A subdued but growing public health impact

Cases of COVID-19 in the LDCs were recorded later than in more advanced regions and have remained relatively subdued, but they continue to increase steadily. As of December 3^rd 2020, the LDCs came to account for a total of 1,193,709 confirmed cases, embodying 1.9 per cent of the global aggregate (table 1).

Close to 40 per cent of those cases, moreover, were accounted in one country alone – Bangladesh, with Nepal, Ethiopia, Myanmar, and Afghanistan together composing an additional 41 per cent. These figures are likely to be far less than the reality as a consequence of limited testing capacities. Although they increased their testing capacity by 19 times since early May, as of September 30^th, LDCs altogether still accounted for 6,811 reported tests per million population. This is in contrast to 63,655 and 224,197 reported tests per million population in other developing countries and the developed world, respectively.4

Table 1: COVID-19 confirmed cases in the LDCs

Source: WHO Coronavirus Disease (COVID-19) Dashboard

The recorded number of COVID-19 related deaths – the most commonly used indicator of the public health impact of the pandemic – also seems to suggest that LDCs are relatively unscathed by the pandemic, as they accounted for 1.3 per cent of the global total as of December 3^rd (19,654 vs.1,488,126).5

Lack of testing is an obstacle to attribution of deaths, but there are other reasons for the lower death toll related to COVID-19 in the LDCs and in developing countries in general. The virus is more deadly among older people, and among them for those with co-morbidities, such as cardiovascular diseases, which are more prevalent in rich countries. A comprehensive quantitative review of the main factors contributing to the number of “COVID-19 deaths per million” found that, as of June 2020, the difference between advanced and developing economies could be mainly explained by two factors: the age of the population and the obesity rate (with little evidence supporting that the transmission of the virus was slower in warmer climates, see Goldberg and Reed, 2020). These conclusions would clearly apply to the LDCs, where a very small share of the population is over 60 years old and obesity rates are much lower compared to the richest economies.6

Those results brought the authors to suggest that the health effects of the pandemic in developing countries might not be as severe when compared to experiences in high-income economies. Notwithstanding their weak health systems, poorer nations could, therefore, be able to handle the pandemic with softer containment measures, thereby presenting less harm to the economy. In other words, the poorest nations of the world might be spared the worst (Pilling, 2020). This cautiously optimistic interpretation of the low COVID-19 death toll in lower-income economies - dubbed by some as the tale of two pandemics – has three main caveats.

First, as mentioned above, there is overall uncertainty about testing capacities and the quality of data. Simulations run by Schellekens and Sourrouille (2020) shed some doubts on the fact that low-income countries with large populations have remarkably few fatalities only because of their demographic structures.

Second, the indirect health impact can be quite significant. The pandemic is creating barriers for patients accessing essential care through restrictions on movement, lack of service provision, stigma and avoidance of care due to concerns over contracting the virus, delays in immunization campaigns and overall lower access to care because of impoverishment from loss of jobs and livelihoods. The short and long-term negative effects in developing countries are likely to be substantial, for instance, if they lead to fewer vaccinations among children or higher child and maternal mortality due to the disruption of health care services.7

Third, the pandemic might still have to run its full course in the developing economies of South Asia and Africa which were reached later.

At first, most of the LDCs were shielded from the worst of the pandemic by their poor connectivity - less air links - and their largely rural, young and outdoor living populations. Several LDCs were also able to deploy pre-existing strategies and technologies that were used to counteract other infectious diseases, such as epidemic surveillance during the Sierra Leone Ebola outbreak, or rabies surveillance in Tanzania. Those factors helped flatten the COVID-19 contagion curve from the onset. However, more recently, the numbers of infections have increased and rates from the first wave remain high or continue to climb, especially in the LDCs in Asia (see figure 1, panel A). The pandemic has, in contrast, reached later stages in more developed countries, many of which have been exposed to multiple waves (figure 1, panel B).

Therefore, based on available data and lessons learnt from high-income countries, most of the lowest-income countries may still be at the beginning of their contagion curve and it is likely that further challenges remain ahead to flatten it. This future course of the pandemic, even when not considering possible second and third waves, is important for policy design to contain countries’ economic and employment consequences, as discussed next.

Figure 1: Cases and deaths per million population

Panel A: Least developed countries

Panel B: Advanced and emerging countries

Source: WHO Coronavirus Disease (COVID-19) Dashboard8

Timely and adaptable containment measures and “softer” workplace closures

Despite limited resources, several poor economies were able to mount a successful health response by means of acting fast, learning from other countries, as well as from their experience with previous diseases. Uganda, for example, took its first action on January 20th, two months before its first confirmed case. Common early non-pharmaceutical interventions included closing airports, monitoring hubs and entry points for the infection, sealing off the capital to avoid spreading to rural areas, banning mass gatherings, and school and workplace closures.

Most LDCs introduced early lockdowns and mobility restrictions similar to those in advanced economies in order to contain the spread of the virus, in some cases with heavy-handed enforcement by the police and security forces. A few adopted lighter approaches, relying more on public campaigns and community networks for messages about wearing facemasks, hand-washing and social distancing, for various reasons, including concerns pertaining to inadequate social protection coverage or political opposition to complete or near-complete lockdowns (e.g. Benin, Burundi, Niger and Tanzania).9 Many of those who had stricter measures, however, soon chose to amend and ease them recognising the grave economic damage caused for businesses, workers and poorer people.

