almost 800,000 people into poverty in 2020. The impact of COVID-19 on poverty in Thailand has primarily manifested as a spike in unemployment. By spring of 2021, Thailand’s job market had 710,000 fewer jobs compared to the previous year. The pandemic also adversely affected tourism flow to the nation, which accounts for about a fifth of GDP and 20% of employment. Thailand’s economy and poverty levels have not experienced such a negative impact since the Asian Financial Crisis of 1997.

Government Initiatives to Mitigate Poverty

The government’s initiative, however, in responding to this crisis has somewhat curbed the pandemic’s potential for further devastation. Authorities were quick to introduce quarantine measures that were effective in containing the virus during most of 2020. Though several waves of infections have exacerbated the impact of COVID-19 on poverty in Thailand, the policy packages were effective in creating fiscal stimulus.

The support ranged from financial assistance for debtors to health-related spending for affected households, including those outside the social security system. Simulations suggest that more than 780,000 additional people could have fallen into poverty in 2020 if the government had not bolstered social support.

Thailand’s Continued Alleviation of Poverty

Thailand’s efficient response to the pandemic is impressive, but not surprising. Since 1988, the country has reduced its poverty levels from 65.2% to 6.2% in 2019, according to the World Bank. Its most effective initiative was to scale up cash transfer programs such that it became one of the largest scale fiscal responses to COVID-19 in the world.

“The crisis in 2020 demonstrated Thailand’s ability to leverage its robust and universal digital ID, sophisticated and interoperable digital platform and a number of administrative databases to filter eligibility for new cash transfer programs,” said Francesca Lamanna, the Senior Economist at the World Bank.

The Current Status of Poverty Levels in Thailand

While the government has responded relatively well, the country continues to struggle as it enters the fourth wave of COVID-19. The official unemployment rate was 2% in the first quarter of 2021 due to COVID-19, with the loss of jobs most concentrated in the services sector. On the one hand, slow vaccination rollout and widespread doubt seem to be stalling recovery. On the other, some infected individuals living below the poverty line may go so far as to violate quarantine rules in order to continue earning much-needed income.

The impact of COVID-19 on poverty in Thailand and its economic dependence on contact-intensive sectors means the continuing waves of infection prolong unemployment, with financially vulnerable groups bearing a disproportionate burden of economic insecurity.

Volunteer Workers Spearhead Poverty Aid Missions

In response to these conditions, the number of volunteers in Thailand has also been surging. Bangkok Community Help is one such organization. It has grown to more than 400 participants since its founding early in the pandemic in 2020. Greg Lange and Friso Poldervaart are two restaurant owners that spearheaded the community initiative after neighbors approached them to inquire if they could use their empty restaurant kitchens to prepare hot meals.

While the scale has transformed considerably, Bangkok Community Help’s main objective remains to assist vulnerable sections of Bangkok through volunteer and donation initiatives. “After [last April and May], we decided to focus more on more long-term projects, like building houses for people, turning a garbage dump into a park, and teaching kids,” Lange and Poldervaart told TimeOut.

Donations vary in scale and source. Individuals may hand out meals they prepared themselves to hungry construction workers, while foreign aid initiatives fund larger-scale operations such as survival packages of preserved goods. Australian Aid paid for rice recently distributed outside of Bangkok’s main port facilities through the Australian Government Aid Program. The program provides small grants in support of local, non-governmental organizations in Thailand.

The New Zealand – Thai Chamber of Commerce, an organization dedicated to promoting commerce between Thailand and New Zealand, donated apples. These organizations have even employed volunteers to bring oxygen tanks to the homes of the infected when hospitals were overcrowded, in the hopes of keeping them alive until a hospital bed becomes available. Bangkok Community Help continues to inspire individual and government action through its aid, opening aid centers and converting unused schools and auditoriums into treatment centers.

Future Possibilities

Looking towards the future of COVID-19’s impact on poverty in Thailand, there are different projections. The devastation of the pandemic is a large-scale issue that called for radical measures, but the methods of mitigation employed may be useful in shifting political focus towards strengthening social support systems in the future. These circumstances have the potential to catalyze an economic reform in Thailand, such that its industries can become more digital.

