IMF Weekend Read: Policies for an Inclusive Recovery

July 10, 2020/IMF Weekend Read

PAVING THE WAY FOR AN INCLUSIVE RECOVERY

“Looking ahead, policies should lay the foundation for a low-carbon, resilient recovery that would create millions of jobs while help address the climate crisis,” said IMF Managing Director Kristalina Georgieva earlier this week to an ILO conference. “We are especially concerned that the crisis will jeopardize the important development gains of the last years.” 

So how is the IMF responding to the crisis? Get the latest in a recent audio interview with the BBC World Service—a discussion with MD Georgieva begins at 18:35. Hosted by Oxford Professor Ian Goldin, the broader dialogue focused on how the pandemic has changed the world, and why global leaders failed to work together to prevent the spread.

Homing in on emerging markets and developing countries, MD Georgieva recently spoke to a high-level conference organized by the Paris Forum and the Saudi G20 Presidency on restoring sustainable flows of capital and robust financing for development. She focused on three areas. First, the scale of the economic shock in the developing world, and how emerging markets with weak fundamentals are in an especially vulnerable position. Second, we ought to bring strong financial support in a sustained manner to countries that are most affected—tuning up our instruments even further, especially for supporting low-income countries and tourism-dependent small island economies. And third, we need to shift our focus to increasing resilience.

More broadly, what conditions need to be in place for a recovery in 2021? What are the risks that the economy will remain in a longer slump? How can policymakers best respond? For a deeper dive, watch IMF Chief Economist Gita Gopinath present and discuss the latest World Economic Outlook in an event hosted this morning in Tokyo by University of Tokyo Dean of the Graduate School of Economics Tsutomu Watanabe. 

Though devastating in its effects, the historic proportions of COVID-19 bring about the opportunity to assess how we should rebuild our societies differently to emerge better after the crisis. But which policies should we put in place to create truly inclusive societies and a global economy which works for all? Watch this in-depth, 75-minute panel discussion on the economics of inclusion, hosted by Oxford’s Dean of the Blavatnik School of Government Ngaire Woods—featuring Minister of Economy of Argentin Martín Guzmán, Vice President and Chief Economist of the World Bank Group Carmen M. Reinhart and IMF Chief Economist Gita Gopinath.

MASSIVE FISCAL RESPONSE, SOARING PUBLIC DEBT

The ongoing COVID-19 pandemic has already prompted an unprecedented fiscal policy response of close to $11 trillion worldwide. But with confirmed cases and fatalities still rising fast, policymakers will have to keep the public health response their No. 1 priority while retaining supportive and flexible fiscal policies, and preparing for transformational economic change.

In the face of a sharp decline in global output, a massive fiscal response has been necessary to increase health capacity, replace lost household income and prevent large-scale bankruptcies. But the policy response has also contributed to global public debt reaching its highest level in recorded history, at over 100 percent of global GDP, in excess of post-World War II peaks.

While the trajectory of public debt could drift up further in an adverse scenario, pulling back support too soon could stall recovery. Instead, fiscal policies need to remain supportive and flexible with an eye toward climate-friendly investments and tackling inequality through both spending and taxation.

Read more in a new blog published today by Chief Economist Gita Gopinath and Director of the IMF’s Fiscal Affairs Department Vitor Gaspar.

TELEWORKING ISN’T WORKING FOR EVERYONE

While a focus on long-term recovery and resilience is important, we must deal with the here and now, too. The COVID-19 pandemic is devastating labor markets across the world. Tens of millions of workers lost their jobs, millions more out of the labor force altogether, and many occupations face an uncertain future. Social distancing measures threaten jobs requiring physical presence at the workplace or face-to-face interactions. Those unable to work remotely, unless deemed essential, face a significantly higher risk of reductions in hours or pay, temporary furloughs, or permanent layoffs.

What types of jobs and workers are most at risk? Not surprisingly, the costs have fallen most heavily on those who are least able to bear them: the poor and the young in the lowest-paid jobs. In a new paper, the IMF’s Mariya Brussevich, Era Dabla-Norris, and Salma Khalid investigate the feasibility to work from home in a large sample of advanced and emerging market economies. They estimate that nearly 100 million workers in 35 advanced and emerging countries (out of 189 IMF members) could be at high risk because they are unable to do their jobs remotely. This is equivalent to 15 percent of their workforce, on average. But there are important differences across countries and workers. Read the highlights of this research in a new blog.

Beyond the job losses, we’re seeing systemic fragility in several spheres that are fundamental to human well-being. Building off their recent article for F&D on the topic, we just published a new 24-min podcast with Ann Florini and Sunil Sharma, who say the 21st century is set to experience massive disruptions that could pose existential threats to society.