Overall, during the period from early April to mid-May more than 30 LDCs had in place severe or very severe measures according to the Oxford Stringency index. This included 15 countries with required workplace closures for all except essential sectors and 17 with closures required for some sectors. The reversal from such extreme situations took place rapidly, possibly in response to the dire short-term consequences on employment and the economy at large. As of June 30^th, only 3 LDCs had in place required workplace closures for all but key workers (i.e. Afghanistan, Eritrea and Sudan), while 19 had required closures for some sectors.10 By July 30^th, however, strict required closures were reintroduced in Bangladesh and Nepal.

ILO has put together estimates on the share of workers in countries with general workplace closures as a means to give some order of magnitude about the potential employment and labour market impact. As of June 15^th, the vast majority of the world’s workers (93 per cent) resided in countries with some sort of workplace closure measure in place, with almost a third of the world’s workers in countries with required workplace closures for all but essential workplaces.11 The timeline of the pandemic, the speed of the spread of the virus, the timing of government responses, and the type and duration of measures taken to contain the pandemic differed significantly across regions.

In the LDCs, as of July 30^th, over 80 per cent of all workers resided in countries with some kind of workplace closures, which compares with a similar percentage in high-income economies, while just over 20 per cent were in countries with required workplace closures for all but essential workers. The latter was mainly due to the recent tightening in South Asia. LDCs in Africa and Pacific Islands had relatively milder regimes, as complete workplace closures had been uplifted since early May. Still, 50 per cent and 60 per cent of workers in the two sub-regions, respectively, resided in countries where workplaces were required to remain closed in some selected sectors, hampering many businesses from fully resuming their previous methods of operation.

Another important difference relates to the level of compliance with lockdown orders. There is some evidence that it decreased with the level of income and structure of the labour market. Based on GPS data, individual mobility in low-income countries was 30 per cent lower in April 2020 than in January 2020, while the equivalent figure was between 50 per cent and 60 per cent for middle and high-income countries. At a similar level of stringency, moreover, individual mobility decreased significantly less in countries that had higher levels of poverty, more vulnerable workers (own-account and unpaid family workers), and large shares of agricultural employment.12 Continued mobility in spite of restriction has been especially true for the self-employed, daily wage labourers and low-skilled workers, not least because the nature of their work required physical proximity to others and they simply did not have the option from teleworking at home. Only about 20 per cent of the population in the LDCs, in fact, have access to the internet.

Figure 2: Share of workers with general workplace closures (as of 30 July 2020)

Preliminary evidence on employment and income losses

At this stage of the pandemic, it is difficult to measure the extent to which employment may suffer in developed and developing countries alike. Recent ILO estimates indicate a global decline in working hours of 17.3 per cent in the second quarter of 2020 (relative to the last quarter in 2019), equivalent to 495 million full-time jobs, of which 45 million are located in Sub-Saharan Africa alone.13 As lockdowns are lifted and economic activities regain their normal pace, part of those losses will be recuperated but extensive gaps are likely to remain.

For low-income countries, the decline in working hours is estimated at 13.9 per cent, which is lower than the global average. In part, this is a reflection of the fact that out of economic necessity many workers in low-income countries were forced to maintain their working routines.

If the reduction in working hours was relatively lower and the direct impact on public health remains subdued or unseen, there are several ways wherein the COVID-19 pandemic is having a dramatic impact on jobs and incomes in the LDCs, as shown by a large albeit fragmented set of evidence.

Conventional labour market statistics in the LDCs are only available with a considerable delay, if available at all. A variety of ex-ante assessments, ad hoc household and business surveys and innovative methods have been introduced in order to track labour markets as the crisis unravels. ILO and other international organisations have been at the forefront in this regard, conducting several rapid labour market assessments to provide immediate, real-time support on assessing the employment and income impacts of COVID-19.

Table 4 in Annex 1 provides a summary of 26 existing available studies from a variety of different sources and methodologies in 19 LDCs (one of which recently graduated). The results are sparse, but point to significant employment losses in terms of millions of people affected, with considerable differences across countries. Figures from those surveys are also indicative of changes underway. Overall, they point to job losses disproportionately concentrated in low-skilled jobs. Although mainly in urban areas (i.e. in tourism, construction, manufacturing, restaurants, retail, and transport), rural jobs are also affected, such as those in agriculture and mining.

Modelled estimates of unemployment rates vary from an increase of 10 per cent in Mozambique, 5 per cent in Ethiopia, 3 per cent in Sudan, to almost no change in Senegal.14 The unemployment rate, however, is an inefficient indicator of labour market slack in poor economies, which is made even more inefficient by COVID-19 since restrictions to mobility further constrain jobless people to actively search for jobs, thereby statistically classifying them as unemployed. Macroeconomic modelling, moreover, can hardly account for the interaction of demand and supply shocks that characterizes the COVID-19 crisis.

While there is evidence of women being disproportionately affected in many advanced and emerging economies, gender-disaggregated data are particularly scant in the studies in LDCs.15 Only one survey in Samoa, a former LDC, higlighted that women have bared the brunt of job losses (64 per cent).16 This is a major gap that should be addressed. Women are especially at risk since, on the one hand, they are overrepresented in several labour intensive low-skilled activities, and, on the other, have heightened unpaid care obligations on the backdrop of school and child care closures.

A pertinent comparable result from national surveys and country assessments is that, overall, the crisis is leading to significant lost earnings and reduced incomes in LDCs, in some countries affecting as much as 80 to 90 per cent of surveyed respondents - e.g. Bangladesh, Senegal, Timor Leste, Uganda, and Yemen. It is also the case that the economic damage of the crisis is better captured by the income channel than employment. This is because, as mentioned earlier, large swaths of the LDCs’ labour markets are composed of self-employed workers that are more likely to incur reduced incomes and/or working hours than become inactive or unemployed.