According to the International Monetary Fund (IMF), the authorities see this as an opportunity to transform tourism from low-cost, high-density travel, to high-end, low-density travel. This would allow for other domestic industries to flourish without wreaking havoc on the country’s economy. It may also be more ecologically friendly, offering greater protection of natural resources on which the tourism industry is dependent. All of these factors have the potential to gradually reduce the number of people living below the poverty line, by strengthening Thailand’s social and fiscal fiber.

– Arahi Fletcher
Photo: Unsplash

Argentina’s Informal Peso
Argentina’s informal peso, its ”dolar blue,” weakened drastically at the end of October 2021 and hit its all-time inflation high. The country’s risk rating increased by 19 points. The economic downturn arrived weeks before Argentina’s November 2021 elections, and economic improvement is long overdue.

What is the Dolar Blue?

The “Dolar Blue” is the unofficial rate of buying or selling physical United States dollars (USD) in an unofficial financial market in exchange for Argentine pesos. The transactions occur without the assistance of a banking institution or government oversight. Many transactions for Argentina’s informal peso occur right in storefronts or in the street.

In October 2021, the exchange rate hit 195 pesos per one USD. The exchange rate is typically greatly valued because this trade rate results in more pesos to the dollars for tourists and vice versa for those looking to use pesos.

In 2019, the Argentine peso lost value during an economic crisis due to suspending debt payments while the debt continues to climb for Argentina. The government had to act quickly to stabilize the peso. Since then, the Argentine government has slowly placed restrictions on the dolar blue to prevent any weakening of the formal peso.

What is a Country’s Risk Rating?

A risk rating is the measurement of the potential for non-payments on international loans that companies made to companies within the country being rated or to the countries themselves. It is the measurement to see how close a country is to defaulting on loans. Typically, the factors that lead to an increased risk rating are out of a countries’ control. However, the risk rating is the calculated risk that international businesses would undertake when dealing with the measured country. The higher the number, the greater the chances of business deals collapsing.

As Reuters reported, the risk rating for Argentina expanded 19 points when Argentina’s informal peso reached its all-time high of 1,672. It is essentially Argentina’s credit rating, but the higher the number, the lower the chance for foreign investment opportunities. This new risk rating could lead international companies or loan businesses to avoid working in Argentina or setting up loans there.

Without additional investment, the job market could have few opportunities to develop new jobs. There is little chance that unemployment rates could decrease.

Why Did this Economic Crash Happen and What Does this Mean for Argentina?

The two main factors causing the current economic crash are the country’s upcoming elections and growing inflation. The majority of surveyed Argentineans’ stated that their largest concern was the economy. Argentina has a history of economic downturn during periods of change in political leadership and growing economic fears. Argentina’s informal peso and formal peso have fallen in the past during periods similar to what the nation is experiencing now.

The drop in Argentina’s informal peso means economic growth has stagnated once again. Financial experts predicted Argentina’s impending devaluation of its formal currency, which appears to have started with the devaluation of its informal peso. With the devalued informal peso, battling inflation rates, four out of 10 Argentines live in poverty and have few means of escape.

Argentineans in poverty are struggling with the prices of necessities and with inflation. This is impacting both formal and informal pesos and the outlook is dour, according to The New York Times. Argentina’s informal peso brought tourists and new businesses to the country to support local Argentine companies and operations. With a destabilized and devalued the informal peso, more Argentineans are at risk of losing income. The devaluation of Argentina’s informal peso and widening country risk signals a long way to go before returning to a stable economy.

Is the Outlook Truly Grim?

The outlook is not entirely dismal. As grim as things look for Argentina economically, there are ways forward with the devalued informal peso.

In September 2021, Argentina reported economic growth. The poverty rate decreased slightly, which came as a pleasant surprise to many. In the first half of 2021, the poverty rate decreased to 42% and shows signs of continuing to decrease. Many did not expect the growth, given the difficulties of the COVID-19 pandemic. However, the growth signals that there is a chance for improvement despite the downturn of the peso and the risk rating.

