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Protecting migrant workers in the Gulf

Protecting migrant workers in the Gulf

An Organisation for Economic Co-operation and Development (OECD) article advises the world about Protecting migrant workers in the Gulf: don’t build back better over a poor foundation

By Vani Saraswathi, Editor-at-Large and Director of Projects, Migrant-Rights.Org

The Gulf Co-operation Council (GCC) states need to completely revamp past policies, and not merely attempt to bridge gaps or provide a salve to deep wounds.

As of February 2020, millions of migrants –– primarily from South and Southeast Asia and increasingly from East African countries –– were holding up Gulf economies, working in sectors and for wages unappealing to the more affluent citizens. In countries with per capita GDP of US$62,000 or more, minimum wages ranged as low as US$200 per month.

Men were packed into portacabins and decrepit buildings, six to a room if lucky, hidden behind screens of dust and grime, away from the smart buildings they built and shiny glasses they cleaned. The women were trapped 24/7 in homes that are their workplaces, every movement monitored. It is accepted and normalised without question that these men and women will leave behind their families in the hopes of building a better future for themselves. That they may live all their productive life in a strange country, excluded from social security benefits and denied all rights of belonging, is seen as a small price to pay for the supposed fiscal benefits. The fact that the price is too steep is rarely discussed.

“Why did able-bodied, productive individuals struggle for food and shelter in some of the richest countries in the world?” #DevMattersTweet

Then came March, and a worldwide upheaval as the COVID-19 pandemic struck nations indiscriminately. The official response across the board ranged from well-meaning but knee-jerk, to discriminatory and short-sighted. Some of the strictest lockdowns were implemented in the most congested areas of Gulf cities, where migrants live. However, their labour was considered essential, as the process of nation-building could not be paused. Attempts to decongest were hopeful at best, but the majority continued to live in cramped quarters, were bussed into construction sites, and remained vulnerable to this new infection, as they had been to other infections and health perils.

The women, hundreds of thousands employed as domestic workers, have been invisible at the best of times because their ability to leave home and enjoy an off day or free time has always been at the discretion of their employers. The pandemic guidelines prevented even this thin leeway, with some countries explicitly prohibiting domestic workers from socialising, even when their employers were allowed to. Domestic workers, like a lot of other poorly-paid and badly-treated workers, were considered essential workers. With entire families working and studying from home, their workload increased exponentially. They were also exposed to strong chemical cleaning agents without proper protective gear. While their services were essential, even critical, the individual was considered dispensable and replaceable.

Force majeure rules allowed companies to reduce pay, terminate workers, or put them on leave without pay. Measures were introduced to ensure business continuity even if these measures infringed on workers’ rights. The lack of civil society and trade unions and inability to negotiate collectively –– all disempowering conditions that preceded the pandemic –– meant workers’ voices and representation were limited and muted. No mechanisms were established to challenge the unfair implementation of the measures. Access to justice was riddled with even more problems than before, as wage theft and other labour abuses from the pre-COVID era were yet to be resolved. This post is not even attempting to explore the vulnerabilities and exclusion of undocumented workers –– many of whom are forced into irregularity by the sponsorship or Kafala system.

“When a population has been dehumanised and othered for so long –– as being temporary, their labour merely transactional –– a pandemic will not magically correct decades of poor policies.” #DevMattersTweet

In the plethora of webinars that consumed the early months of the pandemic, human rights advocates and activists repeatedly spoke of the lessons being learnt, the new normal that awaited us at the end of the dark tunnel, with ‘building back better’ punctuating every discourse. What they failed to recognise is that when a population has been dehumanised and othered for so long –– as being temporary, their labour merely transactional –– a pandemic will not magically correct decades of poor policies.

In fact, we saw the opposite, with migrant workers being blamed for spreading infections, because of their living conditions over which they had no control over. Ten months into the pandemic, it is almost back to business as usual, with malls, offices, schools and even tourism, opening up in stages. Vaccination drives have begun, with a promise to include migrants in all of the Gulf Co-operation Council countries. But the most marginalised are still housed in deplorable conditions, their temporariness being reinforced. And the first sector that re-opened for recruitment was domestic work bringing in more women from impoverished countries reeling from the impact of the pandemic.  