Finally, there are signs of “scarring” effects. Viable businesses, especially MSMEs and informal endeavours, can be forced to close. For workers and households, the risk is not just higher unemployment and inactivity, but also falling even deeper into informality, underconsumption, hunger and long-lasting poverty. The drops in incomes mentioned above are noteworthy insofar that they may be pushing many individuals into negative coping strategies, such as cutting down on consumption to the bear minimum, taking out predatory loans from informal moneylenders, or, in extreme cases, theft and other illicit activities. As shown in the case of Uganda, for instance, an additional 2.6 million poor people are expected to materialise in consequence. While in Bangladesh, one survey estimates climbing rates of extreme poverty, with 94.8 per cent and 34 per cent of respondents reporting insufficient access to food and clean water, respectively. The overall consequences could be devastating. Estimates based on growth projections from the World Bank suggest that COVID-19 could push an additional 71 million people into extreme poverty in 2020 under the baseline scenario and 100 million under the downside scenario, many of whom are in the LDCs.17

Multiple labour market shocks, with compounding effects

It is essential to set those sparse pieces of evidence in a proper context, in order to fully understand the impact of the COVID-19 crisis. The fact is that labour markets in LDCs are suffering from simultaneous shocks on several fronts, with compounding effects.

Containment measures and social distancing are affecting directly domestic activities, hitting in particular urban informal activities that in earlier crises acted as a buffer. At the same time, even without a single case of infection, disruptions in the global economy are causing significant formal job losses in manufacturing, modern services, construction, tourism and mining.

Macroeconomic effects are also significant. If specific sectors and location are affected first and acutely by the pandemic, as incomes decline and uncertainty prevails, growth weakens, leading to job losses spreading throughout the whole economy. Given the lack of social protection systems that can act as automatic stabilizers and the limited capacity for countercyclical fiscal measures, those contractionary effects can be quite severe in LDCs.

And finally, the indirect effects of the pandemic on health, nutrition and education - because of school closures, fewer vaccinations among children, higher child and maternal mortality, disruption of health care services etc. – have long-term effects on growth.

The result is a genuine recessionary spiral, accounting for an unprecedented macroeconomic shock. It is a sad paradox that poor countries relatively less affected by the public health effects of COVID-19, will end up being the ones more likely to suffer the most economically and socially.

Domestic channels - Fragile urban and rural informal jobs

The immediate and most direct labour market impact is due to containment measures that have been adopted by almost all countries, as seen above in Figure 2. Even if those measures were relatively short-lived and halfway respected, a few weeks of shutdown can have severe economic implications for people who work informally, have little cash reserves, no paid sick leave, no access to teleworking and nothing to fall back on. In the LDCs, those people represent the majority of the workforce.

In earlier crises in LDCs, informal employment acted as a labour market adjustment mechanism, expanding to offer some precarious livelihoods to buffer the negative employment effects of a trade shock or budgetary restrictions due to fiscal consolidation. This time around, the crisis hit upfront the economic sectors wherein informal, low-productive urban employment is usually clustered – commerce, food, transportation, personal services and domestic work. In Malawi, for instance, a telephone survey in urban areas found that 88 per cent of businesses in the services sector reported lower or no sales revenues. Meanwhile, in Senegal, a qualitative assessment in the urban informal economy by the ILO and the Ministry of Commerce and SMEs found that 40 per cent of interviewed workers lost their jobs, while 62 per cent faced reduced incomes Overall, as of April 2020, ILO estimated that 197 million informal workers in low-income countries- or 68 per cent of their total employment- were in economic sectors at significant risk from the COVID-19 pandemic such as, retailing, food and transportation in densely crowded urban areas.18

If throughout most countries, job and income losses seem to have been affected at first in cities, in the face of limited access to savings and contingency funds, many informal workers were also migrating back to their villages from urban centres, furthering impoverishment and hunger in rural areas, as well as accelerating the spread of the virus. In spite of its essential nature, with many activities remaining in operation even during lockdowns, the agricultural sector has not been spared. Restrictions in urban-rural mobility and disruptions on the supply side affected production and earnings for agricultural workers, which constitute the bulk of employment in LDCs (55 per cent in 2019).19 Restrictions to mobility are also hampering inputs of fertilizers and seasonal movements of workers for harvesting and sowing for the next season, constraining agricultural productivity and future employment prospects.

In Burkina Faso, a survey conducted by Innovations for Poverty Action in collaboration with the Ministry of Employment showed that, as of July, 80 per cent of households working in agriculture have altered their operations because of restrictions linked to COVID-19. This has significantly impacted workers, with 50 per cent experiencing a fall in working time and 60 per cent facing reduced earnings.20 In Eritrea, 25 per cent of jobs in the agriculture sector are at risk stemming from supply-side restrictions, translating into around 157,081 jobs, of which women occupy 80,111.21 In Zambia, one scenario suggests that 122,206 (or 15 per cent) of agricultural jobs will be lost, most of which reside in the informal sector (108,153).22

This presents food security concerns: according to the 2020 Global Report on Food Crisis, for instance, 73 million people in Africa are severely food insecure. What is more, the combination of the COVID-19 pandemic and locust outbreak in East Africa is expected to worsen the situation. Overall, cutbacks in incomes and food consumption looks especially severe in countries with few cases and deaths relative to other parts of the world. Hence, in the poorest countries, the indirect impact of the coronavirus pandemic may prove substantially more severe than its direct death toll.

External channels - Losses of formal jobs

Even before registering any single case of contagion, most LDCs were suffering from the disruptions caused by COVID-19 to the global economy.

