The global economy is recovering from Covid-induced disruptions but the pandemic's economic fall-out could last for years, the International Monetary Fund said.
In its ‘Build Forward Better’ report released on Monday, the IMF said the global health crisis has deepened pre-pandemic vulnerabilities and inequality is on the rise.
The report said much of the emerging market, as well as developing economies and some middle-income nations, could fall further behind.
Employees with less skills, youth and women are suffering “disproportionate income losses”.
“Economic fortunes across countries are diverging dangerously, driven by dramatic differences in access to vaccines and the scope to provide policy support,” said the fund’s managing director, Kristalina Georgieva.
“While advanced economies are bouncing back, the crisis is deepening for many emerging market and developing economies … the most urgent task remains to get the world vaccinated as quickly as possible."
The global economy contracted by 3.3 per cent last year. In July, the IMF estimated the global economy would grow 6 per cent this year and 4.9 per cent in 2022.
But the fund warned of an uneven recovery and downgraded its growth outlook for emerging market and developing economies because of unequal access to vaccines and the emergence of Covid-19 variants.
In May, it tabled a proposal to end the pandemic, which was endorsed by the World Health Organisation, the World Bank and the World Trade Organisation.
It aims to vaccinate at least 40 per cent of the population in every country by the end of this year and at least 60 per cent by mid-2022.
This investment to accelerate the vaccination pace will “boost global economic activity by trillions of dollars over the next few years”, the fund said.
“Closing this gap is key to ending the pandemic and ensuring a sustainable long-term recovery everywhere … a second immediate priority is helping countries deal with growing public debt burdens,” Ms Georgieva said.
Increasing debt has left many low-income countries more vulnerable and limited their ability to provide policy support, the IMF said.
From the start of the pandemic to April 30, the fund based in Washington approved more than $110 billion of loans to 86 countries, a record number.
It brought the IMF’s total lending commitments to more than $285bn, with more than a third approved since late March last year.
To further support the recovery, a proposal for a general allocation of Special Drawing Rights (SDRs) of $650bn has been circulated to the IMF’s executive board for consideration.
The allocation will be the largest in IMF history, providing a significant liquidity boost to countries, without adding to debt burdens.
SDRs are an international reserve asset created by the IMF to supplement the official reserves of its member countries.
It is not a currency, but rather a potential claim on the freely usable currencies of IMF members that can boost a country’s available liquidity.
“We must put in place policies that not only strengthen the near-term recovery, but transformative policies that provide a foundation for a greener, more digital and inclusive global economy of tomorrow,” Ms Georgieva said.
“More than ever, we see the profound implications climate change has for macro-economic performance and financial stability … and we are putting these critical aspects of climate action at the core of our work,” she added.
Countries and multinational companies are increasing efforts to achieve a net-zero carbon future by 2050. But concerns are rife on whether there will be enough support from investors and lenders to finance the transition.
The $50 trillion global investment funds industry needs to increase efforts to finance the transition to a greener economy and help to mitigate the effects of climate change, the IMF recommended.
It also called for enhanced transparency and accountability measures to minimise the levels of corruption. “Do what it takes but keep the receipts,” it said.
The IMF also suggested governance measures for countries receiving emergency financing.
They include commitments to publish Covid-19 spending reports and audit results, as well as crisis-related procurement contracts, including the companies awarded the contracts and their benefiting owners.
“This information is key to preventing conflicts of interest and tax evasion … allowing the public to track who benefits from public contracts,” it said.
The pandemic has pushed an additional 95 million people into extreme poverty last year compared with the pre-Covid projections, IMF found.
It predicted the low-income countries will need about $200bn in next four years to respond to the pandemic and a further $250bn to return to their pre-crisis levels with the advanced economies.
The pandemic has also accelerated the trend towards “digitalisation and the use of digital money” and it will probably "reshape the international monetary system”.