For the past two years, the world has seen the worst that nature has to offer, wildfires, floods, a global pandemic - the list is endless. While natural disasters have contributed their share to the chaos, the pandemic has contributed the most. The devastation of covid-19 didn't discriminate. It equally toppled all the aspects that make a nation- from the population to the economy. How powerful must a force be to sicken 184 million people, cause around 4 million fatalities and topple an institution worth $90 trillion at the same time?
While attempting to control the spread of the virus, governments implemented regulations that restricted social and professional activities, thereby causing a global economic slump. When the economy finally started recovering, another problem came to light - the problem of uneven or gaping recovery. While the issue of uneven growth amongst nations was already a matter of concern for economists over the world, even before the pandemic wreaked havoc, the problem of gaping or irregular recovery started only after the chaos had somewhat subsided. While, in hindsight, the world is recovering, a quick skim reveals several discrepancies in the manner this recovery is happening. The Gaping global recovery is a concern, and what can be done about it will form the basis of this article.
WHY SHOULD THE WORLD BE CONCERNED?
As mentioned before, the hindsight version of the economic recovery patterns of nations shows us that the world is back on track for a path full of prosperity after fighting off the worst economic recession since World War II, barely one year after COVID-19 caused it. But a quick look at the facts and data presented by global financial institutions like the IMF, World Bank, etc., will tell you just how crooked that picture is.
“While there are welcome signs of global recovery, the pandemic continues to inflict poverty and inequality on people in developing countries around the world.”
- David Malpass, president of the World Bank Group
David Malpass’ statement reflects the current situation. While on one hand, courtesy of fast vaccination and extraordinary fiscal and monetary policy assistance, advanced economies are anticipated to grow at a rate of 5.4 per cent, the highest in almost 50 years. As of 2022, almost all advanced economies will return to their pre-pandemic per-capita income levels. Severe devastation caused by the pandemic is being restored swiftly in several parts of the globe. And while this is a reality for a selected few, it is only a distant dream for the other ones.
To be precise, 74 nations have now become eligible to borrow from the International Development Association of the World Bank (IDA). This section of people, who form around half of the world's population, live on less than $1.90 a day, making them the world's poorest chunk. It's hard for them to imagine a worldwide "recovery" at this point. After years of progress in poverty reduction, their rise in 2021 will be the smallest in more than two decades. For them, the damage will take a long time to heal. Every fourth person in these countries will still be below the international poverty level by 2030.
This means that the pandemic is inflicting the most harm to those who can least afford it. As a result, while recovery exists, it exists only for those with an already developed economy. Hence, it should not come as a shock that there are wide gaps in the global recovery process.
According to the OECD, the living standards of too many rich countries will not reach pre-pandemic levels by 2022. Despite an increase in economic growth rates, which means that the recovery will be unequal across nations, and perhaps will lead to permanent changes in the global economy. This implies that the outbreak is fragmenting the global economy through the increasing trade and investment restrictions, along with divergent policy responses being taken by several nations. It can be anticipated that the global economy will be adversely affected by the slowdown in economic activity in the fourth quarter of 2020 and the projected slow but partial rebound in 2021 as a result of the downturn.
The fact that one part of the world is heading back to the path of economic prosperity while the other part is still fending off of crumbs is a disheartening but true reality. One of the main problems this prompted uneven recovery bound to cause is the complete disbalance in the global economic scenario. The widening gap amongst the members of the Global market will affect everything from trade to political standings.
WHAT CAN BE DONE ABOUT THIS?
Over and above their usual external finance needs of $429 billion, slumped economies will require an additional $376 billion in financing through 2025 to get their economies back on track. Because many of these countries are already significantly in debt, borrowing is a restricted choice. Given most nations' economic restrictions in the aftermath of the epidemic, international development aid is expected to stay constant or can even decrease.
“Vaccine inequity between countries and regions is posing a significant risk to an already uneven and fragile global recovery.”
- UN Chief Economist Elliott Harris.
Governments having a surplus of vaccine doses must provide them to the poorest countries, and vaccine makers should prioritize available vaccines for such countries. Vaccines, diagnostics, and treatments must be made available on a global level through multilateral effort. Consequently, numerous lives would be saved, and billions of dollars would be to the Global economy.
Along with ensuring enough vaccine production, it is also necessary to abolish trade barriers on vaccine inputs and finished products and increase regional vaccine capacity investments. Diagnostics, medicines, and vaccine preparation must also be funded upfront with about $25 billion in grant funding for low-income developing nations.
To achieve debt sustainability, fiscal initiatives should be integrated into a viable medium-term fiscal framework or implement a comprehensive package of policy changes that will help smoothen the migration of workers to high-growth industries and cut trade costs. Increasing tax capacity, tax progressivity, and reducing unnecessary expenditures are a few steps that many nations could take. International financial assistance will be required for low-income emerging countries.
When faced with temporary inflation pressures, central banks should avoid tightening their policies prematurely, but they should be prepared to act swiftly if inflation expectations show symptoms of destabilization. To prepare for anticipated tougher external financial conditions, emerging countries should extend debt maturities where possible and minimize foreign currency debt accumulation.
With the help of these measures, even the struggling economies can be put back on track for a prosperous future. If followed diligently, these measures will prove beneficial to the world economy as a whole. The gaping global recovery is a reality, and the faster the world realizes and accepts this fact, the less it would be a matter of concern for the Global market.
Written By: Shubhi Pandey (firstname.lastname@example.org)
Edited By: Priyanshi Kapoor