Manufacturing, in particular of textiles, clothing, leather, and footwear, is a prime example. Those industries have been key drivers of development in some LDCs, especially in Asia. Indeed, a sizeable share of (mainly) formal employment resides in these highly globalised industries, amounting to 8 per cent (or 4.9 million workers) and 12 per cent (or around 1 million workers) in Bangladesh and Cambodia, respectively.23 The garment sector has been significantly affected by COVID-19. It is estimated that the public health crisis could cost global value chains $US50 billion in exports.24 On the supply side, transport controls and other measures put in place at the start of the year has had a ripple effect and led to raw material shortages in garment-exporting countries, drastically limiting production. In large part this can be explained by the temporary disconnecting of China from the global economy, a country that, in 2018, accounted for as much as 60.2 per cent of textile imports in South-East Asian countries. In addition, supply has also been restricted locally via temporary lockdowns and factory closures imposed by governments in attempt to keep contagion rates at bay.

Even if supply capacities were to return to pre-crisis levels, there still exists negative demand-side shocks impacting the profitability of these industries. The virus has resulted in a sharp decline in consumer spending, especially in Europe and Northern America. Consumers’ loss of income and confidence, social distancing, and increased propensity to save during times of recession have led to a reduction in global demand for goods. While the repurposing of factory resources has had a mitigating effect in some countries – e.g. the mass production and exporting of face masks in Bangladesh, Cambodia, and Myanmar - those trade flows are hardly sufficient to offset contractions felt in the garment sector, and sizable job losses in the LDCs remain apparent.25

In Bangladesh, most factories closed their operations after the government declared a general holiday early on this year to reduce contagion risk. Even though there has been some exception for factories that have pending orders or have reached an OSH standard regarding personal protective equipment (PPE), as of April, an estimated US$3.18billion in orders has been lost, affecting 1,136 factories. In 2019, Bangladesh’s garment sector accounted for 84 per cent of the country’s total exports, reaching a value of $US40.5billion. The drop in demand is affecting more than 2.28 million garment workers, and, according to one study, close to one-in-three factories reported some worker lay-offs.26

In Cambodia, too, factories have experienced partial or full closures in response to the outbreak. As of June 30, 400 factories have been forced to suspend operations, resulting with over 150,000 workers (or 15 per cent of the country’s garment workers) losing their jobs.27 Looking forward, this number is expected to increase as numerous brands and retailers in Europe and Northern America have cancelled or delayed orders owing to the drop in retail sales.

In Myanmar, reports suggest that 44 out of 600 garment factories remain closed, leading to approximately 22,000 lost jobs.28

In Haiti, according to a business impact survey conducted by Better Work in April, most garment manufacturers are facing severe COVID-19-induced operational disruptions, with only 15 per cent of factories operating as usual, while half are completely closed.29 In over 50 per cent of factories surveyed, managers claimed to have suspended a proportion of their workforce, in some cases amounting to over 500 employees. Furthermore, a significant subsample of interviewed managers confirmed that they have already, or are at least planning on, dismissing workers owing to COVID-19 (40 per cent).

In Ethiopia, from January to April, besides temporary closures to develop or enact preventive measures, factories have remained operational at large. Still, the business disruptions in the global garment supply chains have impacted workers. In one workers’ survey, 59 per cent of respondents reported a decrease in their income, a loss mostly attributed to reduced working hours, fewer incentives and bonuses offered at the workplace.30 Since the beginning of April, Hawassa Industrial Park - one of the largest industrial parks in the country in terms of production and employment (about 35,000 workers in direct production) - has closed up to 45 per cent of its operations.31

In many cases, these manufacturing jobs at risk created an opportunity for workers, predominantly female and unskilled, to obtain formalised jobs and receive regular wages. Health risks are another concern since garment workers often work in large, densely populated factories, which increases risk of contagion and, more broadly, regular outbreaks, thereby producing a vicious cycle.

Akin to garments, tourism is a predominant sector and a strong source of growth for many LDCs. In almost 90 per cent of LDCs, tourism is considered a key sector of the economy, composing, on average, 9.5 per cent of their GDP. Tourism is also a vital source of employment, representing 13.52 per cent and over 8 per cent in the LDCs situated in Asia and the Pacific, and Africa, respectively. Prevailing lockdown measures, travel restrictions, reductions in consumers’ disposable income and low confidence levels have brought tourism to a standstill in many countries, affecting millions of workers directly and indirectly. In this regard, tourism does not only create jobs internally, it is also a vibrant source of formal and informal employment in other economic sectors, such as food, beverages and entertainment, as well as other sectors that supply goods and services travellers seek while on vacation.32

In Vanuatu, tourism represents approximately 75 per cent of total exports. It is estimated, however, that the Vanuatuan economy could shrink by 13.5 per cent as a result of the outbreak. With tourism accounting for 34 per cent of GDP and the dramatic drop in tourist arrivals – estimated to fall by 84,000 in 2020 – 21,000 jobs in the small country could be impacted.33

In The United Republic of Tanzania, too, tourism has been hit hard. The number of tourists visiting Serengeti per day, for instance, has fallen from 6,000 to 24. Accordingly, the national government expects 76 per cent of direct employment in tourism to be lost, amounting to 477,000 jobs.

