@$$4$The World Bank’s latest World Development Report emphasizes that the COVID-19 pandemic was a truly global economic shock, in the sense that a greater share of countries around the world were affected than in previous economic cataclysms.
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The World Development Report is an annual flagship report of the World Bank, and the 2022 version is focused on the theme “Finance for an Equitable Recovery.” The report emphasizes that the COVID-19 pandemic was a truly global economic shock, in the sense that a greater share of countries around the world were affected than in previous economic cataclysms.
The authors write: “Economic activity contracted in 2020 in about 90% of countries, exceeding the number of countries seeing such declines during two world wars, the Great Depression of the 1930s, the emerging economy debt crises of the 1980s, and the 2007–09 global financial crisis (figure O.1). In 2020, the first year of the COVID-19 pandemic, the global economy shrank by approximately 3%, and global poverty increased for the first time in a generation.”
The challenge for policymakers around the world was to provide sufficient assistance to help households and firms over the worst of the pandemic, but at the same time not to pile up so much debt as to create dramatic future problems, saying: “In 2020,
- more than 50% of households globally were not able to sustain basic consumption for more than three months in the event of income losses,
- the cash reserves of the average business would cover fewer than 51 days of expenses,
- in 70% of countries the incidence of temporary unemployment was higher for workers who had completed only primary education,
- income losses were larger among youth, women, the self-employed, and casual workers with lower levels of education.
- Women, in particular, were affected by income and employment losses (42% of women vs. 31% of men) because they were more likely to be employed in sectors most affected by lockdown and social distancing measures, and they bore the brunt of the rising family care needs associated, for example, with the closures of childcare centers and schools.
The common pattern around the world was that governments of high-income countries were able to borrow more easily and thus to spend as a share of GDP during the pandemic.
The World Bank of course focuses on issues of lower- and middle-income countries. Although the governments of these countries on average mostly did not take on large amounts of extra debt, many of them pushed the limits of what they were able to borrow. In addition, their financial systems nonetheless face the substantial challenge of firms and households that are unable to repay their loans or pay their bills.