September 18, 2020/IMF
COVID-19 AND THE CLIMATE CRISIS IN EUROPE
“I tell everybody, if you don’t like the pandemic, you are not going to like climate crisis one iota,” said Managing Director Kristalina Georgieva at a recent event on pursuing a green economic recovery in Europe. “Today, my colleagues at the IMF have published two complementary studies titled EU Mitigation Policies and Sectoral Policies for Climate Change Mitigation in the EU. They recommend a package of policies that would help the EU achieve its climate goals and, with the right sequencing, help its economy recover from the current recession.”
MD Georgieva then outlined three concrete recommendations moving forward:
First, price carbon emissions right, following the “polluter pays” principle. Setting a clear gradually rising path for carbon prices and expanding the coverage to all emissions will create incentives for households and firms to steer consumption and new investment towards sustainable activities and green technologies.
Second, governments need to support green investments. And there are some that are particularly attractive because they’re also job rich investments. At a time when people worry about jobs in contact intensive sectors, we want to see more innovation in areas like under-developed renewables, in carbon capture and storage and so on.
Third, the EU must help support a “just transition” and protect groups that will be adversely affected by the move away from carbon-intensive industries. This support – including, retraining and job-search assistance for workers transfers for the most vulnerable households and access to finance to start business – helps different groups and the economy, and can bolster public support for climate action.
ACCELERATING ADAPTATION AND RESILIENCE IN AFRICA
“More than any other region, sub-Saharan Africa is vulnerable to the impact of climate change, which threatens lives and livelihoods and undermines economic growth, said MD Georgieva at the virtual launch of the Global Center on Adaptation Africa earlier this week. “After the current crisis, boosting resilience is an urgent priority so it’s vital we share the knowledge and best practice that can help accelerate climate adaptation.”
Hosted by the African Development Bank at its headquarters in the Ivorian capital Abidjan, GCA Africa will work with partners across the continent to scale and accelerate adaptation action that protects African communities from the impacts of climate change.
Watch the launch and discussion here, which also features Ban Ki-moon, Co-Chair of the Board of the Global Center on Adaptation and 8th Secretary-General of the United Nations, Dr. Akinwumi Adesina, President of the African Development Bank, Nana Akufo-Addo, President of Ghana and more.
Building on this theme, MD Georgieva and Director of the IMF’s African Department Abebe Aemro Selassie just penned a new blog focused on charting a path for a resilient recovery in Sub Saharan Africa.
“Achieving a resilient recovery in sub‑Saharan Africa, as elsewhere, will not be easy. For one, it will be expensive. Precisely estimating the costs is not easy given complementarities between investments in people, infrastructure, and policies. But it will certainly be in the hundreds of billions of dollars in the coming years,” they write.
Meanwhile, the COVID-19 crisis is taking a toll on the region’s already limited fiscal space. Even before the crisis, most countries’ public debts were increasing rapidly. This will require transformative reforms and support from the international community. Stepped up debt relief, financing, and capacity development will also be needed. The IMF is supporting the recovery in sub Saharan Africa through all of these channels, and we certainly will be doing more in the years ahead. Read the full blog here.
TRADE AS A TOOL OF RECOVERY
“As economies now look for paths to recovery from the COVID-19 crisis, new evidence reaffirms that policies for more open and trade-integrated economies could significantly benefit domestic competition and ultimately may help lower costs for consumers in emerging and developing economies,” write Jesus Gonzalez-Garcia and Yuanchen Yang in a new blog.
A recent working paper by Gonzalez-Garcia and Yang examines the effect of trade liberalization using a large firm-level data-set covering about 400,000 firms in 83 emerging and developing economies from 2000 to 2017. The study also focuses on 29 nations in sub-Saharan Africa where greater trade integration led to significantly lower markups. Markups show the ability of firms to charge consumers above their costs and are indicators of market power. The more the competition, the less the market power and the lower the markups. Read the full blog here.