In Senegal, according to a moderate scenario assuming an 8-month standstill of international tourism, Senegal will experience a 3 per cent decline in GDP, which would translate into a 7 per cent drop in unskilled employment and a reduction of 8 per cent in skilled workers’ wages.34

In Bhutan, a rapid socio-economic impact assessment of 1,285 persons showed that almost two-thirds of households generate their income solely from tourism-related activities. Moreover, as of April, 36 per cent of respondents confirmed that they either had lost their job or been granted leave without pay, which has led to 63 per cent of households incurring a loss of income by at least 50 per cent. Deprived respondents (over 60 per cent) reported that their households did not have enough food for three or more weeks.35

In Nepal, The Nepal Association of Tour and Travels Agents (NATTA) has experienced booking cancellations until the end of autumn. In consequence, the private sector expects a 25 per cent employment drop in the tourism sector alone. Job losses, as of April, stand at 1.5 million for those associated with trekking and mountaineering companies, and around 1,500 and 300 for professional guides and tourist bus drivers, respectively.36

In Uganda, according to a UNDP socio-economic impact assessment in April, following an immediate drop in occupancy rates, several large hotels have laid off more than 1,000 workers, with each expecting more layoffs in the near future.37

The majority of LDCs, in particular in Sub-Saharan Africa, are also reliant on the exporting of commodities, such as minerals, oil, gas and agricultural products. Oil exporting LDCs were especially affected as disagreement among major oil exporting countries caused oil prices to plunge by 50 per cent. Other commodities, such as metals and minerals, have declined by 20 per cent. Even though extractive industries are capital-intensive and account for a limited number of jobs, revenues from these industries often represent the bulk of government revenues. A decline affects urban formal employment via its effects on the numbers and wages of civil servants and workers in construction for public infrastructure. Indirectly, it reduces fiscal space available to provide support enterprises and incomes and mitigate the economic and employment damages of the COVID-19 crisis.

In Zambia, the extractive industry contributes to over 10 per cent of GDP, 80 per cent of exports and 29 per cent of government revenue. The Zambian finance minister estimates a 20 per cent shortfall in revenue for the country’s 2020 budget. In addition, over 10,000 extractive sector jobs are set to be lost with the closure of just one company.

Remittances from workers living abroad represents a significant proportion of household income for millions of people living in LDCs, particularly in urban areas. At the macroeconomic level, remittances are also a major source of foreign exchange earnings, often playing a corrective role for these countries’ trade balances. In 2019, for instance, they contributed, on average, 7 per cent of GDP in LDCs.38 According to one report by the World Bank, the pandemic will produce the sharpest decline in global remittances in recent history, falling by around 20 per cent in 2020.39 These effects will be particularly pronounced in countries such as Nepal, where remittances contribution to GDP is expected to decline from 27.3 per cent to 13 per cent.40 For many households, decreasing remittances presents another channel that drags down private consumption, thereby exacerbating the demand-side shock and, in turn, limiting employment prospects.

The movement of migrant workers back to their home countries further stifles already weak, or absent, social protection systems, leaving a growing number of households with little to no income replacement or safety net. At the same time, growing populations as a result of repatriation carries the potential to exacerbate food shortages, as well place further pressure on already fragile health systems. According to IOM, for instance, hundreds of thousands of Bangladeshi migrants are expected to return home once countries relax restrictions and airlines resume flights.41

In sum, with plummeting quantities and prices for exports and drops in tourism and remittances, LDCs are experiencing a sharp and unprecedented demand shock. The looming global recession is likely to intensify those damaging effects: 170 countries have entered negative economic growth since March 2020. As projected by the IMF, the global economy is likely to shrink by nearly 5 per cent GDP in 2020, with GDP growth becoming negative in low-income countries vis-à-vis an average of 5 per cent in 2019. A prolonged disconnection from the global economy may severely affect the limited pockets of formal employment which the most successful LDCs have been able to gain over the past two decades of globalization. This, in turn, may affect the prospects for further technological and organizational upgrading and structural transformation, a critical challenge for most LDCs.

Emergency economic responses so far42

The rapid introduction of large, unconventional fiscal and monetary measures by advanced economies has been a distinctive feature of the economic response to the COVID-19 crisis. Governments of LDCs acted similarly fast. Most LDCs rushed to adopt fiscal packages designed to tackle the health emergency, provide emergency lifelines to vulnerable households, and support businesses. Table 2 column 2 sets forth measures that were adopted during the immediate response phase of the pandemic in the main policy areas. The standard bundle included:

• targeted investments to strengthen the health system, in some cases within the frame of contingency plans coordinated with international organizations and donors;

• the expansion of social assistance to the most vulnerable, mainly including cash-transfers and in-kind necessities to the poorest; and

• supporting the private sector through tax relief, suspension of government fees and waived social contributions, with attention paid to highly exposed sectors, such as transportation, accommodation and tourism (e.g. Benin, Bangladesh, Burkina Faso, CAR, Guinea, Lesotho, Madagascar, Malawi, Mauritania, Mozambique, Sierra Leone, Senegal, Togo, and Uganda). In addition, subsidized access to agricultural inputs was provided in some cases (e.g. Gambia, Rwanda, and Togo). In other cases, medicine and medical equipment were exempted from paying import duties (e.g. Madagascar, and Malawi).

If the economic rationale for the interventions was the same as in advanced economies, the implementation modalities were adapted to the nature of the shock and each country’s institutional features. To reach out to the large numbers of workers in the informal economy who were hit by the crisis was an overwhelming challenge. Most countries broadened and topped up existing cash transfers programmes, such as the Productive Safety Net Programme in Ethiopia and the Child Grant Programme in Lesotho. Some countries have used this time as an opportunity to reduce informality and have coupled access to emergency micro-loans with measures for formalisation of small economic units (e.g. Angola). For formal workers, wage subsidies were introduced in some cases, often conditional to employment retention (e.g. Bangladesh, Burundi, Haiti, Senegal, and Timor Leste), while a few countries made use of cash for work and labour-intensive public works programmes (e.g. Cambodia, Guinea, and Nepal). Innovative solutions were also searched for. A new mobile cash-transfer program, NOVISSI, was launched in Togo, for instance, and was able to register about 1.4 million informal workers.