If there is one takeaway for human rights advocates it is that a socio-economic environment devastated by the pandemic is not fertile ground for righteous policies. If anything, origin and destination countries may go lax on due diligence over corporations in the name of business continuity and impose tighter controls over migrants under the pretext of protection.

“The last year has seen an increase in wage theft, and there is an urgent need for transnational mechanisms to deal with this.”#DevMattersTweet

There are key questions we need to ask ourselves and the governments:

  • Why did able-bodied, productive individuals struggle for food and shelter in some of the richest countries in the world? What combination of policies and prejudices leads to this situation?
  • With so little public investment made in social welfare, the dependence on live-in domestic workers is only likely to increase. How do we ensure recognition of domestic work as work, and domestic workers as workers, formalising their status in the labour market?
  • How do we then break the monopoly of live-in domestic work that is inherently exploitative?
  • The ghettoisation of migrant labour is both the root cause and the result of discrimination. In many Gulf Co-operation Council states, migrants constitute the majority of the population and their needs are deliberately neglected in urban planning.
  • The last year has seen an increase in wage theft, and there is an urgent need for transnational mechanisms to deal with this.  

In the coming years, climate change, population imbalances and economic distress will increase migrants’ vulnerabilities, and solutions cannot be rooted in the current environment of inequity and discrimination.

Read more OECD’s articles :

Citizens from around the World to form a Climate Forum

Citizens from around the World to form a Climate Forum

In an INews article, Citizens from around the world to form a climate forum to look at the best ways to cut global carbon emissions by Madeleine Cuffelaborates on an idea that in this conjecture increasingly appreciated by an ever-increasing number of people all around the world. Thanks to the Mass Media that is certainly very helpful for kickstarting this mutation and perhaps help unfold all potentialities of a Global Citizens Assembly.

A factory worker from India could work shoulder to shoulder with a bus driver from France to plan how to tackle the climate crisis, organisers say

Citizens from around the World to form a Climate Forum
Members of the citizens' assembly on climate change during their first weekend of discussions in Birmingham
Members of the UK citizens’ assembly on climate change (Photo: Fabio De Paola/PA Wire)

Citizens from around the world will be recruited at random to form a global ‘Climate Assembly’, charged with presenting world leaders with a plan for tackling climate change next year.

It could mean a bus driver from Britain, a sheep farmer from New Zealand and a factory worker from India all working together on the best way to cut global emissions.  

One thousand people will be selected at random to reflect the gender, race, age and economic make-up of the global population, organisers said. 

They will meet online next year to learn about climate change from international experts, before drawing up advice for world leaders ahead of a major UN climate summit in Glasgow in November 2021.  

Smaller assemblies at a local and national level will also be held in the run-up to the summit, known as COP26, with organisers aiming for millions of people to participate in the process. 

“We will bring many new, probably previously unheard voices into the Global Assembly,” said Claire Mellier, part of the organising team. “Not all of them are going to agree on the situation we are in, or what we should do next. We will however support careful listening between people so that true respect and understanding emerges. And when this happens we know that new possibilities come to light, that transform what we can do together.” 

Gauging public opinion

Citizen’s assemblies are emerging as a popular method of gauging public opinion on tricky topics such as abortion rights and electoral reform. But it is on the topic of climate change where many think they can be most useful, giving politicians a flavour of how radical the public’s appetite for climate action really is.  

The UK and France have already held national climate assemblies considering this very issue. UK Assembly Members called for a tax frequent flyers, a ban new gas boilers, and carbon labelling on food and drink products to speed carbon cuts.  

A world first

The Global Citizens’ Assembly, which is backed by the UN, will be the first time an in international assembly has been formed. Organisers are hoping its conclusions could spark a breakthrough in international climate talks, which have spent four years bogged down in finalising the ‘rules’ for the Paris climate treaty.  

