The corona virus epidemic has been a huge financial burden on various countries around the world. It only seems to be getting worse, and many people are starting to wonder when it’s going to end. Unfortunately, there is no clear answer for that at this time. The economic impact of the virus can’t even be calculated yet because we don’t know how long it will last; but you can bet that it will have quite an effect on our economies if it continues unabated for too much longer.
Governments across the world have of course reacted in different ways to the corona virus outbreak. Most have seen that in order to avoid mass unemployment and economic stagnation that state support is essential. Of course the ability to spend their way out of an epidemic varies widely throughout the world. Established economies like the US and Japan have more possibilities to raise funds through government bonds and borrowing.
Raising money however is only one aspect, how that money is spent is a completely different one. Just have a look at this chart which illustrates as a proportion of GDP how much various countries are spending in total combating the epidemic.
The top twenty are dominated by large, established economies who have the ability to raise capital and leverage debt very easily. It’s important to remember though that this chart actually only includes actual expenditure. If we include other Government actions like supplying or guaranteeing loans to businesses then this list changes a lot. For example, France would move up to the top of the list which would fit in with their government profile. The United Kingdom moves much higher up the list if these sort of costs are included too.
Debt Crisis Will Hit Developing Countries Hardest
The debt crisis will hit developing countries the hardest. For example, in Africa: Ethiopia is already spending more than a third of its state budget on combating the Coronavirus and they’re not alone; Uganda reports that it’s been forced to spend $82 million dollars since August just on hospital expenses for patients with SARS symptoms. These sums might seem small in comparison to some developed nations but they represent a much larger proportion of their economies.
The IMF have issued a list of countries which are most at risk to this increasing debt and warned that any economic recovery will be impacted. Countries with high inflation and instability will suffer most from the virus from across Asia and Africa in particular. Those with active conflicts like Libya, Sudan and Yemen could suffer economic harm which takes decades to recover from. This will be magnified by other factors like vaccine inequality, the corona virus is likely to impact these countries for much longer too.
There is a growing acceptance that many of these countries will need extensive financial assistance to recover even in the medium term. Many of them already suffer under extensive debt and repayment requirements which severely limit their recovery prospects. Rich countries have much more access to cheap borrowing than the poorer less developed nations.
The corona virus is a growing debt problem that will have major ramifications for the global economic system. Governments need to start figuring out how they can pay back these debts and stop this virus before it’s too late.
– The Financial Impact of the Coronavirus: What’s Next?