This article focuses on the long-term impact of the pandemic on emerging markets and developing economies (EMDEs). It finds that while outbreaks in most advanced economies appear to be abating, the pandemic is rapidly spreading across EMDEs, including low-income countries (LICs), where health care systems have very limited capacity. Along with the public health crisis, EMDEs are facing tighter financing conditions, plunging oil and other commodity prices, sharp declines in remittances, and collapsing international trade. Many EMDEs entered this global recession less well-prepared, and with larger vulnerabilities, than when they were hit by the last global recession in 2009. EMDEs that are most vulnerable to the impact of the pandemic include those that have weak health systems, that rely heavily on global trade or tourism, that are vulnerable to financial disruptions, and that depend on oil and other commodity exports. The recession will prolong a decade of disappointing growth for EMDEs.
COVID-19 and the resulting recessions engulfing vast swaths of the developing world will leave lasting scars, eroding productivity and potential output for extended periods. Recessions associated with the pandemic will likely have an even larger impact on long-term growth prospects because of pre-existing vulnerabilities, fading demographic dividends and structural bottlenecks, and permanent changes in behaviour patterns, including consumption habits, and human capital formation. The pandemic is expected to exacerbate the multi-decade trend slowdown in potential output growth and productivity growth. While the immediate priorities of policymakers are to address the health crisis and moderate the short-term economic losses, the likely long-term consequences of the pandemic highlight the need to forcefully undertake comprehensive reform programs to improve the fundamental drivers of economic growth.