Economic Populism Directly Impacts Policy
Economic populism typically features the prioritization of growth and income redistribution, while addressing fiscal and inflation risks takes a back seat. Because the COVID-19 crisis has exacerbated inequality and poverty, economic populism could rise and/or democratic principles could degrade. If emerging-market economic growth disappoints and incomes and employment remain depressed, populist policy options could gain traction. These include social security expansion, a higher debt threshold and burden sharing between central banks and governments (fiscal dominance).
Africa Most Exposed to COVID-19 Aftershock
In Africa, where poverty and inequality are particularly pronounced, the political ground has already started shifting, including leadership changes and civil unrest.
In the North, Tunisia’s President Saied dismissed the government, suspended parliament, and transferred all powers to the presidency. In South Africa, President Ramaphosa responded to unprecedented civil unrest by reshuffling his cabinet, in the process giving himself direct oversight and control over intelligence gathering and operations. Saied and Ramaphosa are champions of anticorruption and are popular among voters. But public discontent has intensified during the pandemic, and the tables could turn on the two leaders if economic recovery is delayed.
Such a reversal occurred unexpectedly in Zambia last month with opposition party leader Hakainde Hichilema’s landslide defeat of President Lungu. Zambia’s economy was faltering long before the pandemic, but COVID-19 brought added pressure, and the country defaulted on its eurobonds in 2020. The government’s obstructive and opaque policies also ruled out meaningful multilateral assistance, worsening the crisis. The power of incumbency was still expected to tilt the scales in Lungu’s favor. But in the event, voter turnout surged to 70% (from 58% in 2016), with younger citizens eager for change.
Political Shifts Can Be Spontaneous or Formal
Spontaneous political shifts might become normal in post-pandemic conditions, but elections will remain formal pressure points and can flag potential positive or negative turning points (Display, below).
Over the next year, several African countries will go to the polls, and the results could alter political and policy trajectories (Angola, Kenya and South Africa). Potentially controversial elections loom in Latin America (Brazil, Chile, Colombia and Costa Rica). And in Asia, while some elections (for instance, Malaysia and the Philippines) might not be front-of-mind for investors, we think it remains important in the wake of the crisis to track public sentiment and policy signals closely.
