No One Left Behind? Assessing the Global Financial Safety Net Performance During COVID-19

Abstract The global financial safety net (GFSN) has become increasingly voluminous and complex. The ever-increasing capacity for crisis prevention and liquidity support of emergency financing institutions and arrangements at the bilateral, regional, and global level sums up to a total lending capacity of at least US$ 3.5 trillion (Mühlich, L., B. Fritz, W. N. Kring, and K. P. Gallagher. 2020. The Global Financial Safety Net Tracker: Lessons for the COVID-19 Crisis from a New Interactive Dataset. GEGI Policy Brief 10. Boston: Global Development Policy Center. Also available at:www.bu.edu/gdp/files/2020/04/GEGI-GDP_PolicyBrief_FInal.pdf). This represents a more than tenfold increase to available short-term liquidity compared to before the global financial crisis of 2008/09. Yet despite this tremendous increase in resources, the GFSN remains scarcely utilized throughout the COVID-19 crisis. This article develops a framework, that builds upon concepts in economics and international political economy, to analyze GFSN inefficiencies and to evaluate the utilization of the GFSN. Combining balance of payments models with the concept of regime complexity, we analyze and compare patterns of GFSN utilization in response to COVID-19 with past usage. We ask if the current GFSN is adequately built to efficiently respond to such a crisis. We are especially interested in examining the role that the six existing RFAs between EMDEs play in the GFSN.