COVID-19 policies

As companies look at new ways to provide stimulus and limit the impact of COVID-19, there is a global call to do things differently and focus on people directly. However, these are efforts that will have limited impact in countries such as Sri Lanka that do not have the fiscal space to support sustained social welfare programs.

The United Nations Development Programme (UNDP) in a report released on Thursday has proposed a temporary basic income for the world’s poorest 2.7 billion people in 132 developing countries, which they believe could help slow the spread of the COVID-19 by allowing them to stay home. The impact of the virus in a number of countries has shown that poor people are affected disproportionately but Governments typically tend to focus on economic stimulus, usually directed at salvaging companies, rather than directly supporting vulnerable communities.  

The report suggests three options – top-ups on existing average incomes, lump-sum transfers linked to differences in the median standard of living across a country or uniform lump sum transfers regardless of where someone lives in a country. There is also the challenge in targeting the right groups for these kinds of support and ensuring that they get to the people who need them the most. But with many developing countries already not having efficient public sectors and strong legal systems, the oversight of such distribution measures could prove challenging.   

COVID-19 has infected at least 14.8 million people and there have been more than 610,000 known deaths worldwide, according to a Reuters tally. The United Nations has warned that the pandemic and associated global recession could trigger an increase in poverty worldwide for the first time since 1990 and push 265 million people to the brink of starvation.

The UNDP report suggests that one way countries could pay for a temporary basic income would be repurposing billions of dollars that would have been spent servicing their debt. But there is a major hitch in this recommendation. The G20 Debt Service Suspension Initiative has proven challenging to implement, with only 42 of 73 eligible countries expressing interest thus far, saving just $5.3 billion in service payments instead of the $12 billion initially promised. 

For some countries such as Sri Lanka that have high debt repayments of about $3.5 billion on average and has to repay a total of $4.6 billion in 2020 a potential debt write-off is an unlikely option. Even though the Government has sought deferment of debt repayments these are by no means certain and at best would provide only temporary relief. This coupled with Sri Lanka’s low public revenue, means that State support is difficult to provide. Already the Budget deficit for 2020 has been estimated at 9% and there is very little leeway for State-led support. 

With COVID-19 likely to be in play for the better part of another year it would be a good time for countries, especially those like Sri Lanka to look at implementing reforms to set their public finances on a more sustainable path. Overhauling of some welfare systems to make them more efficient would also be useful and ensure that help reaches the most vulnerable people at the time they need it the most. COVID-19 has changed priorities and expectations from Government and they have to adapt accordingly or risk failing their citizens.