The cost of doing nothing: The price of inaction in response to the COVID-19 crisis (July 2020)

The global crisis induced by the COVID-19 pandemic is unprecedented in nature. Emerging as a health crisis, the pandemic has become a threat to global prosperity and stability. Keeping in mind the fundamental uncertainty about the trajectory of the pandemic and the economic forecasts, there is common consensus that the global economy will experience the deepest recession since the Great Depression and the broadest collapse in per capita income since 1870. As of 24 June, the IMF projects a -4.9 percent contraction in global GDP in 2020, followed by a protracted and uneven recovery due to the persistence of the shock.

The extent to which these downturns are synchronised and spill over across borders makes this crisis relatively unique. Domestically, the OECD and the G20 countries have responded with a large stimulus package estimated at over $11 trillion (approximately 10% of world GDP). In comparison, the cost of protecting the most vulnerable 10 percent of the world from the worst primary and secondary impacts of COVID-19 today is an additional $90 billion – less than 1 percent of the current stimulus package. Relative to high-income countries, “whatever it takes” is a fundamentally different concept in low-income countries due to limited forex reserves, central bank dollar swap lines and fiscal space. Strong multilateral coordination is required to meet the shortfall in financing and support the strengthening of health, education and other social safety nets – now, rather than later.

It is better, cheaper and more dignified to frontload responses to the pandemic and its secondary impacts. Waiting and then reacting when the full impacts are already visible would be a more expensive proposition. Delaying action not only shifts the burden to the future, but the price of the response will also exponentially increase, as the crisis cascades and reverberates for years to come.
Acting now to mitigate the impact saves money in the long term.

There is reason to be optimistic that additional resources can be generated, even in the current circumstances and the high cost. After the financial crisis of 2008-2009, fundraising for UN coordinated humanitarian appeals increased by more than 40 percent by 2010. In addition, the Heavily Indebted Poor Countries (HIPC) Initiative and related Multilateral Debt Relief Initiative (MDRI) programmes had relieved 37 participating countries of more than $100 billion in debt by 2018. These initiatives were in addition to Official Development Assistance (ODA), currently amounting to more than $150 billion per year. They were the result of human generosity and empathy, but also a calculation of national interest in donor countries.

We construct a taxonomy of the direct and secondary costs arising from not acting now to contain the virus and mitigate its cascading effects. We present scenarios to showcase the differential cost of inaction. Where relevant, the analysis shines a spotlight on a subset of 32 low-income countries, where a high share of the world’s most vulnerable populations is located.