4. Fiscal stimulus gap and growing inequality

IMF has predicted that it will be the slowestgrowing region in 2021. It will take several years for per capita GDP to return to prepandemic levels. While the United States and Europe will have achieved widespread vaccination by later this year, most countries in Africa cannot expect to achieve this goal until at least mid-2023, according to the Economist Intelligence Unit. Repeated Covid-19 outbreaks will likely cause more deaths and further tax already struggling economies.

Since the beginning of the pandemic, debt servicing payments in the region have risen to more than 30 percent of revenues on average, up from about 20 percent before the pandemic. Public debt as a share of GDP rose by eight percentage points to 70 percent in 2020. The IMF estimates that the region faces a shortfall of USD130-410 billion (8-25 percent of regional GDP) for the period from 2020-23, assuming governments plan to meet external debt obligations, fund their current-account deficits and carry out a modest response to the pandemic. Over half of low-income SubSaharan countries are in debt distress or close to it. Moreover, 43 percent of government debt is held by commercial creditors (rather than governments or multilateral institutions) and 16 percent by the Chinese government, complicating debt relief.33 Without mechanisms to compel private creditors to participate, some countries are already using IFI support to meet debt payments, rather than funding the Covid-19 response, and more are almost certain to follow.34

4. FISCAL STIMULUS GAP AND GROWING INEQUALITY What do these inequalities in the international financial system and pandemic’s economic impact mean for LPT funding? Simply put, they amount to severe limitations on the fiscal space countries in the Global South have to prop up, not only their public transport systems, but their entire economies. This can be seen in the difference in the scale of the relief and stimulus packages implemented in 2020.

Figure 1

Source: The Economist, 6 February 2021

33 https://www.economist.com/middle-east-and-africa/2021/02/06/africas-recovery-from-covid-19-will-be-slow

According to UNCTAD calculations, while the median for fiscal response measures (additional spending or forgone revenue) as a proportion of GDP was 4.5 percent for developed and transition economies, it was only 1.9 percent for least developed countries and 2.1 percent for other developing countries.35 The difference in fiscal spending regionally can be seen in the map below. While countries in North America, Oceania and much of Europe enacted fiscal measures equal to more than 10 percent of their GDPs, countries throughout most of Africa spent less than 2.5 percent.36

Figure 2

Source: UNCTAD, 2020

Figure 3: Additional Spending and Forgone Revenue in Response to the COVID-19 Pandemic

(Percent of 2020 GDP) Budgetary fiscal support to people and firms has varied widely across countries.

35 UNCTAD, “The Impact of the COVID-19 Pandemic,” 51. The United Nations groups countries into three mutually exclusive categories, which reflect similarity in general economic conditions such as per capita gross national income (GNI), gross domestic product (GDP), human assets and economic vulnerabilities. These categories are ‘developed economies’ (in North America, Asia and Europe), ‘economies in transition’ (referring to countries transitioning from centrally planned to market economies in Europe and Central Asia) and ‘developing economies’ (in Asia, Africa and Latin American and the Caribbean), within which the sub-category of ‘least developed economies’ is distinguished. Source: IMF