2020 THE EIB COVID-19 ECONOMIC VULNERABILITY INDEX

08/2020 – EN

2020 THE EIB COVID-19 ECONOMIC VULNERABILITY INDEX

AN ANALYSIS OF COUNTRIES OUTSIDE THE The EIB COVID-19 Economic Vulnerability Index – An analysis of countries outside the European Union

Thematic Study

© , 2020.

Authors

Emmanouil Davradakis Ricardo Santos Sanne Zwart Barbara Marchitto

This is a publication of the European Investment Bank’s Economics Department.

The mission of the EIB’s Economics Department is to provide economic analyses and studies to support the Bank in its operations and in its positioning, strategy and policy. The department, a team of 40, is led by Debora Revoltella, Director of Economics. [email protected] www.eib.org/economics

The views expressed in this publication are those of the authors and do not necessarily reflect the position of the European Investment Bank.

The European Investment Bank does not endorse, accept or judge the legal status of any territories, boundaries, colours, denominations or information depicted on geographical maps included in its publications.

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Published by the European Investment Bank. Printed on FSC Paper.

pdf: QH-03-20-412-EN-N ISBN 978-92-861-4713-5 doi: 10.2867/812925 CONTENTS

INTRODUCTION 1

THREE FACTORS CONTRIBUTING TO RESILIENCE 3

GLOBAL SUMMARY 5

THE POWER OF A DIVERSE ECONOMY 7

HEALTHCARE AND ECONOMIC SYSTEMS 9

THE EIB COVID-19 VULNERABILITY INDEX 11

ANNEX: TECHNICAL DETAILS 15

INTRODUCTION

There is a lot that we do not yet know about the health effects of COVID-19. We do not know how the virus is spreading, or why it is causing a high death toll in some countries and a lower one in others. We do not know when we will find a vaccine.

What we do know that is that the virus and lockdowns are having severe impacts on the global economy. From large manufacturers to small businesses, restaurants, bars and hair salons, even the informal economy – everyone has been hit. It is a crisis like no other.

We know that the crisis has crippled demand and supply. It is creating huge uncertainties and long-term shifts in consumer preferences and production practices. It is laying bare our vulnerabilities and creating many new challenges. It is one of the most severe blows to economic growth on record.

For a clearer understanding of these impacts, we have developed an index based on a small set of economic indicators to rate countries’ vulnerability to the crisis. The index covers countries outside the European Union and helps give us an idea of the regions that need the most help. Low-income and developing countries are often very vulnerable when a crisis strikes.

The European Investment Bank is participating actively in the global effort to help people hit the hardest by the pandemic. We are strengthening economies and healthcare systems while fighting for a smart, green recovery.

Barbara Marchitto Head, Country and Financial Sector Analysis, Economics Department, European Investment Bank

INTRODUCTION 1

2 THE EIB COVID-19 ECONOMIC VULNERABILITY INDEX THREE FACTORS CONTRIBUTING TO RESILIENCE

The EIB COVID-19 Vulnerability Index examines three main factors that influence the resilience of economies to the COVID-19 shock.

1. Quality of healthcare and age of the population. Older societies and poorly functioning healthcare systems often make countries vulnerable to the health impacts of the pandemic.

2. Structure of the economy. The variables include integration into global value chains, dependence on exports such as fuels, metals and ores, revenue from tourism, and remittances, or the money people send back to their countries of origin.

3. Exposure and ability to respond to shocks. The shocks considered include the reversal of capital flows. Economies with large current account deficits not financed by foreign direct investments have to fund their remaining external financing needs through volatile capital flows, such as portfolio investment. These flows have declined sharply, particularly in developing and emerging markets. Other variables include the ability of countries to implement countercyclical fiscal policies, the strength of the banking sector and its capacity to support the recovery from the crisis.

This report outlines three categories of vulnerability: lowest, intermediate and highest. The categories are relative, meaning that the countries with the lowest vulnerability to the crisis may still suffer from a significant shock if they are badly hit by the virus. The thresholds for this index were based on the EIB Economics Department’s understanding of the underlying economic variables, and the approach is detailed in the Annex. The analysis focuses on emerging markets and developing countries outside the European Economic Area and the European Union. More details on the data used in this report and the construction of the index can be found in the Annex.

The vulnerability index does not reflect the evolving policy responses in each country or how the epidemic will unfold. Equally vulnerable countries may be impacted differently depending on the policy responses and the epidemic’s development.