“For too long the international debate on climate has been dominated by powerful minorities,” said Rich Wilson, founder of public participation group Involve. “It’s time for that to end. The Global Citizens’ Assembly is the biggest experiment in global democracy ever attempted. An ambitious endeavor, equivalent to the crisis we face.” 

But Mr Wilson says the project needs to raise £100,000 for the project to go ahead, to pay for “logistical and technical challenges”, such as translators for participants, equipment, and even childcare for people who otherwise wouldn’t be able to take part. 

Citizens from around the World to form a Climate Forum
Madeleine Cuff

Iraqis slowly rebuild Mosul

Iraqis slowly rebuild Mosul

This is a story of a city that as per Iraqi novelist Inaam Kachachi’s description – Mosul the austere, Mosul the convivial, Mosul the contradictory, Mosul the wounded, bleeding to death. So here is Iraqis slowly rebuild Mosul, with little aid from government per Samya Kullab.

Iraqis slowly rebuild Mosul
Mounds of rubble, remnants of the battle to retake the city three years ago from the Islamic State group, remain in the Old City of Mosul, Iraq Sunday, Nov. 29, 2020. Local officials say Baghdad’s cash-strapped government, struggling with a dire economic crisis fueled by low oil prices and the coronavirus, doesn’t have the funds to launch serious reconstruction efforts. (AP photo/Samya Kullab)
Iraqis slowly rebuild Mosul
A damaged house remains un-repaired three years after Iraqi forces defeated the Islamic State group, in the Old City of Mosul, Iraq Nov. 29, 2020. Mosul remains for many the symbol of the Islamic State group’s reign of terror, the place from where it proclaimed its caliphate in 2014. It’s also where IS made its last stand before the city was freed three years later, after a costly battle that killed thousands and left Mosul, Iraq’s second-largest city, in ruins. (AP Photo/Samya Kullab)
A commercial center re-opened recently with some government assistance to restore. electricity and water services, enabling merchants to return, three years after Iraqi forces defeated Islamic State militants, in the Old City of Mosul, Iraq Nov. 29, 2020. Mosul remains for many the symbol of the Islamic State group’s reign of terror, the place from where it proclaimed its caliphate in 2014. (AP Photo/Samya Kullab)
Musicians play love songs as a small crowd sings along and claps, inside what was an old hostel for traders centuries ago and is now a refurbished commercial center, in Mosul, Iraq, Sunday, Nov. 29, 2020. Mosul remains for many the symbol of the Islamic State group’s reign of terror, the place from where it proclaimed its caliphate in 2014. Under the IS scenes like these were forbidden. (AP Photo/Samya Kullab)
Iraqis slowly rebuild Mosul
Anan Yasoun, one of the few residents to return to the heavily damaged Old City, stands outside her rebuilt home, in Mosul, Iraq, Sunday, Nov. 29, 2020. From afar, Yasoun’s yellow-slab home is an island surrounded by rubble in the historic old part of the Iraqi city of Mosul, for many still a symbol of the Islamic State group’s reign of terror and the place from where it proclaimed its caliphate in 2014. It’s also where IS made its last stand before the city was freed three years later, after a costly battle that killed thousands and left Mosul, Iraq’s second-largest city, in ruins. (AP photo/Samya Kullab)
Iraqis slowly rebuild Mosul
Damaged buildings are surrounded by mounds of rubble three years after Iraqi forces defeated the Islamic State group there, Nov. 29, 2020. Mosul remains for many the symbol of the Islamic State group’s reign of terror, the place from where it proclaimed its caliphate in 2014. It’s also where IS made its last stand before the city was freed three years later, after a costly battle that killed thousands and left Mosul, Iraq’s second-largest city, in ruins. (AP Photo/Samya Kullab)
Mounds of rubble still line the streets and buildings are pock-marked with bullet holes three years after Iraqi forces defeated the Islamic State group, in the Old City of Mosul, Iraq Nov. 29, 2020. Mosul remains for many the symbol of the IS group’s reign of terror, the place from where it proclaimed its caliphate in 2014. It’s also where IS made its last stand before the city was freed three years later, after a costly battle that killed thousands and left Mosul, Iraq’s second-largest city, in ruins. (AP Photo/Samya Kullab)
Ammar Mouwfaq, 70, stands inside his soap shop in the Old City of Mosul, Iraq, Sunday, Nov. 29, 2020. Mouwfaq inherited the business in 1955 and for decades his family have imported olive soap from Aleppo, Syria, a trade that has dated back hundreds of years. That came to a stop when the Islamic State took control of the area in 2014. (AP photo/Samya Kullab)

