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A new ILO analysis on pandemic impact reveals lower-middle-income countries, like Nepal, hardest hit, and fiscal stimulus gap threatens to increase inequality between richer and poorer countries.

In its latest report on the impact of the Covid-19 pandemic the International Labour Organisation (ILO) has concluded that the devastating losses in working hours as a result of businesses being shut down has led to global labour incomes declining by an estimated 10.7 per cent, or US$ 3.5 trillion, in the first three quarters of 2020, compared with the same period in 2019.

According to the findings reported in the sixth edition of the ILO Monitor: Covid-19 and the world of work, the biggest drop was in lower-middle-income countries like Nepal where the labour income losses reached 15.1 per cent, with the Americas hardest hit region at 12.1 per cent.

The UN body reports that the global working hour losses in the first nine months of 2020 have been “considerably larger” than estimated in the previous edition of the Monitor which was released on June 30.

One reason for the estimated increases in working-hour losses is that workers in developing and emerging economies, especially those in informal employment, have been much more affected than by past crises, the Monitor, which was released on Wednesday, said. The Monitor has also noted that the drop in employment is more attributable to inactivity than to unemployment, with important policy implications.

“Just as we need to redouble our efforts to beat the virus, so we need to act urgently and at scale to overcome its economic, social and employment impacts. That includes sustaining support for jobs, businesses and incomes,” ILO Director-General Guy Ryder was quoted as saying in its press statement.

Although many stringent workplace closures have been relaxed lately, there are significant variations between regions, according to the ILO. Ninety-four percent of workers are still in countries with some sort of workplace restrictions, and 32 percent are in countries with closures for all but essential workplaces.

In Nepal months of lockdown, followed by restrictive prohibitory orders, has already impacted the income prospects of the general public. People have suffered devastating impacts of Covid-19 on labour markets, resulting in massive job loss, reduced working hours, wage cuts and have taken a hit on their regular income.

With the festive season approaching, businesses are still showing no signs of immediate recovery as the general public are still scared of going out to shop as reported by the Post on Thursday.

The survey titled: The Effect of Covid-19 in Nepal’s Economy conducted by the central bank—Nepal Rastra Bank—showed that only 35 percent of businesses operated partially while 4 percent operated fully during the lockdown period from March 24 to July 21.

The survey showed that 22.5 percent of employees were laid off by businesses in the formal sector—that includes manufacturing and service sectors. Two-thirds of laid-off employees were either working on a contract basis or had been hired temporarily.

On average, industries and businesses trimmed 18.2 percent off their payroll, with hotels and restaurants leading, followed by transport entrepreneurs and educational institutions.

The 6th edition of the Monitor had also looked at the effectiveness of fiscal stimulus in alleviating labour market impacts.

In countries where sufficient data is available for the second quarter of 2020, a clear correlation exists, showing that the larger the fiscal stimulus (as a percentage of GDP), the lower the working-hour losses. In that period, globally an additional fiscal stimulus of 1 percent of annual GDP would have reduced working hour losses by 0.8 percent, reported the ILO Monitor.

However, while fiscal stimulus packages have played a significant role in supporting economic activity and reducing the fall in working hours, they have been concentrated in high-income countries, as emerging and developing economies have limited capacity to finance such measures.

In order for developing countries to reach the same ratio of stimulus to working hours lost as in high-income countries, they would need to inject a further US$982 billion (US$45 billion in low-income countries and US$937 billion in lower-middle-income countries), pointed out the ILO report. The stimulus gap for low-income countries amounts to less than 1 percent of the total value of the fiscal stimulus packages announced by high-income countries.

This vast “fiscal stimulus gap” is even more worrying in light of the social protection deficits in many developing countries, the UN body said.

Moreover, some of these countries have also had to redirect public spending from other objectives in order to mitigate the labour market impact of the crisis, it said.

“As the United Nations General Assembly gathers in New York, there is a pressing need for the international community to set out a global strategy for recovery through dialogue, cooperation and solidarity. No group, country or region can beat this crisis alone,” said Ryder.

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