The pace at which containment measures were applied varied around the world, as outlined in Figure 1. Countries in Asia were the first to begin implementing restrictions. In mid-March 2020, countries around the world began stepping up restrictions to fight the epidemic. The regions in the European Union’s neighbourhood had, on average, the most stringent measures. These regions are made up of the Southern Neighbourhood, Eastern Neighbourhood, and Central Asia, and the Western . Measures in sub-Saharan Africa and Asia were, on average, less stringent. Variation was high within each . In early June, most countries started relaxing lockdown measures.

THREE FACTORS CONTRIBUTING TO RESILIENCE 3 Figure 1

Stringency of government responses to COVID-19

100 90 80 70 60 50 40 30 20 10 0 01.01 15.01 01.02 15.02 01.03 15.03 01.04 15.04 01.05 15.05 01.06 15.06 01.07 15.07 01.08 15.08 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 Sub-Saharan Africa Asia Latin America Eastern Neighbourhood and Central Asia Southern Neighbourhood estern Balkans and Turkey

Source: Blavatnik School of Government, Oxford University, EIB Economics Department calculations, 13 May 2020.

4 THE EIB COVID-19 ECONOMIC VULNERABILITY INDEX GLOBAL SUMMARY

The index shows that the economies of low-income countries are highly vulnerable to the COVID-19 pandemic. Half of low-incomeSvalbard countries and 25% of middle-income countries face the highest risk from Greenland COVID-19. Unsurprisingly, higher-income countries generally have better coping capacities, even when hit by an unprecedented global shock. Of theGreenland countries with the highest vulnerability to the crisis, only two – Antigua and Barbuda and the Bahamas – are high-income. Nonetheless, 56% of high-income

Svalbard countries face an intermediateSweden level of risk, along with 63% ofRussia middle-income economies and half of inland

