COVID-19 set to take $400 billion from global battle against poverty by 2021

Developing countries will have at least $400 billion less to spend on sustainable development including access to safe water, healthcare and education during this year and next due to the impact of COVID-19, according to a new report from End Water Poverty and WaterAid.   

With less than a decade to go to achieve the Sustainable Development Goals (SDGs) which aim to eradicate extreme poverty, progress will stall – and in many cases reverse – when faced with the dual crises of COVID-19 and climate change, unless urgent action is taken.  

Domestic resources account for the majority of money that developing countries invest in sustainable development to end poverty – in sectors such as water and sanitation, health for all, the environment and education. With countries in recession and taking measures to contain COVID-19, tax revenue has plummeted, and governments are having to spend stretched resources in the emergency response – taking funds from longer term development work.  

WaterAid is warning that this dramatic drop in spending will hurt entire countries who are already struggling to meet the most basic needs of their populations including critical investment needed during the pandemic. It also jeopardises the possibility of a green, healthy and just recovery from COVID-19.  

In addition to the significant drop in domestic spending, developing countries could also expect to receive around $25-30 billion less in aid (ODA) from donor countries. This is because OECD countries are set to reduce aid spending as a result of their own deep recessions and worsening public finances.    

In total this amounts to developing countries losing over the next two years the equivalent of 10% of their current annual spending on development. This is likely to be a significant underestimate of the impact of the economic slowdown and one that will have ramifications for decades to come. 

The research, commissioned by WaterAid and End Water Poverty from the Overseas Development Institute, examined publicly available data from the IMF and Development Finance International’s Government Spending Watch to understand the scale of the impact that the COVID-19 crises will have on reducing the public finance available for developing countries. It also sought to identify ways in which domestic and international public financing could be increased to meet the challenge.   

Many of the SDGs are severely off-track, and none more so than getting clean water, decent toilets and good hygiene to everyone (SDG6). The report examined the data currently available that estimates how much ending extreme poverty will cost. Capital costs for ensuring universal access to safe water, toilets and hygiene alone range from $114 to $229 billion per year, but when operations and maintenance costs are added, this extends to a higher end estimate of $509 billion. Even before COVID-19 hit, Nigeria had an estimated $20 billion a year funding gap just for achieving the goal of universal access to safe water, toilets and hygiene [i]. 

Current estimates for the additional cost of meeting all the SDGs in developing countries range from US$1.4 trillion to US$2.5 trillion. However, the research indicates that these estimates do not fully take into account the costs of climate mitigation and adaptation and costs are likely to be significantly higher.   

The report also explored several options for closing the enormous financing gap that exists, including taxation-based and debt-relief options. Increasing ODA from developed country governments from 0.7% to 1% of GDP would provide an additional $350 billion annually that could be directed at development targets.   

Cutting fossil fuel subsidies provides an attractive solution for raising this additional money whilst also helping to meet climate targets. This could raise more than $400 billion globally, though some estimates suggest the benefits could be more than $4 trillion if all externalities (such as air pollution, congestion and climate change impacts) were taken into account. 

Debt cancellation could also dramatically reduce the estimated $1.5 trillion in annual debt repayments that are due from developing countries in the coming years. This is the most efficient way of helping countries to respond to the pandemic as it means they can immediately make use of money for public health response and recovery instead of paying it to creditors. The report highlighted that the current lack of a fair and independent mechanism for granting relief from unsustainable debt is the main barrier to making more use of this important mechanism.   

World leaders are currently making decisions about how to invest in a green and just economic recovery, including through the G20 process. WaterAid is calling for donor governments to provide aid and grant-based funding for essential services like water and sanitation which are critical for the ongoing COVID-19 response, a strong economic recovery and will ensure people are resilient to future crises, whether health or climate related. 

John Garrett, Senior Policy Analyst – Development Finance, WaterAid, said: 

“This report throws light on the difficult years ahead as we recover from Covid-19 and increasingly feel the impacts of the climate crisis.  

“This is a global problem, but the burden will be disproportionately carried by those least able to bear it. Without basic services such as clean water or basic healthcare millions more will be pushed back into poverty, poor health and diminished job prospects and life chances. Lack of access to safe water, hygiene and essential healthcare also provides an environment in which the virus can spread unhindered.  

“Governments around the world are making decisions on what a green and just future after COVID-19 looks like and how to fund it. Richer governments have the opportunity to ensure poorer countries can invest in essential services, such as water and sanitation, and clean energy from renewable sources, without incurring crippling debts that ransom off their future.”  

Al-hassan Adam, Coordinator, End Water Poverty, said: 

“Water and sanitation are public services, not private privileges. They must be funded by the state through tax. Cuts to public services and tax loopholes entrench inequality. While some enjoy luxury, society’s most marginalised are systematically denied their human rights.  

“COVID has highlighted the vital importance of handwashing – but how can you wash your hands if you don’t have safe water? To avert future crises, governments must step-up their investment of water and sanitation services.”  

[i] WaterAid and Development Initiatives (2019). Equal to the task: financing for a state of emergency in Nigeria’s WASH sector. 

Read the report: Common purpose, common future: transforming the finance for sustainable development to combat the COVID-19 and climate crises

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