On March 25, United Nations Secretary-General António Guterres launched the UN Coordinated Appeal for COVID-19 (Global Humanitarian Response Plan COVID-19), saying, “Now, the virus is arriving in countries already in the midst of humanitarian crises caused by conflicts, natural disasters and climate change,” and noting that these countries have the fewest resources to address the potentially disastrous impacts of the virus.
The Secretary-General’s top priorities for the crisis are : 1) coordination and cooperation to suppress the virus; 2) minimizing the social and economic impact of COVID-19 for everyone and stimulating a faster recovery everywhere, including by providing immediate liquidity relief to the private and financial sectors in the developing world; and 3) helping poor countries to “recover better,” with more inclusive and sustainable models of development.
In this context, UNCDF can support LDCs and other countries in need through its core mandate to build stable and resilient local economies and by leveraging a range of technical expertise and investment instruments to reduce and limit economic and social hardship for poor communities.
UNCDF offers a systemic value proposition to drive finance in more dynamic ways for poor people and excluded populations. UNCDF’s tools include supporting digital payments to enable key financial flows; boosting the capacity of local governments to accept and deploy funding quickly to meet local needs; and injecting targeted investment funds into small and medium enterprises (SMEs) to stabilize local economies and accelerate recovery.
UNCDF is using digital innovations to support countries during this crisis with an array of initiatives in Africa, and Asia and the Pacific in response to the COVID19.
Local governments are leading the COVID-19 responses around the world. They are on the front line of citizen engagement, service delivery and management of public space. Every preventive and containment measure require resources and has a fiscal aspect. To finance their epidemic response, local governments rely on three major sources: own revenues, intergovernmental transfers and subnational borrowing. UNCDF’s expertise in local development finance can offer immediate options to help channel necessary resources to support local government officials to meet the needs of the immediate crisis, as well as strengthen their capacity to deliver services to their citizens afterwards.
For example, UNCDF provided technical support in Bangladesh to modify the formula-based fiscal transfer system to include a COVID19 protocol certified by the relevant authorities. With resources from Sweden and the European Union, UNCDF is testing this out with the government by channeling US$169,000 through the fiscal transfer system to 72 local governments in Bangladesh as an Emergency Operational Expenditure Block Grant. This is used to purchase sanitizing materials, masks and gloves as well as to print publicity materials on COVID-19 and social distancing. It provides a direct means to complement the guarantee scheme for garment workers operated by the central government. This is a local government finance model that can be rapidly expanded nationally to mitigate the impact of COVID19 on the health and social fabric of Bangladesh. Similar platforms exist and could be deployed in countries or regions in crisis, such northern Uganda and Somalia.
This note is about immediate responses to the COVID19 recommended for local governments. It is advisory and generic and can be adapted to individual circumstances.
UNCDF’s development work is accompanied by strong policy and regulatory support to governments on issues including:
Regulatory forbearance: Financial institutions will struggle to meet capital demands at this critical time and need fiscal flexibility from regulators. UNCDF will support regulators to identify and help financial institutions that have the farthest reach into vulnerable and rural populations; these include electronic money and microfinance institutions.
UNCDF’s on-balance sheet investment Fund seeks initial capitalization at $50m, per the organisation’s Strategic Framework. SMEs are the backbone of economic activity in any LDC, and many will suffer because of the pandemic. Last mile communities will be the most exposed to this economic downturn; to preserve their livelihoods as much as possible, people in these communities will likely focus consumption on essential goods and services, such as food and healthcare. As a result, microloans might stop being repaid, purchases of solar energy might be halted, and supply side disruptions of agricultural value chains might take place. Many companies will go bankrupt. The $50m in the UNCDF fund can be directed toward SME stabilization and resilience, which are critically needed to shore up local value chains, local economic activity, and local jobs; and to help equip SMEs that are below the radar of the DFIs and banking sector to survive the crisis.
Short-term bridge loans:
Earlier deployment of pledged donations:
In these challenging times, as countries around the world grapple with the impacts of Covid-19, UNCDF’s work to use innovative finance in LDCs to demonstrate new models, create markets, and push systemic change to make finance work better for poor and excluded communities can play a key role in supporting the world’s most vulnerable countries and people.
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