MOSUL, Iraq (AP) — Anan Yasoun rebuilt her home with yellow cement slabs amid the rubble of Mosul, a brightly colored manifestation of resilience in a city that for many remains synonymous with the Islamic State group’s reign of terror.

In the three years since Iraqi forces, backed by a U.S.-led coalition, liberated Mosul from the militants, Yasoun painstakingly saved money that her husband earned from carting vegetables in the city. They had just enough to restore the walls of their destroyed home; money for the floors was a gift from her dying father, the roof a loan that is still outstanding.

Yasoun didn’t even mind the bright yellow exterior — paint donated by a relative. “I just wanted a house,” said the 40-year-old mother of two.

The mounds of debris around her bear witness to the violence Iraq’s second-largest city has endured. From Mosul, IS had proclaimed its caliphate in 2014. Three years later, Iraqi forces backed by a U.S.-led coalition liberated the city in a grueling battle that killed thousands and left Mosul in ruins.

Such resilience is apparent elsewhere in the city, at a time when Baghdad’s cash-strapped government fails to fund reconstruction efforts and IS is becoming more active across the disputed territories of northern Iraq.

Life is slowly coming back to Mosul these days: merchants are busy in their shops, local musicians again serenade small, enthralled crowds. At night, the city lights gleam as restaurant patrons spill out onto the streets.

The U.N. has estimated that over 8,000 Mosul homes were destroyed in intense airstrikes to root out IS. The nine-month operation left at least 9,000 dead, according to an AP investigation.

Memories of the group’s brutality still haunt locals, who remember a time when the city squares were used for the public beheading of those who dared violate the militants’ rules.

The Old City on the west bank of the Tigris River, once the jewel of Mosul, remains in ruins even as newer parts of the city have seen a cautious recovery. The revival, the residents say, is mostly their own doing.

“I didn’t see a single dollar from the government,” said Ahmed Sarhan, who runs a family coffee business.

Antique coffee pots, called dallahs, line the entrance to his shop, which has been trading coffee for 120 years. An aging mortar and pestle, used by Sarhan’s forefathers to grind beans, sits in his office as evidence of his family’s storied past.

“After the liberation, it was complete chaos. No one had any money. The economy was zero,” he said. His business raked in a measly 50,000 Iraqi dinars a day, or around $40. Now, he makes closer to about $2,500.

But even as Sarhan and other merchants are starting to see profits — despite the impact of the coronavirus pandemic — ordinary laborers are struggling. Sarhan employs 28 workers, each getting about $8 a day.

“It is nothing … they will never be able to rebuild their homes,” he says.

Since the ouster of IS in 2017, the task of rebuilding Mosul has been painfully slow. Delays have been caused by lack of coherent governance at the provincial level; the governor of Nineveh province, which includes Mosul, has been replaced three times since liberation.

With no central authority to coordinate, a tangled web of entities overseeing reconstruction work — from the local, provincial and federal government to international organizations and aid groups — has added to the chaos.

The government has made progress on larger infrastructure projects and restored basic services to the city, but much remains unfinished.

Funds earmarked for reconstruction by the World Bank were diverted to help the federal government fight the coronavirus as state coffers dwindled with plunging oil prices. Meanwhile, at least 16,000 Mosul residents appealed for government cash assistance to rebuild their homes.