In the weeks following the elections, the economy is likely to stabilize again. After the 2019 election, while the pesos’ exchange rates were still higher than average, they stabilized briefly. However, the recovery was short-lived due to the COVID-19 pandemic. Since then, the economy has struggled to restabilize. In the days since the COVID-19 pandemic first impacted Argentina, the economy has been slowly stabilizing and working towards recovery.

 After the 2021 November elections, there is a good chance for economic recovery and stabilization. Argentina’s informal peso could recover and the risk rating could decrease. The economy could revitalize with new business and partnerships.

Support for Argentina

Argentina has faced economic issues for several years, but they are not alone and receive help from many organizations, including The Working World (TWW). Brendan Martin founded TWW after witnessing the result of the Argentinean economic difficulties. The efforts on the ground that individuals made to start businesses and launch democratically operated businesses boosted the economy, and TWW decided to continue supporting this trend.

TWW works by partnering with businesses interested in furthering their workers’ rights to make decision-making processes more equitable. The organization designs loan packages to give the loans to pre-set projects that are in the hands of workers and repayment requires minimal interest.

TWW is a registered nonprofit organization in both the United States and Argentina. It understands the various currencies in Argentina, the exchange rates and the impacts both have on the Argentine economy.

Around the time TWW formed in Argentina and began democratizing businesses and stabilizing the workforce, the informal and formal peso stabilized in the exchange rates. Since then, TWW has expanded operations to more countries to transplant these business models and provide job security in countries. One example is Nicaragua or areas hit that hurricanes hit in the U.S. while maintaining some operations in Argentina.

TWW’s work has been invaluable in stabilizing the economy and workforce. The economic difficulties that inflation and political instability caused are manageable, largely because of nongovernmental organizations like The Working World.

– Clara Mulvihill
Photo: Unsplash

Saving Lives and the Economy in Timor-Leste
Timor-Leste, a small island nation previously known as East Timor, is inarguably enduring a very difficult and trying year. The combination of devastating floods after Cyclone Seroja in 2021 and the COVID-19 pandemic has left the nation desperately in need of assistance. Due to these disasters, the nation’s economy is currently struggling to find its way back to stability. Fortunately, on September 13, 2021, USAID announced plans to contribute an additional $1 million toward COVID-19 relief in Timor. This generous contribution will aid the goal of saving lives and the economy in Timor-Leste.

COVID-19 in Timor-Leste

Like any other nation, Timor-Leste has felt the inescapable effects of COVID-19. With a population of 1.3 million, the nation has witnessed 19,445 cases and 114 deaths as of September 28, 2021. Despite these numbers, as of September 28, 2021, Timor-Leste’s full vaccination rate stands at only about 20% of the population. This leaves an astounding number of people still unprotected.

The combination of flooding and COVID-19 has been catastrophic for Timor-Leste’s economy. In 2020, the nation’s economy endured a decline of 7%. Lockdowns and other restrictions amid COVID-19 led to significantly lower economic activity. While imports saw a reduction of approximately 19% “due to a slowdown in construction and travel services,” exports suffered even more, essentially declining by almost 50% “owing to limited travel services and lower coffee earnings.”

Because COVID-19 is a significant threat to the economy in Timor-Leste, increasing the country’s overall vaccination rate is crucial. Ending lockdowns and restoring normalcy will allow economic activity to return to pre-pandemic levels. Due to these harsh impacts, COVID-19 relief from organizations such as USAID is necessary for saving lives and the economy in Timor-Leste.

Assistance From USAID

USAID is a U.S. agency with a dedication to providing assistance during times of disaster at an international level. It works to eliminate poverty on a global scale, “strengthen democratic governance and help people emerge from humanitarian crises and progress beyond assistance.”

Along with an existing amount of $1.6 million that USAID allocated for COVID-19 relief in Timor-Leste, USAID is now providing an additional $1 million in support of this cause. The amount of COVID-19 aid to Timor-Leste from the United States now totals $5 million.