aroe theGreenland poorestIslands countries.orway

Estonia

Latvia Canada Russia

Ireland United ingdom etherlands Cech Republic Figure 2 Icelanranced aakhstan Switerland Russia Saint Pierre Mongolia and Miquelon inland Italaroy e Bosnia Islands and San orway Marino Heregovina osovo Ubekistan orth Iceland Macedonia yrgystan Aerbaian COVID-19 vulnerabilitySpain risks aroundArmenia the world United States orth Sweden Turkmenistan Russia Turkey orea Taikistan of America Denmark Lithuania Russia inland Canada South Russia orea apan Ireland Belarus aroe United Afghanistan China ingdom etherlands PolandIraq Iran Islands Palestine Bermuda Germany orway Belgium ordan Luxembourg Cech Republic uwait Ukraine Slovakia Pakistan rance Liechtenstein epal aakhstan Libya Austria Moldova Bhutan Switerland Hungary Bahrain Bahamas Saint Pierre Slovenia Mongolia and Miquelon Romania Svalbard Croatia Saudi Qatar Western Bangladesh Bosnia United Sahara Arab Mexico and SerbiaArabia Taiwan San Heregovina Emirates Estonia Monaco Marino India Turks and Caicos Andorra Montenegro Union of osovo Bulgaria Islands Oman Ubekistan orth Georgia Myanmar Cuba Macedonia Greenland yrgystan Hawaii Cayman British Albania Laos Islands Haiti Dominican Virgin Islands Portugal Aerbaian Wake Republic Puerto Anguilla orth Island United States amaica Rico Mali Greece Turkmenistan Antigua and Barbuda Sudan Turkey orea Saint itts iger Taikistan Latvia Belie and evis Paracel Guadeloupe of America Montserrat Islands orthern Cape Verde Eritrea Thailand Mariana Guatemala Dominica emen Denmark Martinique Chad Islands Honduras Senegal South Saint Lucia apan El Saint Vincent orea etherlands and the Grenadines Gambia Malta Guam Lithuania Barbados Salvador icaragua Aruba Antilles Burkina Syria Cambodia Philippines Russia Grenada Guinea-Bissau Cyprus Canada aso Dibouti Lebanon Afghanistan Vietnam China Trinidad Guinea Spratly Russia Costa Benin Tunisia Iraq and Iran Islands Rica Tobago Morocco Palestine Bermuda igeria Somalia Panama Sierra ederated States Leone Togo Ethiopia Israel of Micronesia Veneuela Cte ordan Sri dIvoire South Lanka Ireland Ghana Central Palau Liberia Sudan uwait Marshall Islands African Republic Iceland Pakistan Belarus Guyana Algeria Sweden epal Brunei United Russia rench Cameroon Malaysia Bhutan Suriname Guiana Libya inland Bahrain etherlands Colombia Bahamas Egypt aroe Poland Qatar Islands orway ingdom Equatorial Saudi Western Guinea Republic Uganda United Singapore Bangladesh Mexico Sao Tome Sahara of the enya Arab and Principe Arabia Emirates Taiwan auru Germany Gabon Congo India Ecuador Turks and Caicos Democratic Maldives Union ofEstonia Belgium Islands Rwanda Oman iribati Myanmar Cuba Republic Burundi Seychelles Hawaii Cayman British Latvia Laos Islands Haiti Dominican Virgin Islands of the Congo Denmark Wake Republic Puerto Papua Cech Republic Anguilla Mauritania Lithuania Russia Luxembourg Island amaica Rico Canada Mali Indonesia ew Sudan Russia Antigua and Barbuda Tanania Guinea Ukraine Saint itts iger British Paracel Solomon Belie and evis Islands Slovakia Guadeloupe Indian Ocean Ireland Islands orthern Montserrat Belarus Tuvalu Cape Verde Eritrea Territory United Thailand Mariana Guatemala Dominica emen Tokelau Martinique Chad etherlands Poland Islands Honduras Senegal ingdom East Liechtenstein aakhstan Saint Lucia Germany Timor El Saint Vincent rance etherlands Gambia Belgium Guam and the Grenadines Barbados Comoros Moldova PeruSalvador icaragua Aruba Antilles Burkina Christmas Cambodia Philippines Austria IslandLuxembourg Cech Republic Wallis and Grenada Guinea-Bissau aso Dibouti Cocos Ukraine utuna Angola (eeling) Slovakia Vietnam Hungary Samoa Trinidad Guinea Islands Spratly Switerland Costa Benin Moambique Liechtenstein aakhstan and Mayotte rance Austria Moldova Islands Rica Tobago Saint Pierreambia Mongolia Brail igeria Switerland Hungary Slovenia American Sierra Somalia Samoa Panama and Miquelon Malawi Saint Pierre Slovenia ederated States Mongolia Saint Leone Togo and Miquelon Ethiopia Romania ii of Micronesia Romania Croatia rench Veneuela Helena Cte Sri Vanuatu Polynesia South Croatia dIvoire Central Lanka Italy Bosnia Ghana and Palau Bolivia Liberia San Serbia Sudan Heregovina Marshall Islands African RepublicMadagascar Monaco Marino Italy iue Guyana Andorra Montenegro Bosnia imbabwe Mauritius osovo Bulgaria Brunei rench Cameroon Malaysia Georgia Ubekistan Cook Islands Suriname Guiana orth yrgystan and Tonga Macedonia San Serbia Albania Colombia Portugal Aerbaian amibia Spain Armenia Heregovina Reunion ew Monaco Marino orth United States Equatorial Greece Botswana Singapore Turkmenistan Paraguay Guinea Republic Uganda Turkey CaledoniTaikistana orea Pitcairn Chile of America Sao Tome of the enya Andorra Montenegro Island Highest and Principe Congo auru osovo Bulgaria Gabon South Ecuador Democratic Maldives Ubekistan Rwanda orea apan iribati Eswatini Malta Australia Georgia Republic Syria orth Seychelles Cyprus Macedonia yrgystan of the Congo Burundi Lebanon Afghanistan China Intermediate Tunisia Iraq Iran Papua Morocco Palestine Lesotho Bermuda Indonesia orfolk ew Albania Tanania Israel Portugal Island Aerbaian South Guinea Solomon British ordan Armenia Spain Islands Indian Ocean Africa Territory uwait Tuvalu orth United States Pakistan Tokelau Uruguay Algeria Lowest East epal Greece Turkmenistan Libya Timor Bhutan Turkey orea Comoros Egypt Bahrain Taikistan Peru Bahamas Christmas Qatar Cocos Island Saudi Wallis and Argentina Western United Bangladesh utuna of America Mexico Angola Sahara (eeling) Arab Samoa Islands Arabia Emirates Taiwan Moambique Mayotte India Brail Turks and Caicos ambia Union of American Islands Oman Samoa Malawi Myanmar Saint ii rench Cuba Helena Cayman British Laos Vanuatu Polynesia Hawaii South Islands Haiti Dominican Virgin Islands Wake Republic Puerto Bolivia Anguilla Mauritania Island amaica Rico Madagascar Mali Sudan apan iue Antigua and Barbuda ew Saint itts iger Paracel orea Belie and evis imbabwe Mauritius Guadeloupe ealand Montserrat Malta Islands orthern Cook Islands Guatemala Cape Verde Eritrea Thailand Mariana Tonga Dominica emen Martinique Chad Islands Syria Honduras Senegal Saint Lucia amibiaSaint Vincent El etherlands Reunion Gambia ew Guam and the Grenadines Barbados Philippines Cyprus Salvador icaragua Aruba Antilles Botswana Burkina Caledonia Cambodia Paraguay Grenada Guinea-Bissau aso Dibouti Pitcairn Chile Vietnam Lebanon Afghanistan Island rench Trinidad Southern and Guinea Spratly China Costa Benin and Antarctic Islands Rica Tobago Territories igeria Sierra Somalia ederated States Iraq Panama Tunisia Eswatini Leone Togo Ethiopia Australia of Micronesia Iran Veneuela Cte South Sri Palestine dIvoire Ghana Central Lanka alkland Islands Liberia Morocco Palau Sudan Marshall Islands Bermuda Guyana African Republic Brunei rench Heard Island Malaysia McDonald Cameroon orfolk South Georgia SurinameLesothoGuiana and the South South Islands Island Israel Sandwich Islands Colombia

