This conclusion was reached by the experts of the VEB.RF Institute (Russia’s largest development institute) in a special report which was prepared for the meeting of the Board of the BRICS Interbank Cooperation Mechanism (BRICS ICM).
A study focuses on how the pandemic affected the current work and plans of development institutions of BRICS countries. According to the researchers, the restructuring of the economy during the pandemic led to an understanding of the need to focus on human capital development.
The researchers estimate that the global economy will shrink by 3.9-4.4% in 2020. In 2021 if a third wave of disease is avoided the world’s GDP could grow by 4.9%. For most countries, recovery from the crisis may take several years until the threat of contagion disappears. The engine of growth is China, most ASEAN countries and South Korea, whose economies will exceed pre-crisis levels next year. Total global budget expenditures for anti-crisis measures already exceed $11 trillion. The volume of stimulus measures is usually much higher in developed countries. Among the BRICS countries the biggest support of the economies is provided by India and Brazil. Budget consolidation is expected in 2021-2022.
The development banks of the BRICS countries made a significant contribution to overcoming the pandemic. The main measures included support for healthcare systems, support for small and medium enterprises, issuance of anti-crisis bonds, implementation of projects related to the daily needs of the population and many others. In Brazil and South Africa, due to the high incidence of disease, the scope of support measures was significant. China overcame the epidemic relatively quickly; in Russia, the support measures were relatively moderate with a modest decline. In India, with a similar low level of fiscal measures, there has been a significant decline in the economy.
The pandemic has shown the need to increase the capital of development institutions in relation to the GDP of countries, experts said. During the crisis the amount of credits dispatched for the anti-crisis measures exceeded the amount dispatched for routine credit operations. Anti-crisis measures of development banks relative to the GDP of the countries reached 1.3% in Brazil, 0.6% in Russia and 0.4% in China. In Russia through VEB.RF passed 23.5% of the total amount of state anti-crisis assistance, in Brazil through BNDES – 11.4%, in China through CDB – 9.5%. The volume of anti-crisis loans, which development banks issued to support the economy in 2020 was in many cases seriously higher than the volume of ordinary loans issued in the same period. VEB.RF allocated to emergency measures by 458% more than usual loans, the Brazilian Bank for National Development – 164%, the State Development Bank of China – 20%.
The pandemic, study concludes, forced development institutions to pay more attention to aspects of maintaining social stability and preservation of human capital. All the data indicate that young people of current and future generations have taken a serious economic blow, and without additional support for the first time in 300 years, they risk to get a lower standard of living than their parents. The BRICS development institutions should become key players in shaping new national development strategies based on the priority of human capital.