This added funding will contribute to the expansion of vaccination programs by employing prominent organizations and “trusted leaders” to encourage Timorese citizens to receive vaccinations. These efforts specifically focus on underserved communities on the outskirts of Dili, the largest city in Timor-Leste.

Partnering with Timorese officials, USAID also intends to instruct healthcare employees within rural and agricultural communities on vaccine protocols such as proper storage and transportation manners. Furthermore, USAID aims for vaccine equity, ensuring equal opportunity for all citizens to receive the vaccine. Additionally, USAID will partner with the Ministry of Health in Timor-Leste to closely monitor COVID-19 statistics in order to determine the safest resolutions for the nation and its citizens in the future.

Moving Forward

With USAID’s generous $1 million to fight the ongoing COVID-19 pandemic, the future looks promising for Timor-Leste and its population despite facing a tumultuous year. Through the support of organizations such as USAID, hope exists for restoring normalcy in Timor-Leste.

Not only are expanded vaccination efforts helping save lives but these efforts are also restoring economic stability in the country. With continued international support, Timor-Leste can successfully rebuild and recover from the impacts of the COVID-19 pandemic.

– River Simpson
Photo: Flickr

COVID-19, Poverty and The Debt Service Suspension Initiative (DSSI)
In the wake of its continuing devastation, Covid-19 has left, among other things, recessions across the world’s poorest countries. These recessions threaten to push more than 100 million people below the $1.90-a-day threshold that defines extreme poverty. To prevent poverty exacerbation, G20 countries have been called on by the World Bank and the International Monetary Fund to establish the Debt Service Suspension Initiative (DSSI). The initiative is designed to redirect funds planned for debt liquidation towards battling the pandemic and helping the most vulnerable populations.

How Does It Work?

Established in April 2020, the DSSI allows the suspension of government-to-government debt payments for 73 eligible countries. Over 60% of these countries accepted the offer as of 2021. The International Development Association and the U.N.’s respective lists of least developed countries encompass all countries cleared for suspension, minus Angola. Qualification for deferment also requires an application for an arrangement with the IMF, along with a commitment to use unfettered money towards social, health, or economic spending designed to remedy the effects of Covid-19.

Including interest and amortization payments, the total sovereign debt servicing payments in 2020 was projected to reach nearly $14 billion. Less than $4 billion of that belongs to the Paris Club group, prompting calls for other creditors like China and Russia to take part. Additionally, the G20 received requests to include entities such as banks and investment funds in the initiative, but this call has yet to receive a favorable response. About $5.7 billion in payments were deferred in 2020, with an additional deferment of $7.3 billion planned for June 2021.

The Unturned Stones

Reservations have been voiced regarding the ability of the temporary cessation of bilateral debt payments to provide adequate relief for the countries concerned. All debt is not the sovereign debt that is accounted for in the DSSI, and the fiscal ability of the approved countries is largely insufficient to weather the inclemency of Covid-19, even with debt deferment. At the vanguard of the call to private-sector creditors to adopt the initiative is the Institute of International Finance (IIF), a global association concerned with the finance industry.

Estimations from the IIF show that participation by private-sector creditors would provide an extra $13 billion in deferment. This would offer significant potential relief from the $35.3 billion owed collectively by the countries eligible for the DSSI. However, the IIF has made its concerns clear, particularly concerning the DSSI’s lack of consideration for the unique situation of each debtor country and the doubt that this causes for private-sector creditors.

The overall narrow eligibility scope of the DSSI has also been called into question. Middle-income countries have over eight times the amount of collective external debt outstanding compared to DSSI eligible countries. With $422.9 billion in debt payments in 2020 alone, these countries also run the risk of being financially incapable of dealing with Covid-19. After foreign investors pulled approximately $100 billion from middle-income countries’ markets in stocks and bonds, capital outflows leveled. The IIF, perhaps because of this observation, projected that the countries in question will encounter difficulties in borrowing money. The IIF also made projections that indicated unparalleled fiscal deficits in 2020.

