The First Deputy Managing Director of International Monetary Fund (IMF), Mr Geoffrey Okamoto, has said, that the international community must come together and help each other to end this pandemic and lay the foundation for a more balanced, inclusive, and sustained global recovery for all.
Mr Okamoto, speaking at the 5th session of China Development Forum, under the theme “Global Economy 2021: Prospects and Challenges” in Washington DC, expressed uncertainty about the recovery of the pandemic saying “We don’t know how prolonged the health crisis will be. Access to vaccines remains very uneven, both across advanced and emerging economies. Low-income countries might not see significant vaccination well into 2022, and that is a problem: this pandemic will only really be over when it is over for everyone”.
The IMF deputy Director said, another risk is the spread of resistant mutations that threatens to reduce the efficacy of current vaccines and could undermine or delay the recovery.
He noted besides these bigger issues, there are also uncertainties about the effectiveness of policy actions and differences in what countries can do.
Some countries, Mr Okamoto said, face limited fiscal space and higher debts. While China still has some room for manoeuvring, many others, especially low-income countries, do not.
Tighter financial conditions could exacerbate vulnerabilities in countries with high public and private debt, he said adding that “We have seen recent increases in bond yields as the growth outlook of some advanced economies improves, leading markets to expect an earlier withdrawal of monetary stimulus”.
In the medium-term, Mr Okamoto hinted that the crisis could leave deep scars with some countries. In the past, advanced economies have seen their output reduced almost 5 percent below pre-recession trends five years after the beginning of a recession.
It could be worse in countries that cannot afford a strong macroeconomic response and/or have large services sectors more affected by the pandemic, he said.
Everywhere, the IMF Deputy Director said, the crisis has had a disproportionate impact on the young, the low-skilled, and women.
In the long-term, rising carbon emission levels remind us that climate change is also a significant challenge, and Asia has a major role in addressing it, he reminded leaders of countries with high carbon emissions.
Mr Okamoto said the IMF projected global growth at 5.5 percent in January 2021 but prospects of a stronger recovery are emerging – because of additional fiscal stimulus, especially in the U.S. and the prospects of broader vaccination, however, the global recovery has been incomplete and unequal.
“It is incomplete because despite a stronger than expected recovery in the second half of 2020, GDP remains well below pre-pandemic trends in most countries, while the recovery paths have also been different across countries, as well as across sectors”, he noted.
China, Mr Okamoto said, in many ways, has already completed its recovery, returning to its pre-pandemic growth levels ahead of all large economies, but growth still lacks balance, with private consumption lagging investment and it is expected consumption will catch up, as investment growth normalizes, but warned, there are significant risks which he described as momentarily.
Though there are worrying signs outside of China, that the gap between advanced economies and emerging markets are growing, Mr Okamoto said the IMF projected that cumulative income per capita in emerging and developing countries, excluding China, between 2020 and 2022 will be 22 percent lower than what it would have been without the pandemic.
That, he said, will translate into close to 90 million people falling below the extreme poverty threshold since the pandemic started.
China has been a bright spot in its continued fight against poverty, but even there Mr Okamoto said, the pandemic has hurt vulnerable people the most.
WHAT IS THE WAY FORWARD?
These challenges are daunting, Mr. Okamoto said but assured the Global community, they can be overcome with concerted actions by all countries.
The IMF Director highlighted three priorities and said the first would be ending the pandemic swiftly.
The international community, he said, must swiftly ramp up vaccine production and must ensure that low-income countries have the financing to procure and distribute COVID 19 vaccines.
This, Mr Okamoto said, requires bolstering funding for the COVAX initiative and the logistics for delivery.
On this front, he said the IMF is asking leading economies to support vaccine production and provide finance to developing countries.
Second, the IMF Director said countries should maintain economic support and calibrate it to the stage of their recovery and the pandemic. “Where the pandemic continues, the priority is to protect lives and livelihoods”, he added.
As it wanes, Mr Okamoto said, support should become more targeted, focusing on mitigating scarring, supporting the reallocation of resources, and ensuring that the post-pandemic economy is an inclusive and sustainable one.
The best policies, he noted, will be those that support the recovery, help strengthen resilience, and tackle long-standing challenges, for example, foster the transition to green energy and digitalization.
Mr Okamoto said, achieving faster and higher-quality growth requires mutually enhancing reforms: strengthening social safety nets and green investment; opening up of domestic markets; continuing to reform state companies; and ensuring that private and government-owned firms can compete on an equal basis.
A strong effort in this direction will raise productivity and income, and lead to more balanced and consumption-driven growth, he said.
The third priority, he said must be to mitigate divergence across countries, which include providing access to liquidity for developing economies and preventing climate change from hampering their economic growth and convergence.
Concluding, Mr Okamoto said the IMF has been active in supporting member countries, expanding concessional financing and providing debt relief to many poor countries.
A new Special Drawing Rights (SDR) allocation, he said, is under consideration to help address the global long-term need for reserves.
The IMF, he said, is also working with the G20 on bilateral debt service relief through the Debt Service Suspension Initiative and on a Common Framework to address unsustainable sovereign debt.
Lastly, Mr Okamoto said the IMF is incorporating climate change into the country and financial risk assessments, while scaling up capacity development and expressed the financial body’s appreciation to China for her continue support.
By Jojo Bruce-Quansah, Palaver Journalist.