Equatorial ordan Bouvet Island Africa Guinea Republic Uganda Singapore Sao Tome of the enya Uruguay and Principe auru Gabon Congo Ecuador Democratic Maldives uwait Rwanda iribati Republic Pakistan Seychelles Argentina of the Congo Burundi Algeria Indonesia Papua epal Tanania ew British Guinea Solomon Bhutan Indian Ocean Libya Islands Territory Tuvalu Tokelau East Bahrain Timor Egypt Bahamas Comoros Peru Christmas ew Island Wallis and Cocos ealand utuna Angola (eeling) Qatar Samoa Islands Moambique Mayotte Saudi Brail ambia Bangladesh American Western United Samoa Malawi Saint ii rench Helena Sahara Vanuatu Arab Mexico Polynesia Bolivia Arabia Taiwan rench Emirates iue Southern and Madagascar Antarctic imbabwe Mauritius Territories India Cook Islands Tonga Turks and Caicos amibia Union of Reunion ew alkland Islands Botswana Islands Paraguay Caledonia Oman Pitcairn Chile Island Heard Island Myanmar South Georgia McDonald Cuba and the South Islands Sandwich Islands Eswatini Australia Hawaii Cayman British Bouvet Island Laos Islands Haiti Dominican Virgin Islands Wake Puerto Lesotho orfolk Republic South Island Island Rico Anguilla Mauritania amaica Africa Mali Sudan Uruguay Saint itts Antigua and Barbuda iger Belie and evis Paracel Guadeloupe Antarctica MontserraAntarcticat Argentina Antarctica Islands orthern Cape Verde Eritrea Thailand Mariana Guatemala Dominica emen Martinique Chad Islands Honduras Senegal Saint Lucia Saint Vincent ew El etherlands Gambia ealand Guam and the Grenadines Barbados Salvador icaragua Aruba Antilles Burkina Cambodia Philippines Grenada Guinea-Bissau aso Dibouti rench Southern and Antarctic Vietnam Territories Trinidad Guinea Spratly Costa Benin and alkland Islands Tobago Islands Rica Heard Island South Georgia McDonald igeria and the South Islands Somalia Panama Sandwich Islands Sierra ederated States Bouvet Island Leone of Micronesia Veneuela Cte Togo Ethiopia Sri dIvoire South Lanka Ghana Central Palau Liberia Sudan Marshall Islands Guyana African Republic Source: EIB Economics Department. See Annex. Brunei Antarctica Antarcticarench Antarctica Cameroon Malaysia Colombia Suriname Guiana