A notable difference compared to advanced economies relates to the size of the fiscal engagement. Of the global fiscal support estimated at about $10 trillion in June 2020, almost 90 per cent was accounted for by high-income economies and only 0.03 per cent by low-income economies.43 Looking at averages by income groups, fiscal measures made up for 22.5 per cent and 6.5 per cent of GDP across advanced and emerging G20 economies, respectively. By comparison, economic support measures were estimated to average 3.4 per cent of GDP in Sub-Saharan Africa.44 Looking only at (above-the-line) fiscal support, a similar profile arises, with direct fiscal support averaging 7.9 per cent of GDP in advanced economies, 3.4 per cent in emerging economies and 1.4 per cent in low-income economies.45

Even within the LDCs, the size of economic support varied significantly. Overall, it was far below the average of other income groups. It ranged from less than 1 per cent of GDP (e.g. Angola, Burundi, Eritrea, Laos, Liberia, Malawi, Mali, Myanmar, Nepal, and Yemen), to 5-10 per cent (e.g. Bhutan, Cambodia, Lesotho, Mozambique, Senegal and Timor-Leste), with most other countries in between. In most cases, the fiscal packages provided by LDCs was lower than the expected decline in GDP in 2020, which for low-income countries has been estimated by the IMF to be between 5 and 6 per cent.

New discretionary expenditures, moreover, were just a portion of the budget allocated to the COVID-19 response in the LDCs. Many countries reallocated expenditures away from capital spending or reduced the public sector wage bill. In Togo, for instance, the 2020 budget allocations for capital spending have been reduced by 60 per cent to make space for COVID-19-related current expenditures.

Table 2: Economic and employment responses to COVID-19 in the LDCs

Source: Authors, based on ILO, National employment policies for an inclusive, job-rich recovery from the COVID-19 crisis, Policy Brief, September 2020

Reductions in capital spending come at the cost of undermining prospects for recovery and future economic growth, while reallocations of current expenditures have a limited multiplier effect and can generate conflicts, making the delicate task of managing the political economy of the pandemic more difficult.

As it concerns the composition, relatively more was spent in the health sector: over 40 per cent of the direct fiscal package in the low-income countries against around 10 per cent in both advanced and emerging economies according to IMF estimates.46 Another source sets the share of health spending at about 25 per cent of the fiscal package in a sample of 31 Sub-Saharan African countries, still higher than the equivalent share in richer economies, with another 25 per cent spent to support the most vulnerable.47 The amount allocated to economic relief, outside the health sector, was therefore relatively modest.

Monetary policy responses were also fast and generally included reducing the policy rate, providing liquidity to the commercial banks, and relaxing reserve requirements or mandatory deposit limits. In some cases, commercial banks and micro-finance institutions or national development banks were used as a vehicle to help SMEs restructure their loans and access guarantees or moratoria on their debt service, for instance, in Bangladesh, Myanmar, Rwanda, Uganda, and Zambia. Here, too, innovative solutions were introduced, e.g. a refinancing scheme operated by Bangladesh Bank to pay furloughed workers through mobile financial services, or the waiving of fees on mobile money transactions to encourage cashless transactions in Uganda. Gaps and weaknesses in the financial and banking systems, however, made monetary and financial measures less effective particularly in reaching out to the smaller businesses and safeguarding them from irrevocable disruptions in production.

Countries explored new and unconventional avenues to mobilize resources for health and relief expenditures, by means of establishing national solidarity funds to include contributions from development partners and voluntary donations from the private sector and the diaspora (e.g. Togo), selling citizenship rights (e.g. Vanuatu), or redirecting the salaries of top civil servants to welfare programs (e.g. Rwanda). Despite the ingenuity of all those efforts, the lack of fiscal space remained a main constraint to an effective response to the employment and economic damage of the pandemic, a constraint made more severe as fiscal accounts were under pressure from the recession-induced decline in revenues, at the same time as lower foreign exchange earnings from exports and remittances were putting pressure on the balance of payments. As LDCs can hardly borrow in their own currencies, and are relying on imports of many essential goods and services, external constraints are particularly constrictive.

Current challenges - Return to work and restarting the economy

In many countries, the immediate response to the COVID-19 pandemic and its economic fallout has been as strong as possible. Assessing the impact of those efforts is difficult. Health systems have received more resources but remain weak vis-à-vis the mounting direct and indirect sanitary consequences of the pandemic. Some basic assistance was provided to vulnerable groups of the population, helping alleviate social distress and prevent political turmoil. Vital businesses have received some backing. Yet, by and large, fiscal support remained well below the size of the economic shocks affecting households and enterprises, doing little in the way of preventing long-run scarring effects.

At the outbreak of the pandemic, the focus was on emergency measures to contain the spread of the virus and protect households and businesses from the economic damages. As described earlier, the main concern in the LDCs has been to lock the economy and deliver a minimum of economic assistance to as many vulnerable people as possible. As the crisis deepens, the challenge will be to increase capacity in hospitals and continue to provide essential income relief while acting to safeguard and strengthen the conditions for a fast job-rich recovery and a stable path to future resilience. The current stage, wherein the threats from COVID-19 remain rampant and uncertainty prevails, seems likely to be longer than initially expected, as the prospects for a vaccine and its availability worldwide remain unclear. If the task is to restart LDCs’ economies in a smart manner, facilitating a fast and safe return to work, policy cannot just focus on protection via redistribution. It has to combine protection with stimuli to preserve and expanding productive capacities, create jobs and stabilize the labour market.

What can LDCs do? The responses will have to be comprehensive, to cope with the multiple dimensions of the COVID-19 crisis, and encompass a range of policy areas in a coherent and integrated manner in order to optimize limited fiscal space and improve policy delivery.