THE FUTURE OF ASIAN ECONOMIES

Building off a recent blog about what kinds of policies could help Asia recover from the crisis, Director of the Asia and Pacific Department Chang Yong Rhee discussed in great detail the prospects and policy challenges for Asian economies in a 60-minute webinar. In conversation with Director of the European Centre for International Political Economy Fredrik Erixon, Rhee discussed the economic effects of the pandemic, main risks to the outlook, and what economic policy actions countries should undertake to reduce long-term scars.

AFRICA’S RECOVERY, GROWTH AND TRANSFORMATION

In a new 60-minute webinar hosted by the African Center for Economic Transformation, African Department Director Abebe Aemro Selassie discussed policy actions for Africa’s economic rebound in the aftermath of the COVID-19 pandemic. Titled “Priorities for Africa’s Recovery, Growth, and Transformation,” Selassie and others including the former governor of the Bank of Tanzania focused on pressing questions that governments must answer in crafting policy responses that meet immediate needs without compromising long-term development goals. This discussion builds off of two recent blogs: the economic outlook for sub-Saharan Africa and opportunities for further digitalization of the region.

Looking for a quicker overview? Watch Selassie’s 20-minute interview with NTV on how best to shield African economies from COVID-19.

TACKLING COVID-19 AROUND THE WORLD: MYANMAR, PARAGUAY AND EGYPT

Although officially recorded cases of COVID-19 in Myanmar remain low, the social and economic effects could be significant given the externally-oriented economy, uneven social safety nets, and the fragile healthcare system. IMF emergency financing of $356.5 million, among other support, are alleviating the impact of COVID-19, while establishing the roots for more sustained and inclusive growth. Click here to view six charts that tell the story of Myanmar’s economy during the early months of the COVID-19 crisis.

In Paraguay, 20 people have died out of around 2,500 cases—in a population of 7 million. In neighboring Bolivia, nearly 1,600 have died out of 43,000 cases—in a population of 11.3 million. Paraguay’s containment measures were effective because the authorities acted swiftly and forcefully. The first COVID-19 case was known on March 7. By March 20, the country was in full lockdown, which lasted until May 3. The Ministry of Health used this time to ramp up testing and contact-tracing capabilities, allowing the country to begin a gradual reopening. The lockdown hit economic activity severely. Consumption and investment plummeted. Imports of capital goods in April were 60 percent lower than a year before. Tourism and trade have similarly dried up. Our current GDP forecast for 2020 is -5 percent, but the exact depth of the recession is hard to predict. Read more here.

Like other countries, Egypt’s economy is being impacted both via virus containment measures as well as through the sudden stop in tourism, fall in exports, drop in remittances, and lower revenue from the Suez Canal. The combination of these factors have put considerable pressure on the balance of payments. With the global economy in recession and domestic activity curtailed, growth is expected to significantly decline. Moreover, revenue is falling just as the government needs to urgently ramp up spending on health and social protection. How is the IMF supporting Egypt during the crisis, and what policies will Egypt pursue to ensure a sustainable recovery? Learn more here.

REINVENTING DEVELOPMENT ECONOMICS

As part of our ongoing series profiling leading economists and their game-changing work, F&D’s Andreas Adriano details the world of MIT economists Esther Duflo and Abhijit Banerjee, who recently won the Nobel Prize in Economics, along with Harvard economist Michael Kremer, for their breakthrough antipoverty work. “Their experimental research methods now entirely dominate development economics,” the Nobel Prize committee said. This has “transformed development economics” with its ability to provide “reliable answers about the best ways to fight global poverty.” Read the full 2500-word profile here or download the PDF.

IMF AND COVID-19

We just updated our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19, and we are regularly updating our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board.

To date, 72 countries will have been approved for emergency financing, totaling about US$25.3 billion. Looking for our latest Q&A about the IMF’s response to COVID-19? Click here. We are also continually producing a special series of notes—around 50 to date—by IMF experts to help members address the economic effects of COVID-19 on a range of topics including fiscal, legal, statistical, tax and more. The most recent additions include a focus on food markets during COVID-19, budgeting in crisis, and digital financial services and the pandemic

LOOKING AHEAD

On Monday we will be launching our Regional Economic Outlook Update for the Middle East and Central Asia—coupled with a live press conference. On Tuesday, Managing Director Georgieva will (virtually) host the 2020 Michel Camdessus Central Banking Lecture, which will be delivered by Thomas J. Jordan, Chairman of the Governing Board of the Swiss National Bank. The lecture will be followed by a one-on-one conversation. To be alerted of event details, click here and press send to join our new IMF events list.

Next week we will also feature new blogs about recovery and resilience in Europe and sustainable debt in developing countries, among new podcasts, interviews and webinars.

FINAL THOUGHT

Thank you again very much for your interest in the Weekend Read. We really appreciate your time. If you have any questions, comments or feedback of any kind, please do write me a note.

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