Equatorial Guinea Republic Uganda Singapore Sao Tome of the enya and Principe auru Gabon Congo Ecuador Democratic Maldives Rwanda iribati Republic Burundi Seychelles of the Congo Papua Antarctica Antarctica Antarctica Indonesia Tanania ew British Guinea Solomon Indian Ocean Islands Territory Tuvalu Tokelau East Timor Comoros Peru Christmas Island Wallis and Cocos utuna GLOBAL SUMMARY 5 Angola (eeling) Samoa Islands Moambique Mayotte Brail ambia American Samoa Malawi Saint ii rench Helena Vanuatu Polynesia Bolivia iue Madagascar imbabwe Mauritius Cook Islands Tonga amibia Reunion ew Botswana Paraguay Caledonia Pitcairn Chile Island

Eswatini Australia

Lesotho orfolk South Island Africa Uruguay

Argentina

ew ealand

rench Southern and Antarctic Territories

alkland Islands

Heard Island South Georgia McDonald and the South Islands Sandwich Islands

Bouvet Island

Antarctica Antarctica Antarctica None of the countries in the Western Balkans or Turkey are among the most vulnerable, but Albania, and Serbia fall into the intermediate vulnerability category. In the Southern Neighbourhood, one country, Lebanon, is in the highest vulnerability group, but most of the others have intermediate vulnerability. Most of the countries in the European Union’s Eastern Neighbourhood and Central Asia (ENCA) region are in the intermediate vulnerability group, with the poorest two, Kyrgyzstan and Tajikistan, falling into the highest vulnerability category.

Outside the European Union’s immediate neighbourhood, sub-Saharan Africa, the Caribbean and the Pacific states are the most vulnerable regions. Around half of the countries in Africa, the Caribbean and the Pacific are among the most vulnerable, with almost all of the remainder falling into the intermediate vulnerability category. Latin America and Asia each have a small number of countries in the highest and lowest vulnerability groups, while most of the others exhibit intermediate vulnerability. This reflects the diversity of both regions, which are predominantly middle-income areas, but also contain both low- and high-income countries.

6 THE EIB COVID-19 ECONOMIC VULNERABILITY INDEX THE POWER OF A DIVERSE ECONOMY

Heavy dependence on particular types of revenue is a strong driver of COVID-19 vulnerability. Less- diversified economies are at high risk when they are hit by a crisis such as COVID-19. The most vulnerable group to COVID-19 includes a number of countries that are dependent on oil exports or highly reliant on tourism.

The prices of most non-agricultural commodities have plummeted, with gold being the main exception, and oil-exporting countries have been hurt particularly badly. The ENCA region has the greatest proportion of countries in the highest vulnerability group in terms of commodity dependence, as shown in Figure 3, but there are significant numbers of commodity-dependent countries in all regions. Note that the importance of this vulnerability factor may be understated for poorer countries. Data for a number of these countries are missing or incomplete, despite efforts to compensate for these problems, as detailed in the Annex. In addition, the weaker average capacity of economic systems in poorer countries can magnify how a drop in export revenues impacts economic stability. For example, commodity exports make up an estimated 14% of (GDP) in Nigeria, suggesting the country is at much lower risk than many high-income oil exporters, such as the United Arab Emirates. However, Nigeria has a very poorly functioning tax system, with tax revenues accounting for just 3-4% of GDP, and its ability to generate revenue from sources other than oil is very weak. As a result, oil accounts for at least half of Nigeria’s fiscal revenues. The crash in oil prices has therefore forced Nigeria to lower its 2020 budget substantially and seek support from the International Monetary Fund for the first time since 2000.

Countries whose economies rely heavily on tourism face elevated risks. The pandemic and restrictions on the movement of people have all but wiped out tourism in many countries, and a global recession is expected to diminish tourist revenues long after restrictions are removed. A number of the affected countries are very highly exposed, deriving up to 60% of their GDP from tourism. Dependence on tourism revenue is a key driver of vulnerability among the Caribbean and Pacific countries with over two-thirds ranking among the most vulnerable to drops in tourism, and only Trinidad and Tobago and Papua New Guinea in the lowest vulnerability group. At least five countries in the region generate more than one-third of their GDP from tourism. In the Western Balkans, Albania, Bosnia and Herzegovina and Montenegro fall into the highest vulnerability group for declines in tourism, remittance receipts or both. In the ENCA region, and Lebanon are in the highest vulnerability group for a contraction in tourism. Morocco, Tunisia and Egypt are judged to be at intermediate risk. Several countries across Asia, Latin America and sub-Saharan Africa are highly or moderately dependent on tourism. As with commodity revenues, underlying weaknesses in the economic system could magnify how poorer countries are impacted by a drop in foreign exchange revenues resulting from collapsing tourism receipts.