Table 2 provides examples and suggestions for measures that might help promote a steady transition from emergency to recovery in the LDCs. Lockdowns in targeted sectors and locations, together with sufficient capacity for testing, tracing and isolate at critical hubs, could help minimize the spreading of the virus while mitigating unacceptable economic damage. Clear messaging on social distancing should be accompanied with subsidies for hand sanitizers and facemasks. As infections easily spread at the workplace, occupational safety and health provisions will be essential in all sectors to improve confidence of consumers and investors. Such provision should apply to both formal and informal modes of business as far as possible, evidence has already emerged, for instance, suggesting that informal market vendors have higher rates of infections.

Fiscal space should be found for macroeconomic policies to remain accommodative in order to continue protecting incomes and support jobs and enterprises. Inflation should be addressed by means of price controls for basic foodstuffs and tackling bottlenecks in supply, not through narrow nominal targets. It will be essential to make sure that people benefit from cash transfers and tax waivers, as well as receive help to continue their smallholder agriculture activities or other businesses. It is also important that individuals are offered opportunities for new jobs and training, and options for social care or assistance materialise to incentivise parents to continue sending their children to school.

Well-designed sectoral policies, targeted subsidies and skills development could help trigger new opportunities. Local sourcing within food supply chains is one example, as seen in Cambodia with the development of start-up “Grocerdel”, while the production of medical equipment with locally sourced inputs is another, as already operational in many garment-producing factories in Bangladesh and Myanmar.48 Policy should also support business in reorienting and adapting to patterns of demand as they are shaped by fears about the pandemic. Several LDCs, indeed, have adopted new laws and regulations for e-commerce or have committed to do so in the near future (e.g. Cambodia, Myanmar, Tanzania, Tuvalu, and Uganda). There is some scope for entrepreneurship and micro-level innovation, fuelled by new technologies, which could be leveraged in many areas. In Uganda, for instance, an ecommerce platform called “SafeBoda” has recently been launched to connect market vendors with customers after the country went in lockdown to control the spread of the virus.49 Given the importance of access to credit for most enterprises, central banks, development banks and microfinance institutions should take the lead in establishing new financial facilities and cashless platforms for wide access, including to informal endeavours. Development finance institutions, donors, and the private sector could also be supporting such new projects with funding, guarantees, and expertise.

Doing more with less - Stronger employment policies

Recovery measures will differ across countries, and not in all LDCs it will be possible to achieve a smooth and fast transition out of the pandemic to sustainable jobs, resilience and prosperity. States in conflict and post-conflict situations may need large amounts of humanitarian assistance. Countries with a functioning state, a burgeoning private sector and vibrant civil society might be better able - with appropriate international support - to make more progress.

Fiscal space will remain a major constraint, an even more binding one as tax revenues will be declining, export earnings and remittances will remain low, and external debt repayments will loom large. Faced with shrinking resources, countries will have to do more with less, improving the design and delivery of public support to the possible extent.

Focused and well-governed national plans for employment and economic recovery can help identify and take advantage of key opportunities for job creation, tailored to each country’s circumstances. Currently, LDCs are revising their development strategies and national plans to cope with the new scenarios opened up by the pandemic. Rapid assessments of the impact of COVID-19 on the economy and the labour market – often carried out with the support of multilateral institutions – are underway in many countries and account for a first step. Several countries, moreover, have national employment policies already in place, or a strong employment component in their development plans. Reinvigorating those national plans could provide a suitable framework to cope with the current set of extraordinary challenges. Aside from the content of specific measures, an inclusive and effective policy process will be key. Four elements, based on the ILO experience in assisting LDCs and the initial lessons from the emergency response to the pandemic, require special attention:

1. The promotion of a whole-of-government approach, with national programmes encompassing and coordinating the contribution from different ministries and agencies in the key policy areas - creating synergies, critical mass and fiscal savings. Countries where employment promotion is set as a common responsibility of different ministries, as in Rwanda, are better positioned to avoid duplications of programmes and account for effective and efficient fiscal support.

2. Reliable and timely information on the numbers and quality of jobs will be essential for the success of the recovery packages. It helps identify critical labour market gaps. It creates political traction. It facilitates monitoring of progress, including to ensure women, youth and vulnerable groups are not excluded. One key task of the Job Creation Commission (JCC), established in 2018, to drive the national job agenda in Ethiopia is to strengthen labour market information. The Rapid Labour Force Survey conducted by the JCC has been one pillar of the response to the labour market impact of the pandemic in the country.

3. Productive transformation is a critical underpinning to higher productivity and better jobs. It should balance access to critical global inputs, technology and knowledge with targeted support to develop and upgrade local production capacities. Supporting productive transformation, including via a progressive transition out of informality, will work better through continuing adjustments and strategic interactions between public agencies and private enterprises, with networks of labour market policies and services, training and financial institutions in place to facilitate those interactions. One lesson LDCs are learning from the pandemic is the importance of reaching out and supporting informal, micro and small businesses, with digital means or by means of extending the scope of their employment and training services, e.g. in Malawi, Myanmar, Namibia, and Nepal.

4. A broad and open participatory approach to strategy design and policy implementation - involving social dialogue and collaboration between governments, employers, worker representatives, academia and civil society - can facilitate consensus on key priorities, gain buy-in to implementation and improve accountability. In Senegal, for instance, the national resilience plan prepared by the Minister of the Economy benefited from the involvement of academic experts and civil society, which brought practical value to understanding and addressing the COVID-19 crisis.

Over the long-run, once the pandemic is under control, the SDGs remain a vital transformative policy agenda, with SDG8 as a core element. Integrated and comprehensive national plans to promote a job-rich recovery from COVID-19 could provide a foundation to move forward and attain those goals by means of nurturing productive transformation, better infrastructure, strong investments in the capabilities of people and improvements in the institutions of economic and labour market governance.

