One Shared World

Oct 10, 2020

5 min read

COVID-19: $2.50 a day will allow the world’s most vulnerable to move beyond the economic collapse

With the IMF and World Bank annual meetings just a week away and an upcoming G20 summit in November, we must seize this opportunity to prevent a second wave of COVID-caused economic distress around the globe. For $2.50 per day, the world’s 820 million most vulnerable people can survive into next year and have the community funds to catalyze a bolder recovery.

COVID is erasing years of progress in the fight against poverty. Many relief measures have been poorly managed and subject to corruption, thereby increasing social and economic divisions. Rather than condemn millions of impoverished people to a lost decade, why not make a modest investment in their sustainable futures.

Calls for urgent action are now deafening. Just last week, Pope Francis’ third encyclical urged us to form a ‘global ethic of solidarity’ and recognize that our world is shaped by ‘interdependence and shared responsibility’.

A new report for One Shared World that we helped author describes how to tackle the immediate challenge of the coronavirus and ensure a better future. A key proposal offers emergency cash transfers to the world’s poorest and their communities. A dollar a day over a 6-month period would be a temporary lifeline for millions of impoverished people. We can bring people together with a matching dollar fifty per day to their communities, creating a fund to galvanize local action and investment.

This unprecedented crisis has been met with extraordinary policy measures around the world. But according to The Economist, while high-income countries have spent roughly $695 per head for programs to help the poor, this number is just $4 in low-income countries. Most efforts are seen as favoring established economic forces.

Global GDP is expected to shrink by at least $12tn by the end of 2021, making this the worst recession since the end of World War II. 37m people have already been pushed into extreme poverty this year, with the World Bank predicting that this number will reach 70–100m by year’s end. Times are hardest for informal workers who have very little employment protection; they make up 70 percent of the workforce in developing countries. The International Labour Organisation has estimated that informal earnings may have contracted by 82 percent in low- and lower-middle-income countries during the first month of the crisis.

Furthermore, most informal workers are unable to work from home, putting them at higher risk of catching the virus. So not only would a dollar a day provide much-needed money for essential goods, it would also make it easier to stay at home, reduce chances of infection and defeat the virus. Cash transfers are indeed one of the most powerful tools we have for confronting the crisis; according to a recent report from UNICEF, they could not only halt the rise in poverty, but also reduce it to below pre-COVID levels.

Beneficiaries can also use the cash transfers however they choose. Given that COVID has affected so many economic sectors at once, it is important that people can spend the money on whatever is most urgent, from food to medical bills. Transfers can also be paid digitally and directly, making graft far less likely while reducing the risk of transmission associated with physical cash.

Nevertheless, a dollar a day can only provide temporary respite from the crisis. Think of it like a bandage: an essential short-term measure, but not a long-term one. Therefore, each dollar spent should also be matched with an additional dollar fifty for the community as a whole.

With a pooled fund, residents could choose what to do, whether that be a school, paying a teacher or first responder, a new road or a clinic. Given that emergency cash transfers have one of the highest fiscal multipliers among poor and vulnerable populations, this needed liquidity would provide vital stimulus to economic activity, creating jobs and investment in productivity-enhancing public goods, as well as increasing government tax revenues.

Experience has shown that empowering communities leads to more cost-effective solutions, tailored to the local environment. It also creates buy-in and sustainability.

When USAID did something similar in Haiti and Rwanda in the 1990’s, key principles of self governance anchored the program. Community-based groups came together and practiced participative decision making; local inputs of labor and available resources were required; and transparent reporting of the finances and administration minimized corruption. Women and youth took on new leadership roles and responsibilities. Communities built schools and other infrastructure at a fraction of what it would have cost a development agency — and local ownership was the centerpiece of progress. People took charge of their own problem-solving and pride in their new achievements.

Self-governance is the gateway to sustainable and inclusive aid. The community fund provides vital liquidity at a moment where it will make the greatest difference.

With 820m people living in extreme poverty or in danger of falling into it due to COVID-19, the cost of providing a dollar a day for 6 months would be roughly $150bn. The pooled communities fund would require an extra $1.50 per person, or around $220bn, bringing the total close to $400bn.

While these numbers may look eye-watering, they must be seen in context. For instance, the UK’s coronavirus stimulus package comes to $453bn for a population of just 67m, and during the last financial crisis in 2008–2009, world leaders agreed on a $1.1tn injection of financial aid into the global economy. Low- and lower-middle-income countries currently owe $2.1tn to investors, governments and others outside their borders.

Among the poorest countries in the world (so-called ‘IDA’ countries), G20 governments have already delayed $80bn of debt servicing repayments for the remainder of this year. Given that the pandemic’s economic damage is far worse and will be more prolonged than we originally thought, debt relief should be extended until at least the end of 2021. World leaders should also pressure private creditors to ease their repayment demands.

There are plenty of other ways to raise the funds needed, including the issuance of new international money and support to remittance corridors. A detailed plan of action can be found in our report.

COVID-19 has reminded us that we are all one humanity facing common existential challenges. This pandemic and its economic impact not only puts the world’s most vulnerable populations at risk, it threatens all of us. A massive and concerted global effort to empower the world’s most vulnerable populations is a pragmatic imperative — and a chance to advance systemic change.

In our interconnected world, we are only as safe as the least among us.

Rick Barton, author of Peace Works, teaches at Princeton and is the former Assistant Secretary of State for Conflict and Stabilization Operations, US Ambassador to the UN’s Economic and Social Council and the UN’s Deputy High Commissioner for Refugees. Tom Clark, a master’s student at Princeton University, is currently an Ullman Fellow working on big data innovations at the Flowminder Foundation. He has previously worked for the World Food Programme, Save the Children UK, the Overseas Development Institute and SEED Madagascar.