Efforts by global institutions to help developing countries weather the coronavirus pandemic fell far short of overall goals, revealing large gaps in an international safety net intended to alleviate poverty, economic researchers found in a study of the response to the crisis. 

A group of economists said in a new paper that the International Monetary Fund and regional financial organizations have made "trivial" amounts of financing available to needy countries and have been slow to disburse those funds as the pandemic raged. These inadequacies in aid occurred despite a pledge in March 2020 by the G20 to do “whatever it takes” to support developing nations.

“To date, these words have not been met with equally bold action,” said five researchers in a paper published in the January 2021 edition of World Development.

The academics examined the activity of the IMF and various regional financial arrangements -- or RFAs -- through July 31 of this year, concluding that the IMF and RFAs had committed to $90 billion in loans and $550 million in currency swaps, or just 12.6% of their current capacity. Only about $40 billion of committed loans had actually been disbursed. 

And while lending and currency swaps for developing nations have increased marginally since July, co-author William N. Kring of Boston University said he had not seen any large-scale improvement.

The professor, who holds a PhD from Brown University and is assistant director of Boston University’s Global Development Policy Center, said that the coronavirus crisis has illuminated holes in the global financial safety net. While some developed countries have access to currency swap agreements, RFAs and the IMF, others can only turn to the IMF, which can in turn demand strict austerity measures. 

“When you look at the coverage of the global financial safety net, it’s very uneven,” said Kring.

Kring wrote the paper with Thomas Stubbs and Christina Laskaridis of the University of London, Alexander Kentikelenis of Bocconi University in Italy and Kevin Gallagher of Boston University. 

The United Nations has estimated that developing countries need $2.5 trillion to recover from the pandemic, so the comparatively minuscule amount of IMF and RFA aid so far could lead to vast budget shortfalls for developing countries, which will also likely lag behind their more developed counterparts in distribution of coronavirus vaccines. 

Developing countries also face additional economic pressure because foreign investors withdrew money at a rapid pace while the pandemic set in, reversing years of inflows. As markets have rebounded, some of that money has returned. 

Kring’s research has largely focused on the IMF and RFAs, regional counterparts to the IMF through which groups of countries pledge financial support to nations within the group experiencing financial difficulties.

Since the 2007-2008 financial crisis, regional financial arrangements, or RFAs, have grown throughout the world, and now boast a combined lending capacity of $1 trillion -- roughly equivalent to that of the IMF. 

“The landscape of regional financial arrangements is vastly different than in 2007-2008,” said Kring. “Back then, the RFAs didn’t even formally engage with the IMF.” 

Although Kring praised increased cooperation between the IMF and RFAs, he said RFA lending had been lackluster, totaling just $1.5 billion disbursed through July, compared to $36.2 billion disbursed by the IMF. 

“The actual activity of RFAs has been less than anticipated,” he said. “These RFAs could really make an effort to provide that topoff liquidity to countries that have gone to the IMF to give them the space and the resources to combat the virus and invest in and prioritize health and social spending.” 

Kring and other researchers are also worried countries that have taken IMF loans will face future demands for austerity that can stunt economic growth for years to come. 

The researchers referenced examples of Ghana and Ecuador, where only a fraction of relief funds have been spent on health care spending and social assistance to address the pandemic. Instead, most of the money has been spent elsewhere, such as covering repayments to private creditors for debt incurred pre-crisis. 

If countries are stuck in a cycle of debt repayments and demands for austerity from creditors, basic social services that are essential for economic growth will be neglected, Kring said. 

Boston University’s Global Development Policy Center and the Free University of Berlin jointly operate a website, GFSNTracker.com, that has tabulated IMF and RFA activity during the pandemic. Kring said the information on the site is currently outdated but would be updated within the week. 

The article, titled “Whatever it takes? The global financial safety net, Covid-19, and developing countries,” was published in the January 2021 issue of World Development. The authors were Thomas Stubbs and Christina Laskaridis of the University of London, William N. Kring and Kevin Gallagher of Boston University and Alexander Kentikelenis of Boccini University. The lead author was Thomas Stubbs.