Countries whose manufacturing sectors rely on inputs produced abroad may be more vulnerable if there are lockdowns and curfews where these offshore production sites are located. Of the Western Balkan countries, only belongs to the group with the highest exposure to global value chains (Figure 3), and Turkey falls into the lowest vulnerability group based on the data available. Only 20% of countries in Latin America and 15% in sub-Saharan Africa are in the highest or intermediate vulnerability group for global value chains.

THE POWER OF A DIVERSE ECONOMY 7 Remittances were a source of support during previous economic crises, but money sent back to countries of origin is expected to fall by more than $100 billion in 2020, according to the World Bank, heightening the economic vulnerability of countries that rely on this form of revenue. A number of Caribbean and Pacific countries will be badly affected, exacerbating the shock already sustained from the fall in tourism. Tonga, which derived 41% of its GDP from remittances in 2019, has the world’s highest exposure. Several countries in the ENCA region are among the most vulnerable to drops in remittances (mainly from Russia). This includes Kyrgyzstan, where remittances account for at least a third of GDP. In the Southern Neighbourhood countries, almost 40% are in the highest vulnerability group. Remittance dependence appears less widespread in Asia, Latin America and sub-Saharan Africa, although it is an important source of revenue for many countries in these regions too. Note that informal remittances are generally not reported and several studies suggest a higher incidence in Latin America and sub- Saharan Africa than in other regions, meaning that their vulnerability to a drop in remittances is probably underestimated.

Figure 3

Economic structure and vulnerability (vulnerability level, percentage of countries)

Remittances Tourism

Turkey Commodities estern Balkans and Global value chains Remittances Tourism

Africa Commodities

Sub-Saharan Global value chains Remittances Tourism Commodities Southern

Neighbourhood Global value chains Remittances Tourism Latin

America Commodities Global value chains Remittances Tourism

ENCA Commodities Global value chains Remittances Tourism Commodities Pacific Caribbean Global value chains Remittances Tourism

Asia Commodities Global value chains

0 10 20 30 40 50 60 70 80 90 100 Highest Intermediate Lowest Data missing

Source: EIB Economics Department. See Annex.

8 THE EIB COVID-19 ECONOMIC VULNERABILITY INDEX HEALTHCARE AND ECONOMIC SYSTEMS

The resilience of a country’s economic system and the quality of its healthcare are key factors in its vulnerability to COVID-19, as shown in Figure 4.

Figure 4

Vulnerability of economic systems and healthcare sector (percentage of countries in the highest vulnerability group) Asia 100 Western Blakans 80 and Turkey 60 Caribbean & Pacific 40 20 0

Sub-Saharan Africa ENCA

Southern Neighbourhood Latin America

Health system and demography Vulnerability to capital outflows Banking system Level of public debt Risk of debt distress moderate or high (IMF)

Source: EIB Economics Department. See Annex. Note: Debt distress is based on IMF debt sustainability analyses and is not available for high-income countries.

Resilience in the European Union’s neighbourhood varies widely. The Western Balkan countries face a challenging situation in the healthcare sector, with all falling into the highest or intermediate vulnerability category for this variable. Another factor is that their populations are beginning to age. Bosnia and Herzegovina is the only country in the most highly exposed group to capital outflows. The banking systems in the Western Balkan countries are more vulnerable to a protracted crisis, with the risk particularly high in Albania, Bosnia and Herzegovina and Montenegro. However, they are less likely to fall into the highest risk category for public debt. The vulnerability of ENCA and Southern Neighbourhood countries is largely driven by their banking systems and the risk of unmanageable capital outflows. However, healthcare in most ENCA countries is relatively well developed. Even low-income countries such as Kyrgyzstan and Tajikistan are in the lowest risk category for the healthcare sector. By contrast, more than half of the countries in the Southern Neighbourhood fall into the highest vulnerability category for this risk component.