Only 2,000 received financial assistance, said Zuhair al-Araji, the mayor of Mosul district.

“There’s no money,” he said. “They have to rebuild on their own.”

Mosul residents eye government policies with suspicion and suspect local officials are too corrupt to help them.

“Whatever funds are provided, they will steal it,” said Ammar Mouwfaq, who spent all his savings to re-open his soap shop in the city last year.

A photo of his father hangs inside the shop, which he took over in the 1970s. Neat stacks of the region’s famous olive oil soap, imported from the Syrian city of Aleppo, tower above him.

“What you see now, I did alone,” he added.

On one thoroughfare the ruins of cinemas bombed by IS — the militant group’s strict interpretation of Islam banned such forms of entertainment — are a stark contrast to the shops and restaurants abuzz with customers.

The Old City, with its labyrinth of narrow streets dating back to the Middle Ages, now serves as an eerie museum of IS horrors. Misshapen iron rods jut out of what’s left of houses they were designed to fortify. Smashed pieces of alabaster stone and masonry, once extolled by historians for architectural significance, lie among the debris. Signs of a former life — a pair of women’s shoes, a notebook covered in hearts, shells from exploded ammunition — are untouched.

“Demolition is forbidden” reads a graffiti written on a slab of wall surrounded by rubble, a testament to Mosul’s unwavering dark humor.

The Mosul Museum, where IS militants filmed themselves smashing priceless antiquities to dust, partially re-opened in January. But apart from occasional contemporary art exhibits such as that of Iraqi sculptor Omer Qais last month, there is nothing to see.

On the other side of town, Sarhan, the coffee trader, invites anyone who cares to see his collection of antique swords, plates and bowls he painstakingly hunted down. In the 12th century, Mosul was an important hub for trade; a century later, its intricate metalwork rose to prominence.

“This is our history,” said Sarhan, holding up a rusting bronze plate, engraved with 1202, the year it was made.

“If I don’t protect it, who will?”

Qatar firms’ failure to pay

Qatar firms’ failure to pay

Qatar firms’ failure to pay leaves migrant workers destitute – report that details how ‘Despite government measures, thousands left struggling during Covid outbreak as companies withhold salaries and benefits, research shows’

by Pete Pattisson

Supported by

Qatar firms’ failure to pay

26 Nov 2020

Companies in Qatar have failed to pay “hundreds of millions of dollars in salaries and other benefits to low-wage workers since the coronavirus outbreak, according to new research by the human rights group Equidem.

Construction workers at Al Janoub stadium during a media tour in Doha, Qatar. The stadium is the second among eight stadiums being built for the Fifa World Cup 2022 in Qatar. Photograph: Ali Haider/EPA

In its report, Equidem describes how thousands of workers have been dismissed without notice, put on reduced wages or unpaid leave, denied outstanding salary and end of service payments, or forced to pay for their own flights home.

The report’s findings appear to amount to “wage theft” on an unprecedented scale, leaving “worker after worker” destitute, short of food and unable to send money home during the pandemic, in one of the richest countries in the world.Advertisement

“I came here to work for my family, not to be a beggar living on my own,” said a cleaner from Bangladesh, who said he had not received his salary for four months.

In separate research, the Business and Human Rights Resource Centre found that unpaid or delayed wages were cited by workers in 87% of cases of alleged labour abuse affecting almost 12,000 workers since 2016.

Around 2 million migrant workers – mostly from south Asia – work in Qatar, many on construction projects related to the 2022 World Cup.

Equidem praises some measures put in place by the Qatar government during the coronavirus pandemic. In March, the government made it mandatory for companies to continue to pay workers in quarantine or government-imposed isolation, and set up a £625m loan scheme to help companies do so, but the report warns of “widespread failure to comply” with this and other regulations.

The government later permitted companies that had stopped operating due to Covid restrictions to put workers on unpaid leave or terminate their contracts as long as they complied with requirements of the labour law, including giving a notice period and paying outstanding benefits.