Some among the LDCs are in especially fragile situations, exposed to natural disasters or affected by conflict. The economic ravages resulting from the pandemic can jeopardize existing social safety nets and coping mechanisms and increase tensions between communities and between the government and parts of the population, even fuelling further breakdown of social order. Fast-track public employment, training and income generation programmes can help alleviate those social strains and promote peaceful coexistence. It is not an automatic result. Successful interventions, including those with international support, should be designed taking careful consideration of the underlying factors of fragility and the overall security landscape. They should adapt to local realities and contain explicit conflict-sensitivity and peacebuilding components. Engaging social partners, local actors and communities from the outset is particularly important, to prevent and minimize perceptions of exclusion from service delivery. Short-term responses to COVID-19 should also be designed to lay the foundations to address the structural challenges behind fragility. A comprehensive set of general and practical recommendations for health and employment programmes and interventions responding to COVID-19 in conflict-affected countries is contained in ILO, WHO, PBSO and Interpeace (2020).

Stepping up international assistance

Can LDCs make it on their own? As access to private capital markets is very narrow or non-existent for most LDCs, multilateral sources have been a primary initial source of financing in coping with the global crisis caused by COVID-19.

The World Bank has announced it is mobilizing $160 billion for loans and grants as part of its operational response to COVID-19, reaching out to almost all the LDCs, while the IMF is making about $250 billion available to member countries for COVID-19 financial assistance and debt service relief.50 Currently, 31 LDCs are receiving emergency COVID-19 financial assistance under the IMF Rapid Financing Instrument (RFI) and/or Rapid Credit Facility (RCF), two lending instruments specifically designed to respond to external shocks in a timely manner. Six-month debt service relief is also granted to 27 LDCs under the IMF’s Catastrophe Containment and Relief Trust (CCRT).51 Emergency support to fight the pandemic in the most vulnerable and low-income countries - including 27 LDCs - is also available under the UN $10.3 billion appeal for a coordinated global humanitarian response plan, of which $ 2.2 billion were funded as of 20 August 2020, with gender-based violence, health and social protection as the main target areas.52

Those sources do help free up resources and alleviate the fiscal and balance of payments constraints of LDCs in meeting their immediate needs to respond to the pandemic. Unlike conventional IMF funding, the RFI and RCF loans are disbursed all at once after the borrower country outlines their intended policies, can be used support healthcare systems and sustain lifelines and do not include conditionality. The amount of funding, however, is limited to 100 per cent of the borrower’s IMF quota.53 Moreover, loans from the IMF and multilateral development banks, albeit at concessional terms, do add to the debt burden of receiving countries, making the external sustainability of public debt more vulnerable.

If the crisis drags on, far more bilateral and multilateral support and new financial facilities will be needed to help LDCs fund their responses.

First, it will be important to scale up official development assistance (ODA) to meet existing commitments, avoiding the reductions that may follow budget pressures across bilateral donor countries. ODA remains far more important for LDCs than for other groups.54 If the health emergency deepens and the timing of a widely available medical solution remains uncertain, the need for a comprehensive humanitarian response will increase even further.

Second, given the already high levels of debt vulnerability, continued debt relief is needed in order to free up further resources and avoid to push poor countries “from recession to depression”. The Debt Service Suspension Initiative (DSSI) launched by the G20 leaders entails the suspension of debt service payments for 73 poorest countries from May to end of 2020. Over 40 countries have applied for benefits so far, amounting to an estimated $5.3 billion of 2020 debt service to be deferred, but the contribution of private creditors is still uncertain.55 The World Bank recently warned that the debt stand-still may need to be extended to 2021 and it should cover the stock not just the service of debt.56 In a similar vein, UNCTAD has called for the establishment of an International Developing Country Debt Authority (IDCDA) to lay the institutional and regulatory foundations for a permanent international framework to guide sovereign debt relief and restructuring in the future.

Third, establishing new allocations of Special Drawing Rights by the IMF would be a direct channel to provide financial support to the most vulnerable countries, an option that has broad support from experts but meets with political obstacles.57 A practical interim measure could be to reallocate to developing countries some of the existing SDRs that constitute part of the foreign exchange reserves of high-income countries.58 Even a partial reallocation could be of great relief. After all, the situation of the LDCs is dire, but they are small in economic terms.59

Fourth, while the focus is currently on immediate financial support to the most vulnerable countries, as the health emergency gets under some control there will be a need to finance the recovery in jobs and incomes. LDCs with the greater chances of graduation (and the majority of the other developing and emerging economies) should be able to access capital markets at terms that are not inflated by perceived risks of default, that are not subject to short-term speculative financial movements and illicit capital flows, that do not come with the stigma of borrowing from the IMF, and that are not accompanied by tight policy conditionalities geared to rapidly attain achieve fiscal and balance of payments equilibrium. That would require broadening the lending capacities of the IMF and the multilateral development banks and, given the systemic nature of the current crisis and its circumstances, revisiting their adjustment requirements to facilitate and not hamper recovery from a shock that is exogenous and – scarring effects aside – largely self-correcting over the medium term.60 Revisiting the modalities of the assessment of sovereign debt by the international rating agencies, as currently discussed at the G20 Framework Working Group, should also be part of the international policy response, to ensure there are no pro-cyclical effects that could limit access to private financing.

Finally, aside from financial measures, it will be critical to strengthen international cooperation on healthcare and vaccines and avoid unnecessary restrictions and barriers to trade and migration. Interaction with higher-income economies will be essential to set in motion and sustain recovery in smaller and more vulnerable developing economies once the pandemic is under control.