Possible Solutions

Currently, no mechanism is in place to ensure that deferred debt payments will be used accordingly. One proposal involves the creation of a central credit facility (CCF) at the World Bank. This organization, if allowed, would require countries requesting relief to deposit deferred interest payments to certify that the funds would be used to negate the effects of the pandemic. Although the CCF has gained academic support and press recognition, whether countries will adopt it is uncertain.

Corporate or individual bankruptcy for countries is not an option.  The IMF attempted but failed to establish a sovereign resolution regime with its Sovereign Debt Restructuring Mechanism (SDRM) proposal in 2002, ultimately because of conflicting opinions on how to structure its design. A notable implementation of a debt moratorium occurred in 1931 by Herbert Hoover, then President of the United States. His declaration was followed by a rush of countries defaulting. Although these countries recovered faster than countries that did not default, such countries were hard-pressed to find any foreign lending for more than 20 years after defaulting.

Forging A Way Forward

While COVID-19 inflicted disastrous financial difficulties on nations worldwide, initiatives like the DSSI work to counteract the damage. In April 2021, G20 government-to-government creditors extended the DSSI for the final time by six months, taking its activity through December 2021. Despite concerns about its implementation and consequences, the DSSI represents a positive attempt by creditors nationwide to help the most vulnerable in the wake of COVID-19.

– Mohamed Makalou
Photo: Unsplash

Impact of COVID-19 on Poverty in Iran
The impact of COVID-19 on poverty in Iran is severe. The pandemic accelerated the decline of Iran’s Gross Domestic Product (GDP) and the rise of unemployment. Despite the economic crisis, Tehran’s massive natural resources allow the country to effectively recover economically if the newly elected Ebrahim Raisi is willing to end the country’s decades-long hostility with the United States.

The US Sanctions and Economic Crisis Before COVID-19

Before analyzing the impact of COVID-19 on poverty in Iran, one needs to understand the context in which the pandemic took place. In May 2018, under President Trump, the U.S. withdrew from the Iran nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA). As a result of the U.S. withdrawal, a “maximum pressure” campaign that consisted of unilateral sanctions against the Middle Eastern country replaced the Obama-era Iran foreign policy.

The sanctions contributed significantly to the downfall of Iran’s economy. The country’s GDP went down by 11% and average living standards have reduced by 13%. The “maximum pressure” campaign also caused an inflation shock. The sanctions cut oil exports, which reduced the supply of foreign exchange and resulted in hyperinflation. For example, the sanctions were one of the main reasons for prices rising by 41% in 2019.

How COVID-19 Worsened Iran’s Economic Crisis

The pandemic has further accelerated the crisis of the already declining Iranian economy. The mismanagement of the COVID-19 outbreak resulted in Iran being one of the worst impacted countries in the world, with almost 94,603 deaths and more than four million overall cases. Considering how widespread the highly transmissible Delta variant is and the fact that only about 4% of the country’s 83 million citizens are fully vaccinated, the future seems even more pessimistic.

Observing the health effects of the pandemic, it is not surprising how severely COVID-19 damaged Iran’s economy. In 2020, an estimated three to four million Iranians were at risk of losing their jobs, with the potential of increasing the actual (not official) unemployment rate from 20% to more than 35%. The country’s GDP shrunk by 5% in 2020 and inflation nearly doubled from February 2020 to February 2021. The COVID-19 pandemic caused a decline in GDP and an increase in public spending led the government to take extensive debt and sell its assets on the stock market. As a result, the fiscal deficit-to-GDP ratio more than doubled.

The Lives of Impoverished Iranians During the Pandemic

COVID-19 forced working-class, low-income Iranians to choose between their health and earning a basic income necessary for physical survival. In previous decades, the combination of charity work and welfare ministry, which provided financial assistance to economically vulnerable families, managed to maintain poverty below the 10% threshold. However, sanctions and the pandemic have put the survival of millions of Iranians, particularly informal and daily workers, at risk.