The report highlights a number of companies that exploited or ignored this directive. Up to 2,000 workers employed by one construction company were laid off on the spot, workers claim. Most did not receive their outstanding salary or end of service settlement, a payment equivalent to three weeks’ salary for each full year of work.

“Many migrant workers are in an extremely vulnerable position with no real ability to assert their rights or seek remedy for violations,” says the report.

Mustafa Qadri, the director of Equidem, said the lack of a lawful right to organise or join a trade union has been particularly damaging. “It has prevented workers from having a seat at the table with government and employers to negotiate an equitable share of funds,” he said.

The report describes similar findings in the United Arab Emirates and Saudi Arabia, as well as policies in response to the pandemic which amount to racial discrimination. In both countries, the authorities required private companies to continue to provide wages and benefits to nationals, but allowed them to reduce wages or stop paying non-nationals.

In a statement, the Qatar government said its response to the pandemic, “has been driven by the highest international standards of public health policy and the protection of human rights”.

The government has provided free testing and treatment and said, “employers failing to pay their staff on time or withholding end of service payments have faced disciplinary action, including heavy fines and bans that prevent them from operating”.

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Qatar’s migrant workers beg for food as Covid-19 infections rise Read more

How countries are raising debt to fight COVID and . . .

How countries are raising debt to fight COVID and . . .

How countries are raising debt to fight COVID and . . . why developing nations face tougher choices by Shamel Azmeh, Lecturer in International Development, Global Development Institute, University of Manchester is about the pandemic that is affecting all countries as described by the World Bank’s article as a heat-seeking missile speeding toward the most vulnerable in society. That metaphor applies not just to the vulnerable in the rich world; the vulnerable in the rest of the world is not more immune. 

The feature picture above is of the World Economic Forum‘s.

So here is :

How countries are raising debt to fight COVID and why developing nations face tougher choices

PM Boris Johnson (left) and Chancellor Rishi Sunak have come up with money to underwrite wages, rescue packages and meal vouchers during the pandemic. Jonathan Brady/PA Wire/PA Images

COVID continues to ravage societies around the world, and a key issue is how governments can afford to fight it. As economies are disrupted, governments are stepping in to increase their spending to bail out companies, pay the cost of health measures, and subsidise workers’ wages.

Before COVID, when people argued that the state should be able to offer free healthcare and free education, among other services, and welfare measures, a standard political response was that state resources were limited. Asked by a nurse in 2017 why her wages hadn’t increased from 2009 levels, then British prime minister, Theresa May, said: “There is no magic money tree that we can shake that suddenly provides for everything that people want.”

Except, a few years later, the government has not only been able to pay the wages of millions, it has also created rescue packages for thousands of firms and offered people vouchers to eat out in restaurants. A number of European countries have also taken the unprecedented step of underwriting the wages of millions of workers in response to the pandemic.

How is the British state and others capable of this radical increase in spending at a time when revenues from taxes are collapsing?

‘Magic money tree’

The answer to this lies in the debt market. Over the past few months, world governments have drastically increased their borrowing to cover the costs of the pandemic. It might appear logical that the cost of credit will go up during uncertain economic times. The reality, however, is that capital often goes to safer sovereign debt during economic downturns, particularly as the equity markets become unstable and volatile.

Over recent months, rather than struggling to find lenders or having to pay more for debt, the governments of the major economies have been awash with credit at historically low rates. In October, the EU, until now a small player in the debt market (as borrowing mostly is by national governments of member states), began a major borrowing campaign as part of the efforts to fight COVID through the SURE programme (Support to mitigate Unemployment Risks in an Emergency) which was created in May.

The first sale of bonds worth €17 billion was met with what some described as “outrageous demand”, with investors bidding a total of €233 billion to buy them. This intense competition was for bonds that offered a return of -0.26% over ten years, meaning that an investor who holds the bond to maturity will receive less than they paid today.