HEALTHCARE AND ECONOMIC SYSTEMS 9 The weak healthcare and economic systems in sub-Saharan Africa and the Caribbean and Pacific countries make it harder for them to fight problems such as the COVID-19 pandemic. The lowest- income countries have disproportionately young populations, which should lower their vulnerability to health impacts compared to higher-income countries. However, this youth factor does not offset the lower capacity of most of the healthcare systems in sub-Saharan Africa and Latin America to handle a large number of COVID-19 cases. Although a relatively small proportion of these regions’ countries are above the public debt-to-GDP threshold that would put them into the highest vulnerability category, they in reality have far less capacity to cope with public debt than their peers in other regions. This is reflected in the relatively high proportion deemed at high risk of debt distress before the crisis, according to the IMF. Across the two regions, 24 states are at high risk of debt distress or currently in debt distress, with a further 16 classified as facing moderate risk. The COVID-19 crisis is already increasing the risk of debt distress. The need to address the healthcare and economic impacts of COVID-19 has driven up expenses, while a slowing economy and falling commodity prices have drastically cut revenues for many countries. At the same time, those that access international capital markets are facing increased yields and some have already lost access to market funding. A relatively small number of Caribbean and Pacific countries are in the most highly exposed group to the risk of capital outflows, but a large number of sub-Saharan African countries are in the highest or intermediate exposure group based on their basic balances.

Resilience in Latin America and Asia is mixed. A significant number of countries in Latin America and Asia are in the highest vulnerability group based on the capacity of their healthcare systems and their vulnerability to capital outflows. Banking systems, however, are more likely to be resilient in Asian countries – only 18% fall into the highest vulnerability group. Few countries in either region fall into the highest vulnerability category based on the ratio of public debt to GDP. However, the IMF lists Afghanistan, Argentina, Bhutan, Ecuador, Guyana, Laos, the Maldives, Nicaragua and Venezuela at a high or moderate risk of debt distress.

10 THE EIB COVID-19 ECONOMIC VULNERABILITY INDEX THE EIB COVID-19 VULNERABILITY INDEX

■ Highest vulnerability ■ Intermediate vulnerability ■ Lowest vulnerability ■ Data missing

COVID-19 Health Economic vulnerability to drop in Vulnerability Banking Economic system and to capital Fiscal space sector Vulnerability Global value Tourism Remittances Commodity Index demography chains exports outflows strength Afghanistan Albania Algeria Angola Antigua and Barbuda Argentina Armenia Aruba Australia Bahamas Bahrain Bangladesh Barbados Belarus Belize Benin Bhutan Bolivia Bosnia and Herzegovina Botswana Brazil Burkina Faso Burundi Cabo Verde Cambodia Cameroon Canada Chile China Colombia Congo, Dem. Rep. Congo, Rep. Costa Rica Côte d’Ivoire Djibouti Dominican Republic Ecuador Egypt El Salvador

THE EIB COVID-19 VULNERABILITY INDEX 11 COVID-19 Health Economic vulnerability to drop in Vulnerability Banking Economic system and to capital Fiscal space sector Vulnerability Global value Tourism Remittances Commodity Index demography chains exports outflows strength Eswatini Ethiopia Fiji Gabon Gambia, The Georgia Ghana Grenada Guatemala Guinea Guinea-Bissau Guyana Haiti Honduras Hong Kong SAR, China India Indonesia Iran Iraq Israel Jamaica Japan Jordan Kenya South Korea Kuwait Kyrgyzstan Laos Lebanon Lesotho Liberia Libya Madagascar Malawi Malaysia Maldives Mali Mauritania Mauritius Mexico Moldova Mongolia Montenegro

12 THE EIB COVID-19 ECONOMIC VULNERABILITY INDEX COVID-19 Health Economic vulnerability to drop in Vulnerability Banking Economic system and to capital Fiscal space sector Vulnerability Global value Tourism Remittances Commodity Index demography chains exports outflows strength Morocco Mozambique Myanmar/Burma Namibia Nepal New Zealand Nicaragua Niger Nigeria North Macedonia Oman Pakistan Panama Papua New Guinea Paraguay Peru Philippines Qatar Romania Russian Rwanda Samoa São Tomé and Príncipe Saudi Arabia Senegal Serbia Seychelles Sierra Leone Singapore Solomon Islands Somalia South Africa South Sudan Sri Lanka Sudan Suriname Tajikistan Tanzania Thailand Togo Tonga Trinidad and Tobago Tunisia Turkey

THE EIB COVID-19 VULNERABILITY INDEX 13 COVID-19 Health Economic vulnerability to drop in Vulnerability Banking Economic system and to capital Fiscal space sector Vulnerability Global value Tourism Remittances Commodity Index demography chains exports outflows strength Turkmenistan Uganda Ukraine United Arab Emirates Uruguay Uzbekistan Vanuatu Venezuela Vietnam Yemen Zambia Zimbabwe

Source: EIB Economics Department. See Annex.

