“What we know on the basis of data is that advanced economies and a relatively small number of emerging markets are set to recover faster from the pandemic and that some emerging economies and almost all low-income countries (LICs) are at risk of weak growth” said Kristalina Georgieva.
The International Monetary Fund (IMF) Managing Director said that the LICs have less access to vaccines, less access to global capital markets, less fiscal policy space. And to put it in terms of data: emerging and developing countries, excluding China, she said are projected by 2020 to have cumulative per capita income losses as high as 22% versus 13% in advanced economies.
In other words, “even as we go into the next year much worse off than before the pandemic, we also forecast that only half of the countries that were narrowing their income gaps relative to advanced economies will continue to do so over 2021 to 2022. And vulnerable people have been hit especially hard, such as low skilled, informal workers, young, and women.”
The IMF Boss highlighted areas for action and the critical importance of trade in each of them. She questioned whether it is the risk of new mutations, threatening progress. This she says must translate into a focus on scaling up production and distribution, especially in low-income countries through Covax; through what David Malpass at the World Bank is doing; and through rapidly reallocating excess vaccines from surplus to deficit countries. The economic and development arguments for coordinated action are overwhelming.
As she has said before, faster progress in ending the health crisis is going to translate into raising global income cumulatively by US$9 trillion from 2020 to 2025. And this $9 trillion is split 60-40 between emerging markets and developing countries and advanced economies. “Unleashing the full power of trade to fight the pandemic is a moral necessity and it is an economic necessity. It is the best value for money we can think of this year.”
She advised that everyone will be all much better off if they leverage trade to drive growth. To secure a durable exit from the economic crisis, countries should maintain support to households and firms to avoid economic scars like long-term unemployment or fractured supply chains.
“We also want to stress that as the recovery takes hold, governments should lay the foundation for growth anchored in medium-term fiscal sustainability. You’ve heard me say “keep the receipts but spend”. Well, I’m now saying you cannot withdraw support. Think about what is next and how to reduce costs in the future.”
Now, what does it mean in terms of domestic policies? She explained that it is by, raising domestic revenues, making public spending more efficient, and improving the business environment. And it extends to global policies, such as reenergizing, reopening trade across borders to help boost the recovery. “We saw a 9.6% decline in global trade in 2020. We are now projecting trade volumes to grow by 8.5% in 2021 and by 6.5% in 2021. Step up on the pedal. Make it even better.”
And to accelerate that growth in trade, policymakers the IMF Boss said can act at a national level. For example, reducing import tariffs, simplifying customs procedures, cutting export duties. David Malpass is a very strong proponent of anything that leads to more transparency, and to injecting more momentum in growth.
And these measures can be complemented by international efforts to address the reform of the global trade system.
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