The EU is not the only borrower that is effectively being paid to borrow money. Many of the advanced economies have been in recent years and months selling debt at negative rates. For some countries, the shift has been dramatic. Even countries such as Spain, Italy and Greece that were previously seen as relatively risky borrowers, with Greece going through a major debt crisis, are now enjoying borrowing money at very low rates.

The reason for this phenomenon is that while these bonds are initially bought by “traditional” market actors, central banks are buying huge quantities of these bonds once they are circulated in the market. For a few years now, the European Central Bank (ECB) has been an active buyer of European government bonds – not directly from governments but from the secondary market (from investors who bought these bonds earlier). This ECB asset purchase programme was expanded to help weather the COVID crisis, with the ECB spending €676 billion on government bonds from the start of 2020 until September.

Other central banks in the major advanced economies are following the same strategy. Through these programmes, those central banks encourage investors to keep buying government bonds with the knowledge that the demand for those bonds in the secondary market will remain strong.

Poorer countries

Not everybody, however, enjoys a similar position in the debt market. While the rich economies are being chased by investors to take their money, the situation is radically different for poorer countries. Many poor countries have limited access to the credit market and rely instead on public lenders, such as the World Bank.

In recent years, this pattern began to change with a growing number of developing countries increasing their foreign borrowing from private lenders. Developing countries, however, are in a structurally weaker position than richer peers. The smaller scale of their capital markets mean that they are more reliant on external financing. This reliance means that developing countries rely on raising money in foreign currency, which increases the risk to their economies.

As many developing countries have less diversified exports with a higher percentage of commodities, the price decline in commodities in recent months has increased those risks. As a result, developing countries face a significantly higher cost of borrowing compared to the richer economies.

A few large developing countries, such as Indonesia, Colombia, India and the Philippines, have begun to follow the policy adopted by the advanced economies of buying government bonds to fund an expanding deficit. The risks of doing this, however, are higher than the richer economies, including a decline in capital inflows, capital flight and currency crises. A report by the rating agency S&P Global Ratings illustrated the differences between those two economies:

Advanced countries typically have deep domestic capital markets, strong public institutions (including independent central banks), low and stable inflation, and transparency and predictability in economic policies. These attributes allow their central banks to maintain large government bond holdings without losing investor confidence, creating fear of higher inflation, or triggering capital outflow. Conversely, sovereigns with less credible public institutions and less monetary, exchange rate and fiscal flexibility have less capacity to monetise fiscal deficits without running the risk of higher inflation. This may trigger large capital outflows, devaluing the currency and prompting domestic interest rates to rise, as seen in Argentina over parts of the past decade.

While the reaction of the market to this approach by developing countries has been muted so far, the report argued, this situation might change. Developing countries who do this could “weaken monetary flexibility and economic stability, which could increase the likelihood of sovereign rating downgrades”.

Ratings downgrades

Over recent months, downgrading by rating agencies have been a major risk facing developing countries with many economies facing higher costs of borrowing as a result of such downgrades. These downgrades were often linked to decline in prices and exports of commodities, as was the case for diamonds for Botswana and oil for Nigeria.

In July, following the participation of Ethiopia, Pakistan, Cameroon, Senegal and the Ivory Coast in a World Bank-endorsed G20 debt suspension initiative, the rating agency Moody’s took action against those countries arguing that participation in this scheme increased the risk for investors in bonds issued by these countries, leading to some developing economies avoiding the initiative in order not to send a “negative signal to the market”. Zambia is on the verge of being the first “COVID default” and other developing countries could face a similar situation in coming months.

As a result of these dynamics, many developing countries are facing the tough choice of giving up any economically costly health measures or facing serious fiscal and economic crises. Access to credit has become a defining factor in the ability of governments to respond to the pandemic. As a result of access to cheap credit, developed economies are so far able to take such health measures while limiting the social and economic impact of the pandemic. Many developing countries do not have this luxury. Not everyone gets to shake the branches of the magical money tree.

Shamel Azmeh, Lecturer in International Development, Global Development Institute, University of Manchester

The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.