14 THE EIB COVID-19 ECONOMIC VULNERABILITY INDEX ANNEX: TECHNICAL DETAILS

Variables used in the vulnerability index:

I. Quality of healthcare and age of population: physicians (per 1 000 people), hospital beds (per 1 000 population) and population aged 65 and over (percentage of total population).

II. Global value chains: global value chain participation as a percentage of GDP.

III. Tourism: international tourism receipts as a percentage of GDP.

IV. Money sent back to country of origin: personal remittances received as a percentage of GDP.

V. Exports: of fuels, metals and ores as a percentage of GDP. For countries classified as commodity exporters based on the United Nations Conference for Trade and Development’s (UNCTAD) State of Commodity Dependence, missing data were replaced with the cross-sectional median value for the relevant commodity exporter group (fuels or metals and ores). For other countries, missing data were not replaced.

VI. Vulnerability to capital outflows: basic balance as a percentage of GDP (current account balance plus net foreign direct investment as a percentage of GDP).

VII. Government: debt as a percentage of GDP and debt distress risk (for low-income countries, a dummy variable that takes the value of 1 for a low debt distress risk classification by the IMF, 2 for moderate risk and 3 for high risk and debt distressed economies).

VIII. Banking risk: Banking Industry Risk (BIR) score (1=least risky, 9=most risky).

Data on global value chain participation came from the UNCTAD EORA database. The IMF’s classification of debt distress risk based on the most recent debt sustainability analyses was used, and to identify commodity exporters, the UNCTAD State of Commodity Dependence’s classification was used. Other indicators came from the World Bank.

A score is calculated for each variable listed in the columns on the index. For variables where higher values indicate lower vulnerability (for example, the basic balance or number of doctors per head of population), we calculated the distance of the variable from the sample maximum and divided that distance by the difference between the sample maximum and minimum. For variables where lower values indicate lower vulnerability (for example, international tourism receipts or commodity exports as a percentage of GDP), we calculated the distance of the variable from the sample minimum and divided that distance by the difference between the sample maximum and minimum. The higher the score in each column of the index, the higher the vulnerability of the country to the COVID-19 pandemic.

The score for the quality of healthcare and age of population equals the average scores for physicians (per 1 000 people), hospital beds (per 1 000 population) and population aged 65 and over (percentage of total population). The score for government debt is equal to the maximum of the scores for public debt as a percentage of GDP and for the debt distress risk dummy. An aggregate indicator of the impact on GDP was constructed as the maximum of the scores for global value chains, tourism, remittances and commodity exports, to reflect the fact that a country can be severely impacted, even if only through just one of the columns in the index. The aggregate COVID-19 Vulnerability Index equals the average of the scores for the quality of healthcare and age of the population, the impact on GDP, government debt and banking risk. Higher indicator values mean there is higher vulnerability to COVID-19.

ANNEX: TECHNICAL DETAILS 15 For easier reading, we constructed a heat map of the various countries per indicator. The values of the different factors are coloured as follows:

The factor values were classified based on the following thresholds:

Overall economic vulnerability to COVID-19: (lowest: 0-40, intermediate: 40-60 and highest: >60)

Quality of healthcare and age of the population: (lowest: 0-50, intermediate: 50-60 and highest: >60)

The remaining economic factors in the index are scored as follows:

• Tourism, remittances, commodity exports (lowest: tourism, remittances, commodity exports <5% of GDP, intermediate: 5-10% and highest: >10%)

• BIR (lowest: 1-4, intermediate: 5-6 and highest: 7-9)

• Global value chain (lowest: global value chain participation <10% of GDP, intermediate: 10-20% and highest: >20%)

• Government debt (lowest: public debt >50% of GDP, intermediate: 50-90% or moderate risk of debt distress and highest: >90% or high risk of debt distress)

• Vulnerability to capital outflows (lowest: basic balance >5% of GDP, intermediate: 0-5% and highest: <0%)

16 THE EIB COVID-19 ECONOMIC VULNERABILITY INDEX

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pdf: ISBN 978-92-861-4713-5 08/2020 – EN