Navodita analyses the vulnerabaility of the world economy due to global recession from a global massive uncontrolled pandemic. An exclusive for Different Truths.

The world economy has become more vulnerable when it comes to suffering a global recession from a global massive uncontrolled pandemic. This is because of: (i) the strong and rapid integration of markets by trade and financially; (ii) the interconnectivity of nations via air transportation and sea transportation; (iii) the interconnection of stock markets through sophisticated information communication technologies (ICT). In fact, the high possibility of being affected by strong economic wave’s damage from any epidemic contagious diseases (Wuhan COVID-19) on a number of markets is real and latent at any time. This can be observed when the economic waves arrive at its final phase or last window refraction in the same market (country or region). The last window refraction shows the poor performance GDP real-prices growth rates of all markets from any epidemic contagious diseases such as Wuhan COVID-19 respectively.

In fact, the high possibility of being affected by strong economic wave’s damage from any epidemic contagious diseases (Wuhan COVID-19) on a number of markets is real and latent at any time. This can be observed when the economic waves arrive at its final phase or last window refraction in the same market (country or region).

The rapid spread of COVID-19 has led to uncertainty and loss of confidence unseen since 2008. The market volatility has also risen extremely fast to a level unseen over the last decade. Even against this unfavorable environment, there are sectors that have taken a disproportionate hit, including tourism, passenger transportation, airlines, hotels – practically everything that has a built-in key crossborder dimension.

Infrastructure, as a rule, is not among the most vulnerable sectors, quite the contrary. It has an inherent long-term dimension. While a crossborder component is important, most basic infrastructure is strictly national. However, the 2020 trends for the Belt and Road Initiative (BRI) might not fit this general pattern. The BRI intends to build up basic infrastructure across the globe, with a particular focus on Greater Eurasia to the South, West, and North of China. Under the helm of this very largescale initiative, hundreds of billions of dollars are mobilised and disbursed. A notable percentage of BRI projects possess an explicit cross-border nature – mostly automobile corridors and railroads, but also electric power generation and distribution projects.

The Belt and Road Initiative is by its very nature a crossborder phenomenon. Thus, there are challenges in the Coronavirus-induced economic crisis. In fact, 132 countries that are partners in the BRI account for 35% of global GDP, 43% of global trade in goods, and 60% of the world’s population. A recent comprehensive study estimates the amount of disbursed FDI at $100 bln, and that of committed and disbursed loans $600 bln.

The Belt and Road Initiative is by its very nature a crossborder phenomenon. Thus, there are challenges in the Coronavirus-induced economic crisis. In fact, 132 countries that are partners in the BRI account for 35% of global GDP, 43% of global trade in goods, and 60% of the world’s population. A recent comprehensive study estimates the amount of disbursed FDI at $100 bln, and that of committed and

disbursed loans $600 bln. Loans to low-income and lower-middle income countries are often concessional – e.g., for Kyrgyzstan and Tajikistan, two low-income countries immediately bordering China, a typical repayment period of around 20 years, an effective interest rate of 2% per annum, and a grace period of 5–12 years.

Effects of COVID-19 on the BRI: There are a number of direct and indirect consequences that the current crisis might exert on the flawless and efficient implementation of the Belt and Road Initiative’s projects. Let us try to compile a tentative list:

First, crossborder travel and transportation currently face multiple constraints. Since the BRI is, to a large extent, about the expansion of crossborder movement of goods, services, and people, it will take a direct hit through multiple channels, including the contraction of trade, investment, and passenger transportation. A heavy damage currently done to the global value chains adds to the impact of the crossborder movement of goods.

…there are reasons to be concerned with the countries’ debt and fiscal sustainability. Many of the recipient countries are low and lower-middle income economies with unstable economic growth.

Second, there are reasons to be concerned with the countries’ debt and fiscal sustainability. Many of the recipient countries are low and lower-middle income economies with unstable economic growth. For this reason, China’s plans, announced at the Second Belt and Road Forum in Beijing in April 2019 to analyse the debt sustainability of each country in cooperation with international financial institutions, deserve applause.

Third, there is the worry that there will be less financial resources available to finance the BRI projects. BRI projects are not only capital-intensive but also require concessional financial (‘long and cheap money’), in particular in the low and lower-middle income economies across Eurasia and the world. Since the relevant countries needs much of its financial might to stimulate its own national economy in the short term, will the financial resources be there for the long-term BRI projects? These worries are still to be addressed.

…many BRI projects involve Chinese contractors abroad and, consequently, tens of thousands of Chinese workers working abroad. Such a large external working force would now face multiple hurdles in terms of their deployment and crossborder movement.

Fourth, many BRI projects involve Chinese contractors abroad and, consequently, tens of thousands of Chinese workers working abroad. Such a large external working force would now face multiple hurdles in terms of their deployment and crossborder movement.

Fifth, the multilateralisation of the BRI had only begun to unfold in 2019, with the first material results to be expected in 2020 and 2021. Under the multilateralisation process, many well-funded international financial institutions were expected to enter the game (e.g., the World Bank, ADB, etc.). International financial institutions provide project financing based on signed and ratified international treaties that do not depend on local legislative changes, which helps to mitigate certain risks. Under crisis conditions, the international financial organisations deploy both their financial and human resources to fight the crisis, thus stripping much-needed resources from long-term infrastructure projects.

Facing a crisis, it is very tempting for national governments to revert to protectionist policies and to slash long-term initiatives that feature a low margin and will reveal most of their positive effects in the long-term future. This recommendation might concern the recipient countries more than China itself. It’s time for a globalised effort in fighting the crisis.

Photos from the Internet