MIGRANTS, REMITTANCES AND COVID-19
“Just as COVID-19 has disproportionately impacted some communities more than others, globally, the virus has had an oversized negative impact on migrant workers,” write Saad Noor Quayyum and Roland Kangni Kpodar in a new blog. “Perhaps surprisingly, despite the bleak experience for foreign overseas workers during the pandemic, the effect on remittances—the flow of money they send back home—has, in many cases, proven resilient. But that trend may yet be upended.”
The remittances sent back by migrants are a crucial source of external financing. In 57 countries, it exceeded 5 percent of GDP last year. The money went mostly to low-income households. Against the background of the current health crisis, the need for that income is acute.
Migrants, many of whom are undocumented, often face a heavier burden than a local worker once they lose their job. They often lack access to social safety nets or stimulus checks, which provide a cushion to their local counterparts. This is especially the case for the undocumented or those on temporary work visas. At the same time, many migrant workers have limited or no access to healthcare. Crowded living quarters, together with poor working conditions, put them at higher risk of contracting the virus. They may also live in fear of deportation as several countries have tightened immigration rules in the wake of the coronavirus outbreak.
Now more than ever, adequate and timely policy responses from both remittance-sending and remittance-receiving countries are critical to help migrant workers. Overseas workers often fill essential roles—in healthcare, agriculture, food production and processing—and often risk their lives to perform these jobs. So, what can be done?
For starters, host countries could ensure all migrants have access to health care, and basic goods and services. There have been some positive steps in this area: all migrants and asylum-seekers were temporarily granted citizenship rights in Portugal. Italy announced plans for temporary work permits for more than half a million undocumented migrants deemed essential for harvesting crops and caring for the elderly. The State of California has contributed $75 million to a $125 million fund to provide $500 to support each undocumented worker. Read the full blog here.
RACE IN ECONOMICS
“The recent widespread protests in the United States and across the world against police brutality and systemic racism have stirred our collective conscience. As staff working in a multilateral institution that represents 189 countries, we have a moral duty to speak out against racism and discrimination,” write Čihák, Mlachila and Sahay. “As economists, we also have a professional duty—we need to expose how discrimination harms people’s livelihoods and economies, and how freeing the world of bias would also help address many of our economic challenges, to the benefit of all. Yet, if we are to live up to these responsibilities, we have a long way to go.”
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“To help members cope with this once-in-a-century pandemic, IMF lending programs are adapting—through innovation and increased flexibility—as countries move from the initial containment phase, to stabilization, and eventually to recovery,” write Robert Gregory, Huidan Lin, and Martin Mühleisen in a new blog.
IMF-supported programs in the near term focus primarily on stabilizing the economy. This includes establishing spending priorities (for example on health and other social spending, as well as liquidity and income support to the most affected firms and households). Monetary policy should be as accommodative as possible while being mindful of inflation risks, and financial sector policy should seek to avoid a credit crunch while maintaining sound balance sheets.
However, conventional policies alone may not be enough. In some circumstances, additional measures may be considered. For instance, the flexibility built into the existing regulatory framework could be used to the fullest, and there may be further room for using unconventional monetary policies. However, some other measures—such as monetary budget financing—may risk undermining hard-won gains in policymaking and institution building, set damaging precedents, and would be hard to unwind. Read more here in our latest blog about IMF lending during the pandemic and beyond.
We also 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, 76 countries have been approved for emergency financing, totaling almost US$31 billion. Looking for our Q&A about the IMF’s response to COVID-19? Click here. We are also continually producing a special series of notes—more than 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.
Are you between the ages of 20 and 32, and are interested in becoming an IMF Youth Fellow during our upcoming Annual Meetings in October? We would like to hear from you! Learn more about the contest and apply here. This is a unique opportunity for young participants to join the IMF at the forefront of the response to the crisis. Participants will have a firsthand experience of our virtual Annual Meetings and be able to attend online training led by IMF experts and media professionals from the Financial Times, Politico and others.