How Will COVID-19 Affect the Developing World's Economy?

The COVID-19 pandemic will have a major impact on those living in poverty, likely for years to come. Learn how.

29 May, 2020

COVID-19 has shaken our world in so many ways. This virus is impacting more than our health in Australia—it has taken our livelihoods and put our hope to the test. And it is the same in the developing world.

Poverty is complex—it is caused and influenced by a variety of interconnected factors. Even though the economy is not the sole cause of poverty, the wellbeing of a nation and its people does largely rely on it.

Here are just some of the ways the COVID-19 pandemic will impact the developing world's economy and the lives of families living in poverty.

1. Unemployment and increased poverty

For the majority of the workforce in developing nations, working from home is simply not an option. And when families living in poverty are already struggling to make ends meet, income loss can have a devastating impact.

"I earn a living making pottery," says Rachel, a mum from Rwanda. "When the lockdown was announced, we were told only people selling food were allowed to sell in the market."

"This was a blow to so many of us. We hadn't saved money for such times and we don't even have a garden to harvest from."

The United Nations (UN) estimates that an additional 84 to 132 million people—approximately half of whom are children—will fall into extreme poverty this year. This means that millions of already vulnerable families will soon be living on just $1.90 a day (or less).

The World Bank reports that we will see poverty increase for the first time since 1998—and that COVID-19 will erase roughly five years of progress.

2. Increased debt

According to Ian Goldin—professor of globalisation and development at Oxford University—many developing nations will have no choice but to borrow money from wealthier countries to keep their economies running during this time.

"Many cash-strapped governments can't adequately provide for their citizens' needs in normal times, let alone meet an unprecedented global emergency like this," he says.

When a developing nation's top priority is keeping their people safe and healthy, acquiring debt to purchase vital medical supplies is a no-brainer in the short-term. Unfortunately, as the crisis drags on, their currencies will continue to devalue—making it increasingly difficult to pay off the original loans, let alone additional debt.

According to the UN, many developing nations have been "struggling with unsustainable debt burdens for many years". Even though they are left with no choice, this additional debt is the last thing these governments need.

3. Decline in global trade

The World Bank expects that due to the pandemic, commodity prices (particularly oil) will drop, along with a dramatic decline in demand for nonessential retail.

In many South American and African countries, governments heavily rely on exporting natural resources like oil to sustain their economies. With a reduction of the workforce and less trade happening, national incomes will decline.

When families can no longer rely on their own incomes to provide for their families, knowing that their government is also in a rocky financial position can feel very unsettling.

4. Rise in food costs

While the rising cost of goods is impacting the globe, the World Bank reports that they will hit African nations especially hard, and may even create a "severe food security crisis".

"The decline in imports of food products in 2020 ranges from 13 per cent in the optimistic scenario (assuming rapid and effective response to the crisis) to 25 per cent in the pessimistic scenario due to a combination of the increase in transaction costs and the reduction in domestic demand."

With fewer people working in the agricultural industry, local production of food in Africa will also continue to decline. And as the cost of imported food rises, there are limited solutions available, leaving many with no choice but to go hungry.

As a global church, we have a choice. We can choose to sit back, or we can choose to rise as one and serve the most vulnerable—just as Jesus did.

Even though the outcome of this pandemic seems bleak, we have the choice to stand firm in faith, knowing that God is with us and for us.

Together, we can make a difference. Together, we can see vulnerable children and their families through this crisis.

Together, we won't let COVID-19—or poverty—win.

Staff from local churches all over the world are continuing to serve Compassion assisted children and their families, providing them with much-needed food and hygiene supplies. To help them continue this work, please give to our Disaster Relief fund today.

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Words by Claire Ince

Photos by Ben Adams, Eric D. Lema and Bayly & Moore

Sources:

• United Nations, 2020
• Compassion International, 2020
• World Bank, 2020 (Africa's Pulse)
• World Bank, 2020 (The Economy in the Time of COVID-19)
• World Bank, 2020 (Poverty)
• The Guardian, 2020
• United Nations Conference on Trade and Development, 2020
• ABC, 2020