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World Bank: Indirect Consequences of the Pandemic May Permanently Weaken Countries’ Human Capital

The World Bank released last week its report “Human Capital Index 2020 Update.” It notes how certain countries, namely South Korea and Iceland, “successfully implemented” contract tracing strategies early on in 2020, while most countries employed lockdowns and movement restrictions. 

Voluntary mobility restrictions and government-led lockdowns resulted in a considerable drop in economic activity and aggregate demand that is “leading to a considerable reduction in incomes.” 

The World Bank report states that the economy’s biggest hit will come from reduced consumption due to social distancing  over fear of the virus. The World Bank says the economic fallout will be “massive.”  

Local governments forced nonessential businesses to close, disrupting supply chains in the process. The World Bank expects many people to curtail consumptions which could deepen the economic crisis as people lose jobs. 

“The ensuing economic decline is likely to undo years of gains in the fight to eradicate extreme poverty,” says the Bank, projecting a rise in extreme poverty for the first time since 1998.

As closures and decreased economic activity bring about higher unemployment and income losses, households in countries reliant upon remittances or seasonal migrants for income have seen these funds dry up. 

Households anticipate losing remittances altogether. This income declin will affect the poor the worst.

The pandemic has created a short-run demand shock, during which consumption patterns change quickly. People are choosing not to venture out into public, with many would-be commercial activities taking place at home. “Concerns about localized food availability may not be unfounded,” according to the World Bank. 

Farmers could experience labor shortages due to restrictions on movement, according to the World Bank, leading to reduced yields that disrupt the supply chain for staple foods. Small farmers could fear the virus, and not sell their goods at markets altogether. If farm products don’t reach markets in time, they could rot in the fields as many farmers lack adequate storage facilities. 

Those households which experience a fall in their income will likely experience food insecurity; particularly, the poorest households, which spend a higher percentage of their incomes on food, forcing them to turn to limiting food intake or relying on cheaper, less diverse staple foods. The nutrition of millions of people will worsen, writes the World Bank, noting evidence of such scenarios has already emerged. 

A phone survey in Senegal found that 86 percent of respondents saw a drop in their incomes. More than one-third said they restrict meals four to seven days a week and fear for their health and financial future as key food items increase in price. Ugandan households reported a 60 percent decrease in total household incomes and evidence suggest Ugandans are increasing borrowing and dipping into savings. “ Emerging results for a large set of rapid phone surveys…speak to indirect con- sequences of the pandemic that may perma- nently weaken countries’ human capital for gen- erations,” according to the World Bank.