COVID-19 and debt in the global south: Protecting the most vulnerable in times of crisis I

18 March by Daniel Munevar


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This is the first part of a blog series covering the impact of Covid-19 on vulnerable countries in the global south. Part 1 analyses the impact of debt burdens on health services. Part 2 discusses the channels different channels of economic transmission of the crisis. Part 3 highlights the degree of vulnerability of countries in the global south to the Covid-19 pandemic. Part 4 provides a discussion on policy responses to tackle the risks posed by the pandemic.

Download the methodological annex here

The human and economic toll of Covid-19 is a stark reminder of the fragility of our globalised society. Countries’ ability to contain the outbreak across borders is being defined by their capacity to provide effective protection to the most vulnerable. Until now, more than 98 per cent of the cases of Covid-19 have been reported in China and high-income countries. The majority of these countries have advanced health care systems with the resources required to meet the challenges posed by the pandemic. Unfortunately, the same cannot be said of the large majority of countries in the global south. According to the WHO, weak health care systems lack the capacity or performance requirements to provide effective access to medical interventions in the context of a pandemic.

There is a clear overlap between vulnerable public health care systems and debt in developing countries. Rising debt levels limit the capacity of these countries to provide services designed to guarantee basic human rights. While other factors have an influence over expenditure patterns, the fact is that if more resources are dedicated to debt service Debt service The sum of the interests and the amortization of the capital borrowed. then fewer are available for health services. High debt burdens and systemic under-investment in health services provide the context to understand the vulnerabilities of countries in the global south to the Covid-19 pandemic.

An analysis of the relationship between debt and health services in Low Income Economies (LIEs) [1] paints an alarming picture:

Figure 1 - Public debt service and health care expenditure in Low Income Economies (as a % of GDP - 2018)

Source: IMF country DSA, World Bank WDI
  • Higher debt burdens translate into lower public health care expenditure: LIEs spent on average 28.5% of their public revenues on debt service and 2.5 per cent of GDP on health care services (Figure 2). For the top 25% of countries with the highest debt service to revenue ratios, debt service increases to 68.9 per cent of public revenues while health care expenditures decrease to 1.8 per cent of GDP.

Figure 2 - Impact of public debt service on health care expenditures in Low Income Economies (2018)

Source: IMF country DSA, World Bank WDI
  • Less expenditure on health care weakens capacity response: Higher debt service and lower expenditures on health services translate into lower availability of health care professionals (Figure 3). The WHO estimates a ratio of 2.28 health workers per 1000 population to classify the capacity of a health care system. [2] Countries below this ratio are considered to have a poor or vulnerable health care system. 58 countries across the different debt risk groups are estimated to be below this threshold. In 42 countries, capacity concerns are coupled with health service performance issues (Figure 4). [3] In these cases, even if emergency resources are made available, a process of scaling up health care services in the event of an outbreak would represent a major challenge.

Figure 3 - Impact of public debt service on health care system capacity in Low Income Economies (2018)

Source: IMF country DSA, WHO Global Health Observatory

Figure 4 - Presence of health care system capacity and performance limitations in LIEs

Source: WHO Global Health Observatory
  • Health care systems limitations place women in a highly vulnerable situation: A limited public response to a pandemic increases the burden of unpaid care work on women and increases their exposure to it. While evidence suggest that men have a higher mortality rate than women to Covid-19, it is mainly women who will carry the extra burden of the care tasks that overwhelmed and under-resourced public services may be unable to provide, by taking care of the sick and of dependents. This will only multiply the gendered impacts of austerity cutbacks to public healthcare and services which have already been deployed to address debt vulnerabilities, often at the request of the IMF. This context places women at the front line of the fight against the pandemic.

Vulnerabilities faced by countries in the global south in the context of Covid-19 are not limited to the weakness of their health care systems and extend to the economic impact of the pandemic.

Click here to read part one.




Footnotes

[1LIEs include 59 countries eligible for IFI concessional financing, 13 high-income small states and four countries that have graduated from concessionality eligibility since 2010. For a complete list of countries included in the analysis, please refer to the methodological annex.

[2In addition to other criteria such as GDP per capita levels and performance requirements. For a detailed explanation of the criteria used, refer to the methodological annex.

[3For a detailed explanation of the criteria used, refer to the methodological annex.

Daniel Munevar

is a post-Keynesian economist from Bogotá, Colombia. From March to July 2015, he worked as an assistant to former Greek Finance Minister Yanis Varoufakis, advising him on fiscal policy and debt sustainability.
Previously, he was an advisor to the Colombian Ministry of Finance. He has also worked at UNCTAD.
He is one of the leading figures in the study of public debt at the international level. He is a researcher at Eurodad.

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