Around six million Iranians (a quarter of the overall workforce) work in the informal economy and earn daily wages. They often have no fixed salaries, minimal or no savings and little insurance from the social protection programs. Although these workers face a greater risk of infection, their financial situation does not allow them to stop working. Due to the fragile economic reality of Iranian people, particularly low-income citizens, the government cannot afford strict quarantine measures because these restrictions can push an additional 20% of Iranians into extreme poverty.

Moreover, according to a World Bank report, consumer price inflation stood at 30.6% from April to November 2020 and reached 46.4% in November 2020. The hyperinflation caused drastic price increases in food and housing, which disproportionally harmed working-class families.

The Way Out of the Economic Crisis

Various international and local nongovernmental organizations work tirelessly to alleviate poverty in Iran. One of the most significant NGOs that provides financial and educational resources for Iran’s vulnerable is Relief International. The organization has been particularly active since the outbreak of COVID-19. Relief International has provided multi-purpose cash assistance for 26,000 families who lost their income due to the pandemic.

Although the work of Relief International and other NGOs is significant for mitigating the impact of COVID-19 on poverty in Iran, NGOs have limited resources. Therefore, the Iranian government should play a greater role in the process of poverty reduction. For easing the short-term economic impact, the government should provide direct income assistance to its vulnerable citizens. More importantly, for a meaningful, long-term change, the Reisi administration should end the four-decade-long animosity with the U.S. and agree to the new nuclear deal. The precedent of the 2015 JCPOA agreement shows that lifting sanctions will reverse the negative economic impact of COVID-19.

– Aleksandre Jgarkava
Photo: Flickr

covid-19s-impact-on-poverty-in-indiaAreas like North America are seeing growth and recovery from the COVID-19 pandemic. However, there are still places in the world suffering from what came with living through the pandemic, especially the rise in poverty and economic struggles. COVID-19’s impact on poverty in India is especially concerning. In India, estimates determined that about 150 million to 199 million people have fallen into poverty in 2021 alone. That makes up about half of the country’s overall population.

Within just a year of fighting COVID-19 in India, the virus has infected more than 30 million people and killed about 400,000. In that time, only 4% of the population have received both vaccinations. People are continuing to struggle to get things like medicine and food, and the crisis does not stop there.

COVID-19’s Impact on Poverty in India

The COVID-19 pandemic has led to widespread economic failure, loss of jobs and homelessness. These effects have made their way to India. One year after the start of the pandemic, there had been a record 7 million jobs lost. Indian households have lost about 7% of their income.

“We’re talking about a decade of lost opportunities and setbacks, unless there are some big reforms and fundamental changes in the way that economic policy is done, you’re not going to be anywhere close to what we saw in the boom years. A lot needs to happen in order to get back to the 7%, 8% growth that we desperately need,” said Brown University Fellow Arvind Subramanian in an interview with Bloomberg.

Unemployment has historically peaked in India thanks to the pandemic, and GDP could continue dropping. Even before the pandemic, India was having trouble with its economy. The Indian government was taking steps to bring the country’s economy up significantly by the year 2025. COVID-19 in India has caused many setbacks to this plan.

New Efforts in Asia

A new initiative called The China-South Asian Countries Poverty Alleviation and Cooperative Development Centre emerged to combat and control the spread of poverty that the COVID-19 pandemic caused. Operated by China, it will also increase the livelihood and economy of the countries involved. This initiative has included several countries, such as Afghanistan, Pakistan and Sri Lanka. The initiative did not include India in the new initiative, but China has asked it to join. 

“I think South Asian countries can tremendously benefit from this Initiative. Regarding India, I’m not aware of the detailed arrangements but I think India should join this group and benefit from China’s learnings. If India wishes in my mind the group should be flexible and accommodate to involve India in the initiative,” said former Nepal ambassador to China Leela Mani Paudyal in an interview with WION.

Efforts From India

While not part of the South Asian Initiative, the Indian government has taken steps to ensure growth in the country’s economy. Projections have projected economic growth at 22.1%, and roughly 377 million people have received vaccinations. With these changes, the government hopes to see significant changes in the state of COVID-19’s impact on poverty in India.

– Demetrous Nobles
Photo: Flickr